What happened
By now you've heard the news: Netflix (NFLX -0.63%) reported a huge miss in its subscriber numbers last night, and Netflix stock is in free fall this morning -- down nearly 38% as of 10:30 a.m. ET.
That makes sense, of course. Bad news for Netflix, bad news for Netflix's stock price. But why is Roku (ROKU -10.29%) stock falling an unlucky 7.77% this morning on Netflix's bad news?
Image source: Getty Images.
So what
In a brief note on Netflix's collapse this morning, CNBC observed that other streaming services -- not just Roku but Walt Disney and Warner Brothers Discovery as well -- were falling "in sympathy" with Netflix. Investors have extrapolated from Netflix's decline that consumers are fed up with streaming services in general.
Except...that doesn't actually make sense at all.
Now what
Consider: One of the biggest takeaways from Netflix's earnings announcement last night, and the analyst conference call that followed it, is that Netflix co-CEO Reed Hastings is now floating the idea of creating a low-cost tier of Netflix service that would subsidize its low rates by showing advertising.
In other words, Netflix wants people to pay (a bit less) to watch commercials.
But do you know who else shows stream-watchers commercials, and has done so from the get-go? That's right: Roku! And Roku doesn't charge a subscription fee to watch its commercial-supported shows via Roku devices.
Seems to me that what's really happening here is that Netflix is moving to duplicate Roku's business model and planning to do a worse job of it by both showing commercials and making viewers pay for the privilege of watching those commercials. And if that's the way this contest is shaping up, my money's on Roku to beat Netflix going forward.
