It was a rough start to the month for Netflix Inc. (NFLX -2.52%). Shares got rocked repeatedly as news from rivals including Hulu, Amazon.com (AMZN -1.35%), and Apple (AAPL -2.19%) appeared to undermine the leading video streamer. Its stock fell nearly 20% to open the month and have recovered only slightly, still sitting well below where it closed out August. With shares now at a potentially enticing entry price, let's look at each one of these individually and assess how much they threaten Netflix.
Hulu goes ad-free
Hulu, the joint venture of ABC, Fox, and NBC known for streaming episodes of current TV shows, announced at the beginning of the month that it will offer an ad-free option to subscribers for $11.99 a month, in contrast to its regular subscription with ads for $7.99 a month. Netflix, by contrast, only offers programming without ads, charging new subscribers $9 a month and older ones $8 a month.
Hulu's management also said it expects a "solid majority" of its customers to stick with the ad-based offer, and the company seems to have made the price increase a significant one, at 50%, because it prefers to sell ads. The three major networks backing Hulu make their money selling ads and would like to maintain their relationships with advertisers who are nervous about the threat of streaming.
Considering Hulu's ad-free platform is still more expensive than Netflix, and Hulu is reluctant to damage its relationship with advertisers, this threat seems insignificant. Advantage: Netflix.
Amazon gives the people downloadability
Amazon may be the most surprising entrant in the streaming arms race and has become perhaps Netflix's most stubborn rival, adding its own raft of original programming and partnering with HBO for its catalog of retired hit shows like The Sopranos and The Wire. Now, Amazon's Prime Instant Video seems to have carried out another coup by offering the ability to download movies and shows rather than just stream them.
Amazon had previously allowed Prime subscribers to download movies to Kindle Fire devices, but it's now expanding the program to include Android and iOS mobile devices. Downloading won't work for everything in Amazon's library, as it will need permission from the content's owners, but the addition should prove especially useful for travelers who are looking for entertainment before boarding a plane or expecting to be somewhere else without Wi-Fi.
Netflix responded by reaffirming that it has no plans to make downloading an option for its subscribers, calling it a backward-looking technology and saying that increased Internet availability will eventually solve the problem.
The streamer's chief product officer even said: "I feel like what consumers want is not the download model. What they want is the ability to consume anywhere they happen to be. And that might be on a plane, on a train, in a car or outside." That seems like a surprising statement considering that streaming does not always work in those places and consumers almost always want more choices, not fewer. Advantage: Amazon.
Apple flirts with original programming
Of all the news items to rattle Netflix stock over the last few weeks none was bigger than the report in Variety that Apple is considering producing its own original content. Such a development would pair with Apple's aspirations to launch its own pay-TV service, which appears to be going slower than expected. According to Variety, Apple has been having preliminary conversations with Hollywood executives about producing original content for the iPhone maker.
Investors sent Netflix shares down nearly 10% on the news, but the threat is exaggerated. The market seems to be assuming that Apple, with its giant cash pile and huge brand name, can dominate any industry it chooses, but that's not the case. While the tech giant's devices are hugely popular and highly profitable, its forays into services such as Apple Pay and iTunes Radio have been less successful. When it comes to creating original content, Apple has no inherent advantage. Netflix, meanwhile has been at the originals game for a few years now and has been studying the tastes of its subscriber base of now more than 65 million for over a decade. Advantage: Netflix.
One thing to remember
When asked about the threat of other streaming providers, Netflix CEO Reed Hastings has said time and again that the growth of the streaming industry is actually a net positive for the company, as it only strengthens the assault on the pay-TV industrial complex, where the real money in video entertainment lies. Hastings has also noted that consumers have been happy to pay for more than one streaming service and are only more likely to do so if the content improves.
The Netflix founder has proved himself prescient more than a few times about industry developments, and his company is a nimble competitor, having transitioned from a DVD-by-mail service to a video streamer to now increasingly an original programmer. Whatever moves its rivals make, this remains a huge market with plenty of room for several successful parties. Netflix controls its own destiny above all else. If the company can keep cranking out and delivering enjoyable content and improving its accessibility, subscribers should continue to grow and its brand will only become stronger.
