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Netflix, Inc. (NFLX): Have You Heard This Hoopla?

Peter Lynch said that in some circumstances imitation is the sincerest form of flattery, but in business imitation is the sincerest form of battery. Lynch believed it was very hard to make money with companies that operate in what he referred to as “hot” industries. He said what ends up happening is hot industries attract a lot of competition, and ultimately this competition leads to pricing pressure. Most people would probably argue that streaming video is a hot industry, and this business is about to pick up a competitor from the most unlikely place…the library.

The Digitization Of Everything
I first noticed the idea of libraries going to digital distribution from an ad on Facebook, ironically enough. The ad said that a new service called Hoopla was coming this yea, that would allow registered library users to stream movies, television shows, and music right to their computer. Needless to say this caught my attention not only for the investment implications, but also because this was such an unexpected development.

After doing a little bit of research, I found that a little company based in Holland, OH called Midwest Tape is behind the platform. The company expects to launch Hoopla later this year, and the service is targeted specifically at the library industry. The company hopes to offer a Netflix, Inc. (NASDAQ:NFLX) like experience to library cardholders. The service will reportedly have two lending models.

The first option will be a free, one-user and one-copy option. The second would allow simultaneous users on a per-circulation fee model. No matter what model users ultimately go with, investors need to be aware of the potential disruption to the streaming industry.

Who Wins And Who Loses?
The U.S. streaming market is the most developed and most profitable. Netflix, Inc. (NASDAQ:NFLX) has said multiple times that they hope the profitability from their U.S. streaming operations will fund their international expansion. With 33 million total subscribers, and the majority of these users in the U.S., there is little doubt that Netflix is leading the industry.

Netflix, Inc. (NASDAQ:NFLX) is producing its own original content with titles like Lilyhammer and House of Cards. Netflix, Inc. (NASDAQ:NFLX) also has signed exclusive content deals for Disney movies starting a few years from now. However, there are still many that complain that all Netflix currently offers are old and obscure movies. While $7.99 for streaming may not seem like much, customers looking to pinch pennies may decide that borrowing movies from the library online for free is a better option.

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