The competition to serve Netflix's
Level 3 Communications
Over the next two months, Level 3 will begin stocking its servers with Netflix's digital catalog, which has grown to 20,000 titles. Level 3's streaming to Netflix subscribers will kick in come January.
Shares of Level 3 traded as much as 17% higher on the news. Rivals Akamai
It's important to point out that Level 3 will be a primary network and not the primary network. Akamai and Limelight will continue to be Netflix partners, making the real winner here -- quite frankly -- Netflix itself.
It was back in March when it was announced that Akamai would be the primary content delivery network. However, StreamingMedia.com's Dan Rayburn also reported -- before the deal was even made public -- that Akamai was receiving preferred status because it would be offering ridiculously low prices through at least the first few months of the deal.
So here we are, several months later, and folks are surprised that Netflix has moved on to the next CDN that's likely coming in with loss-leader pricing to nab a sizable chunk of the Netflix account?
I should also point out that it was Rayburn who correctly reported earlier this week that Akamai was about to lose its status as the only primary provider for Netflix. In short, the guy knows his stuff.
In the end, I can't be the only one concerned about the cutthroat nature of the CDN industry. Akamai's stock has roughly doubled over the past year as the undisputed leader of this growing niche, but margins will continue to be pressured as long as there's always a hungry upstart out there with a server farm and the ability to withstand ridiculously low bandwidth rates.
I realize the market's quick to tap Level 3 as a winner today -- and Akamai and Limelight as losers -- but the only real winners here are Netflix and its subscribers.
What do you think of Netflix's streaming service? Share your thoughts in the comment box below.
Akamai Technologies is a Motley Fool Rule Breakers pick. Netflix is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
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