Last week, I called digital media expert Dan Rayburn out for missing the boat on how Netflix
Dan still doesn't think I make sense, taking the time to respond in person right here on The Fool:
The bottom line is that the consumption of digital media is growing, it's affecting multiple media industries, and it's very exciting. But one service is not replacing another anytime soon. Even with the positive balance sheets that Apple, Akamai, and Netflix have, one can't let the excitement around streaming movies and TV shows be the major catalyst for valuing them more highly.
In Dan's view, Netflix has proven that it can't replace cable by offering a streaming video model for three years without killing anybody. "75% of all U.S. consumers did not stream or download any multimedia content of any kind," he points out. Moreover, comparing streaming versus DVD to the DVD-versus-VHS battle is unfair because this time, we're asking consumers to shift between two fundamentally different delivery models while the last format war was fought over rival physical media.
You don't bet against a winning horse
OK. Netflix itself provides some key evidence of the rapid changes that are going on. As its customers either sign up just for the streaming services, or else shift down to a cheaper delivery plan that still gives them full streaming privileges, the average monthly revenue per customer slipped from $13.29 to $12.29 over the past four quarters. Moreover, you might think that lower average plan prices would hurt Netflix, but its customers are also requesting fewer mailed DVDs and thus widening the company's profit margins. I'd be worried if video streams didn't play a part in this movement, but I don't see how that can be the case.
In short, Netflix is not just a frontrunner in the digital entertainment race – it is the horse to beat. Apple
And Akamai Technologies
Anecdotal evidence and hard numbers
I'm in the process of dumping my expensive full-featured cable package for a bare-bones alternative and supplement it with the one-disk Netflix plan myself. That setup will cover more than 90% of my family's media needs in a very affordable one-two punch, and I know I'm not the only one to consider a move like this. It may take many years to kill Comcast
But the Time Warner family will surely feel the burn when Netflix streams start cutting into the conglomerate's crucial HBO division's sales and subscriber counts. An independent study by Credit Suisse indicates that as many as one-third of Netflix subscribers in the prized demographic between 25 and 34 are already turning to Netflix rather than pay TV channels like HBO or Cinemax.
The growth is there, the shifting customer loyalties are there, and we're only three years into this seismic shift. You might be able to convince me that Amazon.com
Google is a Motley Fool Inside Value choice. Akamai Technologies and Google are Motley Fool Rule Breakers recommendations. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.