NFLX Stock Will Survive the Time Warner Offensive
The inevitable fight to dethrone Netflix, Inc. (NASDAQ:NFLX) has begun. In an earnings call earlier this week, the CEO of Time Warner Inc. (NYSE:TWX) all but guaranteed a war with Netflix. Personally, I think Netflix will come out on top.
TV is in a golden age right now, and Netflix is soaking up the benefits. That doesn’t mean that everything on TV is great, but I can’t remember a time when there was a wider selection of quality shows. Netflix is definitely a contributor to that trend.
Think of hit programs like House of Cards, Narcos, and Orange is the New Black. The list of success stories is growing longer, pushing Netflix stock to greater heights. However, the company will face some turbulence soon.
As people begin to forgo cable subscriptions and migrate to online streaming, content providers like Time Warner are going to get aggressive with Netflix. It will become harder for Netflix to secure the rights to content when Time Warner becomes a direct competitor to them; right now, it’s just a supplier.
But now Time Warner and the other big studios are trying to break into online streaming. Having the internet as the sole source of television was considered ridiculous just a few years ago, but Netflix clearly changed all that.
Netflix Stock is Poised for Continued Growth
We’re already starting to see Netflix come under attack. While speaking to analysts on a conference call this past week, the CEO of Time Warner revealed a subtle shift in strategy that could pose a threat to NFLX stock.
“We are evaluating whether to retain our rights for a longer period of time and forego or delay certain content licensing,” he said. “This would effectively push the [subscription video] window for content on our networks to a multiyear period more consistent with traditional syndication.” (Source: “Time Warner Says It’s Ready to Start the Great Netflix Pullback,” Re/Code, November 4, 2015.)
I happen to be fluent in corporate speak, so let me translate that for you: “We’re going to save our content for streaming services we own, and hopefully we can crush Netflix in the process. They won’t get our content as easily anymore”.
That may seem like a devastating blow to the future of Netflix, but it’s not that bad. I’m bullish on Netflix stock because they knew this was coming, so they planned ahead. The entire line of Netflix original programming (House of Cards, Narcos, etc.) was meant to tie customers to the service over the long term.
NFLX Stock Will Outperform on Execution
Netflix is protected by high quality programming that is exclusive. Moreover, the success of the company is based on more than just the concept of online streaming; they actually designed a beautiful and functional platform.
In the few years that I’ve been a Netflix customer, I’ve seen the platform become slicker and the recommendations become much closer to what my interest actually are. Netflix stock is strong because the company’s algorithms are able to forecast user tastes with accuracy.
The focus on data analytics has given Netflix another safeguard against competition. “We are just a learning machine,” said Reed Hastings, CEO of Netflix. “Every time we put out a new show we are analyzing it, figuring out what worked and what didn’t so we get better next time.” (Source: “Netflix CEO: All TV will be Internet in 10-20 yrs,” CNBC, September 20, 2015.)
Competitors like Amazon.com, Inc. and Hulu LLC aren’t even close to hurting the dominance of Netflix. After all, just because Time Warner is successful at making movies, doesn’t mean they know how to compete for online streaming.
Taking down Netflix will be much tougher than anyone expects.