In the many debates over Netflix (NFLX 1.15%) stock, a variety of qualities are listed as the advantages for the company. Those include the following:
- It has more subscribers than any other competing video streaming service.
- It has a strong brand name and pipeline of original content.
- It has the biggest library of any similar Internet TV provider, and the relationships with content providers that come with it.
- Its membership is growing fast, and it's expanding around the world.
What is often forgotten among Netflix's many assets is its leadership. After all, this is a company that has successfully disrupted the greater video entertainment industry twice, if not three times.
First, it dismantled the video rental industry with its DVD-by-mail service, forcing Blockbuster into eventual bankruptcy. Then, it disrupted that business with subscription-based video streaming as technology enabled it, a model that is quickly becoming mainstream as providers like HBO and Amazon have offered competing packages. Finally, the company has also challenged the content creation model by now producing its own shows and movies, and betting on originals increasingly in the future.
Netflix's CEO and co-founder Reed Hastings deserves much of the credit for the company's successful risk-taking and disruption, having guided the entertainment provider through each of these reinventions.
In a recent speech at the Re:publica media conference in Berlin, Hastings made several bold predictions about the TV and video industry -- and Netflix's role in it -- that deserve investors' attention. Here are few tasty nuggets from the presentation.
1. The fall of linear TV is inevitable
Hastings predicted that linear TV, meaning TV that's consumed at a set time on a television, the way it has been for decades, will decline each year for the next 20 years, while Internet TV will rise for the next 20 years.
The Netflix head went on to compare linear TV to the horse or the fax machine, innovations that ruled transportation and communication for a period of time, but were ultimately replaced by the automobile and the Internet, respectively. Similarly, linear TV is being replaced by Internet TV, which offers a better experience by providing customizable content at the time and place of the user's choosing.
2. Sports will eventually make the migration, too
Sports have often been held up as the crucial component keeping cable and linear TV standing, as sports fans want to watch games as they happen. Though Netflix has no plans to enter the sports entertainment market, choosing instead to stick with its strengths in TV shows and movies, Hastings foresees sports migrating to Internet TV also, venturing that it may take place one league at a time.
For instance, the NFL will make its content available through a streaming subscription rather than television channels. A transition like that could also disrupt the dominance of networks like ESPN.
3. Netflix will grow alongside Internet TV
Netflix has taken serious steps to consolidate its dominance of Internet TV abroad the way it has in the U.S. The video streamer is working on original programming in foreign languages, including Spanish-language "Club de Cuervos" about a Mexican soccer team, and "Marseille," a French-language series about corruption in the mayor's office of that city. Both are set to premier this year.
The customizability of Internet TV is also a huge advantage for Netflix. Just as viewers aren't confined to one show at a time, neither are streamers, meaning Netflix has the flexibility to be all things to all customers, which is a major reason it's original programming is so diverse. As Internet TV grows, Netflix has the capability to be bigger than any TV network before it because of this ability for programming and timing to be customized.
It's clear that Internet TV will eventually replace linear TV. As Netflix argues in its "Long Term View" statement, Internet TV offers a better experience than linear TV, and traditional linear TV companies are moving to Internet TV. Internet connections are getting faster and more widely available, and smart TVs are proliferating. Innovation and improvements in enabling technology are happening all the time.
If you accept that premise, then the only question about Netflix's future is whether it will be able to maintain its dominance over this burgeoning industry.
No other company is focused on this transition like Netflix, and Hastings has demonstrated his ability to lead the company into unchartered territory. Netflix's continued leadership of this industry isn't guaranteed, but with Hasting's guidance and Netflix's built-in advantages, it's worth betting that the company will reach its global ambitions.
