Netflix's (NASDAQ:NFLX) competition is intensifying.
The streaming giant still leads the market that it helped pioneer, but those looking for Internet video have an increasing array of options. Services from both new and traditional players, as well as more competent rivals, could put pressure on Netflix's business in the months and years ahead.
Premium cable could prove the most threatening
Netflix's management has been explicit about its desire to imitate HBO's business model -- now HBO is finally imitating Netflix.
Debuting next month, HBO Now will offer access to all of HBO's content over the Internet -- no expensive cable package required. With hit shows like Game of Thrones and True Detective, HBO doesn't have as much content as Netflix, but what it does have is arguably much higher quality. The launch of HBO Now appears to be a reaction to Netflix's impressive growth -- HBO's parent company, Time Warner (NYSE:TWX.DL), once dismissed Netflix as "the Albanian Army."
Other premium networks are likely to follow. CBS has said it will unveil a digital version of its premium network, Showtime, later this year. Starz is likely to offer a product as well. With so many quality shows and Hollywood films, these premium networks are likely to be Netflix's biggest competitors as they finally begin to adapt. Better late than never.
Amazon is finally rolling out some quality programming
Amazon (NASDAQ:AMZN) Prime has been a thorn in Netflix's side for years -- it began locking up exclusive rights to various shows in 2013, stealing some deals from Netflix in the process. But Amazon was slow to produce its own original content, and what it did make, was relatively lackluster.
That changed last year. Its original series, Transparent, won a Golden Globe, and some of its pilots, including The Man in the High Castle, have generated a great deal of attention. Amazon's management has remained steadfast in its commitment to original programming, dedicating hundreds of millions of dollars to the endeavor.
Prime requires an upfront commitment, but is cheaper than Netflix on a monthly basis, and could benefit from Amazon's foray into hardware. Its Fire TV Stick has been one of the best-selling electronics on Amazon's website since it debuted. It offers access to Netflix, but its interface prioritizes Amazon's own content.
New ways to view old TV
Netflix also faces competition from the traditional cable channel complex. Cheaper, better versions of the classic cable bundle are coming, and they could cost Netflix some of its subscribers.
Dish Network's new service, SlingTV, delivers a bundle of some 15 channels over the Internet for a low price: $20 per month. Sony's alternative, PlayStation Vue, is likely to be considerably more expensive, but will take it a step further, with a cloud-based DVR and high-tech interface. Apple is said to have something similar in the works: according to The Wall Street Journal, Apple's Internet-based cable alternative will launch this fall.
Many households have Netflix in addition to a cable subscription, but plenty don't. Cord-cutters who ditched cable in favor of Netflix may have done so due to its superior interface or better customer service -- these Internet-based cable alternatives could bridge the gap.
Netflix still has several advantages
Of course, Netflix's management predicted that it would face increasing competition -- and has prepared for this day by investing in a variety of original programming. While many of the TV shows and films it offers are available elsewhere, Netflix has a large, and growing catalogue of exclusive content.
House of Cards and Orange is the New Black have attracted a great deal of critical and popular attention. Other shows (Marco Polo) have been a disappointment, but many more are on the horizon. Next month, Netflix will release the first season of Marvel's Daredevil, and in June, it will debut Sense8. Netflix's exclusive rights to these shows ensure that subscribers who find them captivating don't defect for rival services.
Netflix also has advantages in terms of pricing and distribution. Showtime and other premium networks haven't announced their pricing plans, but HBO Now -- at $14.99 -- is almost twice as expensive as Netflix's base package. For the first three months, HBO Now will be exclusive to Apple's digital platforms -- keeping it from consumers who prefer products from rival manufacturers. Other services face similar issues -- PlayStation Vue is exclusive to Sony's video game consoles; Amazon Prime is absent from the Apple TV. Netflix is unique in that it is easily accessible from almost any Internet-connected device, and its independence should ensure that this remains the case.
Still, increasing competition shouldn't be overlooked by shareholders. If these services catch on, a dip in Netflix's subscriber growth wouldn't be surprising.