But more troubling for Netflix may be the company's long-term strategic position. Netflix is really nothing more than a content-delivery company -- the next-generation cable company if you will. But as Netflix transitions away from DVDs to streaming, its competitive advantage disintegrates as well. DVD delivery requires infrastructure that content providers have no interest in owning, just like cable companies, and the model was beneficial for customers and suppliers.
But the streaming business is completely different. There is little differentiation between what Netflix does and what content providers could do.
Most content providers already stream content on their own websites, and the software to expand that isn't rocket science. Disney
The only real advantage Netflix has right now is that it's already integrated into a plethora of electronic devices. But with Apple's
How quickly fortunes can change
So why do we need Netflix? As much as I may dislike paying my cable bill each month, there's a reason I do it. Cable is the only way to get the content I desire. Netflix doesn't hold the same kind of strong position in our everyday lives. If the cable cord is made obsolete, is there a reason Netflix will be needed in the future instead of just going straight to the source?
Netflix's financial results may tell the whole story. Despite strong subscriber growth in the past, gross margins have been falling, domestic churn is increasing, and the company is expecting to lose subscribers in the third quarter. Net exactly the direction a company should be headed.
To buy or not to buy?
Netflix has been a favorite of our Motley Fool Stock Advisor newsletter team for year, with smashing success. But I have to disagree with their premise that the company will play a central role in our media-content future. Netflix doesn't do anything that content providers could do if they choose to, and with most media contained in a handful of companies, I see consumers going straight to them in the future.
Agree or disagree? Let me know in our comments section below.
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