Netflix Entering Content Distribution

Many people know Netflix (Nasdaq: NFLX  ) as the company that put Blockbuster out of business, and the company that delivers DVDs to your home, and even more recently as the content streamer of choice. Most people nowadays stream Netflix on nearly every single electronic device they have. For example, all new TVs feature Netflix streaming, as do DVD players, media players, computers, tablets, and smartphones. The only things left that don't stream Netflix yet are your coffee machine or toaster. Of course, unless you own one of these.

As it stands, Netflix has more than a lion's share of the content streaming, at around 60% market share. When you consider how many Internet-connected media devices are already capable of running Netflix, you begin to realize the overall power that Netflix has yet to tap into. With its market penetration, it has the potential to compete with existing distribution models to deliver original content.

Currently, Netflix serves as a secondary content distributor, meaning that it's delivering content that has technically already been delivered in the past by some other distribution company. This is what Netflix is attempting to change with House of Cards. In 2012, Netflix will have exclusive rights to distribute the series, starring Kevin Spacey, and will make 26 episodes available to Netflix subscribers.

Netflix not only can directly make money from this series, but it can repeat the same thing again and again if the initial pilot works out. If the content is good enough, Netflix will inevitably gain subscribers. They can repeat the same shift that premium channels, such as HBO, have successfully achieved when they started drawing viewers away from the main networks.

The more subscribers Netflix has, the better its economies of scale and the more money it can make. Ultimately, Netflix has a the right idea and knows that physical media is already on its way out. It's only a matter of time until all content delivery is digital anyway. Netflix is simply trying to prepare for that day by becoming an original content deliverer now.

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Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On March 20, 2011, at 12:29 PM, nflx2bbi wrote:

    Being a Fool, I am wondering how will Netflix pay for it? Will $8 monthly fee only a history for 2011? What will be the valuation if they become a HBO+?

  • Report this Comment On March 20, 2011, at 2:10 PM, motleylorenzo wrote:

    "Netflix not only can directly make money from this series, but it can repeat the same thing again and again if the initial pilot works out. If the content is good enough, Netflix will inevitably gain subscribers."

    Your thesis is totally flawed. How can the Fool publish an article when the thesis is this flawed?

    The cost of these episodes will run over $125 million. There is no way, given Netflix's churn, that the company will bring the number of subscriber's necessary to make it worthwhile on a cash basis. Say you get $10 a month for subscribers. Each subscriber stays a year. That's $120 per year. No way do 1 million new subscribers come simply because of this programming. DIRECTV has not generated even 10,000 new subscribers from airing DAMAGES exclusively, and that's with an established audience.

    No, the play here is to be able to offer the content after the exclusive window to some other studio, in exchange for more favorable access and pricing to prime content that THEY produce, such as Warner Bros. and the next Batman film.

  • Report this Comment On March 21, 2011, at 11:12 AM, MarketObserver1 wrote:

    You can see all TV shows and Movies for $7.99.Month on www.lulu.com. If Blockbuster went out of business. I don't see why not NFLX.

    It's just rediculus the stock price is $214. I see a huge downside on the way.

  • Report this Comment On March 21, 2011, at 11:14 AM, MarketObserver1 wrote:

    sorry.. the link is www.hulu.com

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