Netflix Has a Million-Dollar Advantage

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

So you think Netflix (Nasdaq: NFLX  ) will become irrelevant in the all-digital movie watching era? Think again.

I am supremely confident that Netflix holds unique advantages over the competition that will keep the company at the forefront of any new movie rental market. When the DVD joins 8-track players and 5.25-inch floppy drives on the scrap heap of storage format history, Netflix will still be a digital movie leader.

So why do I believe in Netflix even as major rivals like Blockbuster (NYSE: BBI  ) and (Nasdaq: AMZN  ) are scaling up their own solutions for streaming or downloading digital feature-length movies? It's because the media giants of the future will be the ones that know how to guide me to the content I want to see. And Netflix knows more about entertainment tastes than anybody else.

The Netflix Prize competition is evidence of that fact, and also shows how seriously Netflix takes the whole movie recommendation issue. The competition kicked off nearly three years ago, dangling a $1 million prize in front of software developers and data-mining experts the world over. All you had to do to get that fat cash was to outdo the company's own recommendation system by a measly 10%.

Over 41,600 attempts later from 4,670 different teams in 184 countries, the prize may have been claimed. Once Netflix verifies the efficacy of the submission from team BellKor's Pragmatic Chaos and gives everyone else 30 days to beat their 10.05% improvement over the Netflix Cinematch system baseline, it's all over but the crying. The team includes senior research engineers from AT&T (NYSE: T  ) and Yahoo! (NYSE: YHOO  ) .

Think about that for a moment. The winning team is actually an amalgamation of several of the challenge's previous leaders. There was a serious monetary carrot leading them on. And it still took three years to better the company's own system up by a modest 10%.

It will take a lot more than $1 million of in-house research for Blockbuster and company to become a more valuable movie-finding resource for curious consumers. TiVo (Nasdaq: TIVO  ) might have a shot at it after collecting thumbs-up ratings worldwide for a solid decade. Amazon does have a five-star ratings system, but I don't see the massive volume of inputs you get at Netflix and TiVo.

A new entertainment age is dawning. But Netflix will lead the new pack, too.

Further Foolishness: and Netflix are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (4) | Recommend This Article (14)

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.

  • Report this Comment On June 29, 2009, at 3:24 PM, jkellynewyork wrote:

    I dont think people need netflix to tell them what they should watch. Critic opinions, user ratings on Yahoo and amazon, rotten tomato and the like, and word of mouth do just fine.

  • Report this Comment On June 29, 2009, at 5:41 PM, zenmasterV wrote:

    I agree netflix is ahead of the game, but primarily because they are already the leading place people go to get movies. They also already provide a limited library of movies for streaming, and are compatible with many people's set top boxes. They could still lose the war, if netfilx doesn't get serious and begin offering all new releases for viewing via streaming, and a competitor does this, they lose all their advantages. Who cares if they can make a recommendation... can I watch a new movie on my TV without waiting for a disk or going to the store? Thats the question to answer.

  • Report this Comment On July 01, 2009, at 1:41 PM, Saintramus wrote:

    Hey, I'm a NFLX fan and use their service, but...

    I rated a 'bunch' of movies, I went to their website and found a recommendation waiting for me, presumably based on everything I'd rated before and the movie I had just watched and rated the night before, and this movie was so bad, disgusting and a piece of sheiss, that I don't think I made it through a minute and a half of it. I've basically almost quit rating anything, in part because there aren't enough breakdowns in the rating system; I usually feel I'm inbetween liked it and either liked it a lot or didn't like it.

  • Report this Comment On July 23, 2009, at 3:58 PM, raider1234 wrote:

    Netflix will end up lagging once their middle aged demos start to retire and their base begins to peak off. Netflix will end up going the way of aol/blockbuster.

    The real leaders will end up being the file sharers whose original goal was to have free online content, the studios will eventually create such free streaming content to just keep up.

    Don't ignore the potential power of the international market and younger users.

Add your comment.

Compare Brokers

Fool Disclosure

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: 930852, ~/Articles/ArticleHandler.aspx, 10/26/2016 6:01:46 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...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
NFLX $126.51 Down -0.82 -0.64%
Netflix CAPS Rating: ***
AMZN $835.18 Down -2.91 -0.35% CAPS Rating: ****
BLOKA.DL $0.19 Up +0.01 +0.00%
Blockbuster, Inc. CAPS Rating: *
T $36.70 Down -0.16 -0.43%
AT and T CAPS Rating: ****
TIVO $20.10 Down -0.10 -0.50%
TiVo CAPS Rating: **