As if Netflix, Inc. (NFLX) didn’t have enough to worry about, this weekend the Wall Street Journal reported that Hulu — arguably Netflix’s most direct competition — was developing a service that would stream network television broadcasts, delivering live content (or close to it anyway) that Netflix still contends it has no plans or desire to deliver.
The company’s confidence is admirable. Netflix aims to do one thing and only one thing very well. That is, acquire or make high-quality video content that remains relevant regardless of the passage of time, and deliver it to consumers in the most cost-effective way possible.
Nevertheless, owners of NFLX stock may want to open their mind to the distinct possibility that Netflix is simply sticking its head in the sand, rather than simply sticking to its initial plan.
Hulu Joins a Fast-Growing Club
Details are still scant, but people familiar with the matter say that sometime in early 2017 streaming-video service provider Hulu will launch a so-called “skinny bundle” cable television service that should cost on the order of $40 per month. This new service will presumably feature television content from major sources like ESPN, Disney and ABC and Fox.
It’s not an idea that’s tough to believe. Streaming television service SlingTV, owned and operated by Dish Network Corp (DISH), already offers such a streaming service that pipes in content from Disney and ESPN, as well as ABC. Sony Corp (ADR) (SNE) has also recently unveiled an even more robust streaming video service. Even Amazon.com, Inc.‘s (AMZN) streaming service, Prime, is available on monthly subscription terms now, for a dollar less than Netflix’s monthly cost.
The only missing piece of the SlingTV puzzle, the PlayStation Vue service and Amazon Prime is a live network broadcast.
Even then though, stand-alone network broadcasts are increasingly available online. CBS Corporation (CBS), for instance, offers CBS Access, which not only delivers new television programming online, but on-demand access to a massive archive of the network’s older shows.
Point being, major networks — the last of the streaming-video holdouts — are now getting into the game.
Of course, inasmuch as Walt Disney Co (DIS), which also owns ESPN, Twenty-First Century Fox Inc (FOXA), which owns and operates Fox Television and Comcast Corporation (CMCSA), which is essentially synonymous with NBCUniversal, are also all co-owners of Hulu, it would be surprising if the trio didn’t come up with a product designed to cut out Netflix as a middleman.
Best of all, Disney, Fox and Comcast all already make a massive amount of television and movie content, and have a wealth of existing video content already in their collective vaults. And if they need more to become more competitive, they can simply do what Netflix does — they can buy it.
Reality Check for Netflix
Netflix remains adamant about not going down the same road Hulu, CBS and DISH Network (among others) are going by creating a true alternative to cable television rather than an addendum to it. Chief content officer Ted Sarandos explained during the company’s most recent conference call:
“You should think about our brand proposition as very much about on demand. And other people doing live, I think it’s great. It’s about the further expansion of internet television to include live. We don’t have to do everything to be part of that expansion.”
He’s right, too — Netflix doesn’t have to move into the live-streaming space or become a delivery venue for television networks as the premise of internet-based television matures.
But, with Sony, Disney, DISH, CBS and several others all doing it to various degrees, Netflix is letting those competitors gain a foothold any and all of them could (and likely will) sooner than later leverage to do substantial damage to Netflix. There’s little doubt that Hulu will cut a deal with consumers who subscribe to their cable programming as well as their on-demand programming.
In other words, the best time to squash competition is before that competition becomes formidable. The advent of a cable television alternative from Hulu could be the proverbial last straw for Netflix, which has done little to combat other players thus far.
We won’t know for sure, however, until Netflix can do little about it.
Bottom Line for NFLX Stock
It’s rare that philosophically rooted concerns ever actually impact a company’s top and bottom lines, as the company in question has usually already thought them through, and addressed the organization’s competitive shortcomings. This is not one of those times though.
Owners of NFLX shares should be concerned that Netflix is missing the boat, insistent on doing things the way they were doing them several years ago … before the other choices started to become better choices for many consumers.
With Hulu now upping the ante, Netflix needs to rethink its value proposition, and fast.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
