So Far, Netflix is the Video Service to Beat
In the online movie rental business, Netflix (NASDAQ:NFLX) faces new competitive threats from Redbox and from Comcast’s Fanbox service (NASDAQ:CMCSA), among others. For the average user, Redbox currently beats Netflix on pricing. But neither rival can match Netflix’s rich content. Our analysis follows below.
Netflix rising
Netflix sells monthly subscriptions that allow customers to rent physical DVDs and stream online videos from its library. It has established a strong foothold in the U.S. movie rental market, gaining subscribers at a fast pace in recent years.
- Up 27% Year To Date, Will Q1 Results Drive Netflix Stock Higher?
- Netflix On A Roll As It Benefits From Paid Sharing And Ads. Is The Stock Undervalued At $610?
- Up 50% Over Last Year, Will Q4 Earnings Drive Netflix Stock Higher?
- Will Netflix Stock Rally 40% To Return To Pre-Inflation Shock Highs?
- How Will The Password Sharing Crackdown Help Netflix Q3 Results?
- Will Netflix Stock Return To Pre-Inflation Shock Highs Of Over $650?
We currently expect Netflix’s subscriber base to grow from nearly 20 million by the end of 2010 to just under 40 million by the end of the Trefis forecast period. You can drag the trend-line in the chart below to create your own subscriber forecast for Netflix and see how it impacts the company’s estimated share value.
Netflix vs. Redbox
Redbox is the low-cost competitor in this market, renting movies for $1 a day. We estimate that Netflix subscribers order just over eight movies a month on average, which works out to about $1.50 per movie based on the average monthly subscription. Moreover, Feedflix estimates that more than 80% of Netflix subscribers pay more than $1 per movie in case of DVD rentals.
But Redbox’s superior pricing can’t make up for its inferior catalog. Redbox currently offers only a few hundred movie titles, while Netflix carries more than 100,000 DVD titles and upwards of 20,000 online titles.
Netflix vs. Fanbox
Comcast’s Fanbox service charges $5 to $6 per movie for on-demand viewing of more recent releases. Many consumers seem willing to wait until the Comcast sell-through window passes to order the DVD version from Netflix. Although Comcast does offer some older titles for free, its catalog of about 19,000 to 20,000 on-demand movies is a mere fraction of the total Netflix library.
Bottom line
Consumers want a broad range of classic movie content. Netflix has successfully created a market for older content and is now building on its loyal subscriber base. Redbox and Fanbox are both way behind in terms of content, which reduces the possibility of them slowing Netflix’s fast subscriber growth.
You can see the complete $85.06 Trefis price estimate for Netflix’s stock here.