Investors and analysts have been concerned about rival streaming services on the horizon taking a bite out of Netflix's (NASDAQ:NFLX) growth. But in reality, the company competes with all forms of entertainment, not just other streaming services. As long as Netflix can provide a valuable experience to its members and remain a core staple among streaming consumers, it will be just fine.
In this segment from Industry Focus: Tech, host Dylan Lewis and Fool.com contributor Evan Niu discuss the streaming pioneer's changing competitive landscape.
A full transcript follows the video.
This video was recorded on Jan. 18, 2019.
Dylan Lewis: I think if you're looking out beyond the next quarter -- that's what we're talking about with the member stuff -- and start looking at what 2019 and 2020 look like for this company, they've benefited for a very long time by being one of the first and only streaming companies. A lot of the competition has started to catch up a little bit. I think some of that competition is really going to intensify as we get into late 2019 and start looking at 2020. We're going to see a lot of the Disney (NYSE:DIS) stuff roll off of their catalog, and we're going to start to see Disney+ come out and see what the appetite is there for consumers.
Evan Niu: Right. That's something they actually addressed directly in the shareholder letter. A lot of investors and analysts really focus on this competitive piece. As you mentioned, Disney+ is a big one. Disney has a huge content library, and they're pulling all of it off of Netflix. But Netflix's point was, first of all, they estimate that at this point, they're about 10% of all TV screen time in the U.S., which is a mind-boggling figure, that one service grabs that much attention from all of us collectively. They also note that they compete with all forms of entertainment. It's not just streaming. They also compete with video games and all sorts of other stuff. They even said they're losing out to Fortnite, because Fortnite's been so popular lately. I think their point is, people are focusing too much on other streaming services as competition when entertainment is really fragmented. What they're focusing on is delivering a valuable experience to members that can justify what those members pay each month and potentially price increases going forward.
Lewis: Yeah. I actually talked about this on a show that'll be going up Tuesday with Dan Kline. We were doing a look at what to expect from Disney in 2019 and 2020. We talked a lot about Disney+. If you're looking at services that have a monthly cost of $12, $10, Disney said they're going to be pricing below Netflix because of the content library differences, it's pretty easy for consumers to have several of them and look at, "OK, I'm willing to have HBO, Netflix, and Disney+. I'm going to cut my cable and just pay for internet." I don't know that any of these services are mutually exclusive, but we haven't gotten to the point where a lot of consumers have these different packages from all these different providers. I think in the next year or two, we'll start to see, how many are people willing to navigate between and pay for all at the same time?
Niu: I think that's going to be interesting, too. There are a ton of services coming out. The appeal of cord-cutting has always been, you get rid of this $50-$70 cable bill, then you pay $10 a month for Netflix or whatever it is. But when you start adding three, four, five streaming services between HBO Now, Hulu, Netflix, Disney+, whatever Apple does this year, [laughs] you basically get right back up to that $50-$70 a month, which offsets what you were hoping to save by cutting the cord to begin with.
Lewis: Yeah. I think that the future of streaming and what consumption looks like is just cable in disguise. It's cable in the sense that you have various packages that you're looking for, and instead of them being channel packages, they're the service packages. It's you deciding whether you want Netflix and Disney+ or just Netflix because of the content that's on there.
Niu: I think the key is going to be, they're not exactly mutually exclusive, but there's certainly a limit. People aren't going to sign up for 10 different services. I think the key for Netflix is, as long as they can always be a constant in that mix, that people will always prioritize, "OK, Netflix is a given. We want that." And then they go off and choose between the other ones, mix and match which services appeal to them the most. As long as Netflix is a core staple that everyone subscribes to, that's going to be the key as competition heats up.
Lewis: Yeah, they benefit from the brand name. I think they benefit from being the first mover. It's so closely tied to the streaming phenomenon in general, the idea that Netflix is the default. That helps them out so much.
Dylan Lewis owns shares of AAPL and Walt Disney. Evan Niu, CFA owns shares of AAPL, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends AAPL, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.