Netflix Gets Dosed with Reality

I’m a big fan of the service Netflix (NASDAQ:NFLX) provides.  I think it’s outstanding value for someone that does not care about watching TV or films that are the latest thing. However, as a financial analyst, I have to say that their business model does not do much for me at all in light of how easy it is for someone else to come in and provide a similar service.

I’m grateful to them for creating an alternative to the monopolistic cable and satellite providers and their enabler quislings at the FCC that drastically reduces a household’s entertainment bill to a very manageable $9 per month.  Unfortunately, for them the problem lies in how to keep that going without the exclusivity to stream particular content.   Specifically, the announcement this morning that Epix signed a distribution deal with Amazon (NASDAQ:AMZN) to stream their movies and TV via Amazon’s Prime video portal (not nearly as well organized or intuitive as Netflix, by the way) sent investors heading for pastures with bigger moats around them.  Might I suggest physical gold?  But, I digress.

Netflix’s stock cratered on the news ending the day down 6.4% to $55.93 per share.

Amazon’s ability to leverage this deal to their mobile device catalog and their new version of the Kindle Fire due out soon makes this a bit of a problem for Netflix, who now have to shift the $200 million they were paying for exclusivity and shunt it into original programming like the upcoming reboot of the cult TV classic Arrested Development.  This will be interesting to watch, all puns intended.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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