Netflix, Inc. Is Becoming More Like iTunes

BitTorrent is losing ground to Netflix, Inc. (NASDAQ: NFLX  ) , according to Sandvine's latest survey comparing the largest consumers of downstream Internet traffic. The message? More users are turning to legal forms of streaming, and most of those seem to be turning to Netflix. Fool contributor Tim Beyers explains the implications in the following video.

Netflix has become for the movie and TV business what iTunes was for the music business years ago: a legitimate streaming outlet that's given users reason to cut back on BitTorrent, which can be used for distributing copyrighted material illegally.

Users have cut back on BitTorrent as a result. A November study from Sandvine found that traffic on the file-sharing system had declined some 20% during the prior six months. Ten years ago, BitTorrent accounted for 60% of Internet traffic.

Now, it's Netflix that's king of prime time. Sandvine's latest data shows the company accounting for 34% of "downstream" traffic such as video-on-demand, and 31% of all traffic, versus just 6% for BitTorrent, and 12% for YouTube.

How should investors react to this news? With a dose of humility, Tim says. Netflix has been leading the prime-time traffic wars for a while. Only a material jump in its share -- think 25% or more -- would impact the stock price at current levels.

Now it's your turn to weigh in. How often do you watch Netflix during peak Internet hours? Please watch the video to get the full story, and then leave a comment to let us know your take, including whether you would buy, sell, or short Netflix stock at current prices.

How you can cash in
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.


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

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 May 19, 2014, at 9:24 AM, thesmartestfool wrote:

    Yet another Motley Fool contributor who owns NFLX that is conflating SandVine data showing an increase in consumption with NFLX growth.

    Increased consumption is not useful when determining growth of a company that offers its members unlimited content for one price. Comparing it with itunes - which requires users to pay per song - is misleading.

    To readers understand the flaw in the overall argument, imagine itunes as a sushi restaurant that requires its customers to pay for each piece of sushi eaten. Then imagine netflix as an all you can eat sushi buffet that requires its customers to pay an entry fee for all you can eat.

    An increase in the amount of sushi being eaten at the all you can eat buffet is not a good way to determine whether the buffet is a good business. You need to look at the number of people walking in the door.

    Check out quantcast and type in "netflix.com" and look at the number of site visits. You'll notice a drop - meaning fewer people visiting. If fewer people are visiting but consumption is increasing, it probably means that the existing users are just watching more content.

  • Report this Comment On May 19, 2014, at 10:15 AM, pauldeba wrote:

    I an a Netflix Bear but disagree with "thesmartestfool". I think higher consumption equates to more viewers for one simple reason - Netflix subscribers ,I believe, tend to consumer more initially and then run out of interesting things to watch 6-9 months don't the line and then churn. churning was easier during the DVD by mail stage, in the streaming environment, you're able to justify a bit more inactivity as things are available right there. Eventually a big chunk of Netflix subscribers will churn away, much slower than 3 years ago, but eventually they will churn and growth will be negative unless Netflix ups content by some huge amount of interesting material at an equally huge cost.

    They are in a Catch-22, Users Churn at higher rates and over time or pay huge costs that are unsustainable to profits. It is so obvious to see. They make less now than in 2011, they will never make a lot of money, but will always b a decent and well managed company.

  • Report this Comment On May 19, 2014, at 1:27 PM, homscj wrote:

    netflix is for old movies, bittorrent is for newer movies!

  • Report this Comment On May 20, 2014, at 8:35 AM, AllyTheCat wrote:

    I don't watch anythnig over Netflix. I actually have a life.

Add your comment.

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: 2961398, ~/Articles/ArticleHandler.aspx, 10/21/2014 2:42:24 PM

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