Facebook Not Ready to Wear Netflix’s Crown

by Anthony John Agnello | March 8, 2011 12:06 pm

All of the contenders for the movie-rental crown have a problem: their audience is already watching on Netflix (NASDAQ:NFLX[1]) or if they’re not, they know what Netflix is.

How do you take down the face of an industry? By catering to a pre-existing audience of 600 million. That’s the thinking behind Facebook’s new video rental service, and on Tuesday Time Warner’s (NYSE:TWX[2]) Warner Brothers studio said it would be the first studio to offer streaming rentals through the social-media website. The first film up is The Dark Knight, the 2008 record-breaking Batman movie. Users will pay $3 for each rental, or rather 30 Facebook Credits, the purchased virtual currency predominantly used in social games like Zynga’s infamous Farmville.

Unlike other Netflix competitors, Facebook’s initiative could be a great success. The vast number of people already on the site is just the first of many advantages Facebook has in the streaming video market. Having access to Facebook’s numerous tools will guarantee that advertisements and other paid services can still reach users while they watch a movie, which is a boon to businesses.

As Peter Kafka pointed out at All Things Digital[3]’s Media Memo site on Tuesday morning, Facebook is already recognized as one of the most trafficked online video services on the Web. Comscore puts it at No. 6 while Nielsen puts it at No. 2,  just behind YouTube.

What chance do Google (NASDAQ:GOOG[4]) or other fledgling online video business have against a service that already has 600 million users? That depends. Provided other Hollywood studios follow Time Warner’s lead in supporting Facebook, the social-media site should trounce other up-and-comers like those offered by Best Buy (NYSE:BBY[5]) or Sears (NASDAQ:SHLD[6]).

Netflix doesn’t need to be as concerned — at least not yet. Subscription-based services like Netflix and second-tier services like Hulu Plus and Amazon’s (NASDAQ:AMZN[7]) Prime that offer unlimited content for a flat fee hold the most cache with audiences right now.

Facebook will snag some impulse buyers thanks to its virtual currency, but that’s not enough to start getting people to drop their Netflix subscriptions.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.

  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  3. All Things Digital: http://mediamemo.allthingsd.com/20110308/youtube-netflix-hulu-meet-facebook/
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  5. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  6. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  7. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN

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