Netflix & Facebook — Much Ado About Very Little

by Dan Burrows | March 15, 2013 12:05 pm

It’s hardly a case of two drunks propping each other up, but the new partnership between Facebook (NASDAQ:FB[1]) and Netflix (NASDAQ:NFLX[2]) doesn’t move the needle for the social network or the video streaming service.

The partnership, announced Wednesday[3], means that Netflix subscribers can share what they’ve watched with their Facebook friends. So, Facebook gets more information about its users’ interests and Netflix gets a chance to boost the number of subscribers to its streaming service in the U.S.

Netflix shares rallied sharply on thew news because the stock lives and dies by the rate at which Netflix adds subscribers to its streaming service in the U.S. The idea is that Facebook can give subscriptions a boost from just about the best marketing tool there is — word of mouth.

“There are few better ways to find a movie or TV series you’ll love than hearing about it from your friends,” Netflix’s VP of product innovation Tom Willerer said in a press release.

After all, you can’t watch what your friends are watching on Netflix if you don’t have an account.

And make no mistake — at Netflix, it all comes down to how fast the streaming service is adding new users in the U.S. Analysts at Trefis figure that Netflix’s U.S. streaming service constitutes close to 60% of its value.

“The number of U.S. streaming subscribers is one of the most critical business metrics for the company and has dictated its stock performance in the past,” Trefis says in a report.

Too bad there’s no reason to think social will give subscriptions a boost.

Rich Tullo, an analyst at Albert Fried & Company, notes that social sharing is going to be a “non-event.” Social has  never proved to be a way to drive new subscriptions; it’s a subscriber retention tool at best.

As for Facebook, adding data from Netflix users is like bringing sand to the beach. The social network has something like 165 million U.S. users. Even if fully half of the Netflix U.S. subscription base opted in to Facebook sharing, well, that comes to about 8% of the social network’s U.S. user count.

More important, it’s not like Facebook is hurting for data about its users. That’s not what keeps investors up at night. The problem is how does it monetize this vast trove of information — especially in the mobile space. That’s why Facebook’s acquisition of the Atlas digital ad service from Microsoft (NASDAQ:MSFT[4]) is far more important to its prospects than this handshake with Netflix.

The partnership between Netflix and Facebook is incremental at best and immaterial at worst. With shares in both these companies so volatile and detached from any traditional understanding of fundamentals, investors in Facebook and Netflix have bigger things to worry about.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

  1. FB:
  2. NFLX:
  3. announced Wednesday:
  4. MSFT:

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