The Fight for Video on Demand

Variety is reporting that online DVD rental upstart Netflix (Nasdaq: NFLX  ) will be visiting our email boxes next year. With video on demand (VOD) posing a grave and gathering danger to his company, Netflix CEO Reed Hastings is going on the offensive.

Alyce Lomax reported recently that Netflix enjoyed an 84% increase in subscribers for its video-by-mail business last year. With 30% of that occurring last quarter, it's clear that, even as Wal-Mart (NYSE: WMT  ) and Viacom's (NYSE: VIA  ) Blockbuster (NYSE: BBI  ) muscle in, Netflix's growth is accelerating.

Alyce also did an excellent job of establishing that VOD and other alternative media like Motley Fool Stock Advisor recommendation TiVo (Nasdaq: TIVO  ) could threaten the booming business at Netflix. To that end, it is encouraging that Hastings is focused on the long term, looking to lead in delivering video -- not just to control the snail-mail market.

This won't come easily. Studio giants like Sony (NYSE: SNE  ) and Time Warner (NYSE: TWX  ) have already established Movielink to download movies to a home computer. But with Movielink charging $2.99 to $4.99 per rental, anyone watching more than one movie a week will likely stay with Netflix. And Movielink has yet to come close when it comes to selection.

Other competition includes Disney's (NYSE: DIS  ) MovieBeam, which provides 100 new video releases and high-demand movies for a monthly fee of $6.99 to $8.99 (depending on the market), plus $1.99 to $3.99 for a 24-hour rental. Although the offering suffers from the same pricing and availability weaknesses as Movielink, it illustrates the competition on the horizon.

Indeed, when it comes to VOD, Netflix's main weakness may be the extent to which the movie studios seem interested in dominating the digital transmission of movies. Then again, the movie studios failed to dominate the theater business, so why cede the VOD market?

Netflix is free cash flow positive and sits on $135 million cash and a high-priced stock. It could certainly turn to acquisitions to enhance its VOD opportunity. Meanwhile, as it looks for ways to exploit new technologies, the company continues to grow its traditional market (including internationally). This one could have a happy ending.

Interested in sharing your dumbest investment (or hold) with other investors? Try The Motley Fool'sMy Dumbest Investment discussion board. Or, discuss the merits of Netflix or TiVo.

Fool contributorW.D. Crottyowns stock in Disney and is a Netflix customer. Was it not dumb that W.D. didn't buy Netflix or TiVo -- especially after writing about Netflix again and again and being aMotley Fool Stock Advisor subscriber?


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 506769, ~/Articles/ArticleHandler.aspx, 10/31/2014 12:02:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement