Is Netflix the Next Facebook -- in a Good Way?

Netflix (Nasdaq: NFLX  ) hit the PR circuit over the weekend to trumpet its success in the British Isles.

Seven months after launching streaming video services in the U.K. And Ireland, Netflix landed its millionth subscriber there. The company pointed out that this is much faster than the stunning growth that Twitter and Facebook (Nasdaq: FB  ) recorded in their early days.

The marketing message is clear: "We're growing faster than Facebook ever did, so there's nothing to stop us from hitting nearly a billion users across the planet, just like Facebook. Right?"

Unfortunately, Netflix is comparing backyard apples and organically grown kumquats here. Facebook and Twitter are 100% free services whose target markets are limited only by political restrictions and the quality of their services. In fact, Facebook's astronomical subscriber counts are inflated by about 10%, as many accounts turn out to be duplicates or fakes.

By contrast, Netflix charges real money for its services. Some people really can't afford even the measly $8 a month it takes to enjoy the service. You certainly won't see anyone setting up fake Netflix accounts, or separate logins for business and personal use. So even if the Facebook comparison might play well in marketing terms, it's not really a valid connection. Netflix will always be smaller than Facebook -- but it also collects much more money per subscriber than ad-supported services like Facebook and Twitter ever will.

That being said, Netflix certainly is off to a fast start in Cornwall and Cork. By comparison, it took 10 months to hit the 1 million milestone in Latin America and the Caribbean, and 10 months again in Canada. The pan-American growth is low-hanging fruit, but Amazon.com (Nasdaq: AMZN  ) and others have already established serious competition in Britain. Success in the face of existing movies services validates the idea that the digital movie market is big enough for several strong players.

The U.K. and Ireland add up to 67 million consumers with good access to high-speed Internet services. Canada is smaller at 34 million; Latin America and the Caribbean tally up at 98 million -- but with a less advanced online ecosystem. You could argue that the real Latin American target market is smaller than Canada.

Taking the population and access variables into account, Netflix appears to have a steady growth formula on its hands. The next international market in Scandinavia should hit 1 million users about a year into that launch, all else being equal.

Netflix is a central player in the global war between new-age entertainment services. So is now the time to jump in? To get you up to speed on this important stock, we've created a brand-new premium report on Netflix. Grab your copy right now to enjoy a full year of free updates.

Fool contributor Anders Bylund owns shares in Netflix and has created a bull call spread on the stock, but he holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Amazon.com, Facebook, and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, and Facebook. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 21, 2012, at 5:47 AM, WhereisDagny wrote:

    This article is oozing with biases.

  • Report this Comment On August 21, 2012, at 1:31 PM, poach wrote:

    Biases or not - the subscriber numbers won't be fake. How that helps Netflix's bottom line has not been addressed.

    I think that Netflix should really look into India and China for growth European markets may be and easy reach but the real growth is going to come from these two places.

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