As Netflix (NASDAQ:NFLX) and Hulu began video streaming, it became clear that there was going to be a huge demand and streaming will become an indispensable part of consumer viewing experience. Since then, plenty of companies have begun their streaming services and the market seems to be getting overcrowded with customers getting confused with choices. Over time this scenario is likely to change. Below we look at how the streaming ecosystem is developing and the implications for Netflix.
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The streaming market has become crowded. Not only are there several streaming services at different price points, the content available also varies widely. The quality and selection of the content does not take of the average pay-TV customers needs in our view, and this presents a difficult choice for them that needs to be simplified over time.
Mix Of New & Old Programming
While pay-TV companies seem to be offering apps to subscribers to watch live programming of their subscribed channels on their internet enabled devices, pure-play companies such as Netflix made its mark with by bringing older content together. However the lines are getting blurred here as Netflix and Amazon (NASDAQ:AMZN) move towards adding some original programming of their own, which is going to be exclusive.
With Netflix’s streaming accounting for a large portion of peak internet traffic in the U.S., the internet service providers such as Comcast (NASDAQ:CMCSA) are beginning to feel uneasy, claiming that such traffic is clogging their pipes. There is a cold battle going on between service providers and pure-play online content aggregators and a possible solution may be that Netflix pays these companies for a portion of traffic that it feeds into their network.
Several Years Down The Line
It may be possible that ultimately streaming will become an integral part of pay-TV subscription and pure-play companies may simply vanish or be acquired. Traditional pay-TV service providers have deep pockets and strong content relationships that can help boost their streaming offering. This might be the way to go from a customer point of view as well because a streaming ecosystem can possibly develop like pay-TV ecosystem, and the choices may be clear and concise with majority of the content being similar. Additionally pay-TV companies can provide a good mix of older and live programming to their subscribers, making it convenient for them. So for a pure play company like Netflix, we believe an acquisition is possible in the future.
Let us know if you think this is a possibility, and if so, who you think might be an interested buyer.
Our price estimate for Netflix stands at $110, implying a premium of more than 60% to the market price.