Time Warner Cable Inc (TWC), Amazon.com, Inc. (AMZN): Netflix, Inc. (NFLX), $300, and Is It Really Different This Time?

Page 1 of 2

It was just over two years ago that shares of Netflix, Inc. (NASDAQ:NFLX) were first at the $300 price level. What followed is the stuff of economics classroom legend: A series of missteps including a big price increase, and an overly aggressive push by CEO Reed Hastings to move beyond DVDs and divide the company into separate groups via Qwikster, led to a massive customer revolt and a net loss in subscribers from one quarter to the next. By the end of the year, shares were down more than 75%, and investor faith in Hastings and the company’s ability to grow were near all-time lows.

Here we are, back at $300, and investor confidence is as high as it’s even been. Is the sky the limit, or is Netflix, Inc. (NASDAQ:NFLX) primed to go Icarus and send investors crashing and burning all over again?

Netflix, Inc. (NASDAQ:NFLX)

The More Things Change

The dynamic shift of consumers choosing not to subscribe to cable programming is growing. Time Warner Cable Inc (NYSE:TWC)‘s  residential video revenue is down 3% in the first half of the year, even as high-speed data sales grew by nearly 15%. And since residential video makes up half of the company’s revenue, even robust growth in high-speed data and business services won’t stem the losses. In all, Time Warner Cable Inc (NYSE:TWC) has reported a net loss of 191,000 customers through the first half of the year.

Verizon Communications Inc. (NYSE:VZ) has managed to continue to eek out growth in its “Wireline” business, but mostly at the expense of competitors as it expands its FiOS fiber-optic network.  Verizon grew its FiOS customer base by 12% for both video and Internet in the first half of the year, further challenging Time Warner Cable Inc (NYSE:TWC)’s ability to retain video customers in markets where they compete.

However, Verizon Communications Inc. (NYSE:VZ) isn’t stopping there, with its still-in-beta Redbox Instant partnership with Redbox owner Outerwall for $8 per month unlimited streaming, plus DVD and Blu Ray rentals at the familiar kiosks. However, the service is still in “beta” according to the website, and while anecdotal, I’ve yet to have a conversation with anyone that uses the service. But the acquisition of the remaining stake in Verizon Wireless from partner Vodafone will be the company’s primary focus moving forward. The $49 billion in bonds that the company will now have to service will take precedence over any efforts to grow an $8 per month streaming offering.

Liberty Global Inc. (NASDAQ:LBTYA)‘s Virgin Media subsidiary is making a move that could be the first of many, with its just-announced plans to integrate Netflix, Inc. (NASDAQ:NFLX) into its British cable TV offering. From the press release:

Dana Strong, Virgin Media’s chief operating officer, said: “We’re delighted to be bringing yet another groundbreaking service onto TV screens in millions of Virgin Media homes. Netflix is a fabulous addition to Virgin Media TiVo, enabling our customers to enjoy even more of their favourite shows and movies simply and easily – all through their TV set-top box and at outstanding value.

This is a significant step forward for Netflix, Inc. (NASDAQ:NFLX) and competing streaming services. The question is, will this be a one off, or does this signify a sea change for the cable TV industry? Only time will tell.

The More They Stay the Same

Amazon.com, Inc. (NASDAQ:AMZN) is investing in original content as well as exclusive deals for content like The Dome to attract customers. Prime, however, is about much more than just streaming content, with free 2-day shipping and the Kindle lending library included for $79 per year. Amazon.com, Inc. (NASDAQ:AMZN) uses Prime as a “gateway drug.” Once you’ve started “using,” it’s pretty hard to stop. Amazon doesn’t make the numbers public, but it has been reported that Prime members spend 150% more than non-Prime members. And at the end of the day, that’s the “Prime” directive at Amazon.com, Inc. (NASDAQ:AMZN): make it easy and more affordable for consumers to buy as much stuff from the company as possible. Free streaming is one of the draws; it will never be the core deliverable.

Page 1 of 2