This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

[video] Can Netflix Up Its Game Even More?

Stocks in this article: NFLX DIS CMCSA DTV AMZN T

NEW YORK (TheStreet) -- Netflix (NFLX) CEO Reed Hastings has done what seemed to be impossible.

He has created a huge entertainment network without a single broadcast license or cable channel. He has successfully made the transition from a service delivered by postmen to one delivered via the Internet.

At its expected opening valuation this morning of $23.3 billion, based on an after-hours rise of 17% in the stock price, Netflix is now worth more than 13 times the $1.7 billion value Wunderlich Securities put on Disney's (DIS) ABC Network back in 2012. At the same time, ABC's ESPN sports networks were said to be worth $40 billion.

The lesson of Netflix and ESPN is that we're living in a new media world where the volume of programming you can deliver determines network value, and that volume is no longer limited to the bandwidth of a TV channel.

Netflix delivers more programming than anyone else. That sounds simple, but delivering on that promise took some major technological feats, such as building Netflix access directly into TVs and finding ways to get Netflix content closer to subscribers.

What looks like a programming advantage is, in fact, a technological one.

That's why Hastings could call HBO his "bitch," as he reportedly did during yesterday's conference call, after the company announced fourth-quarter net income of $48 million on revenue of $1.18 billion and said it added 4.17 million members during the quarter, bringing its total subscriber count to more than 44 million. 

HBO and Netflix are no longer even comparable. HBO is a TV channel, like ABC. Netflix is a program delivery platform, like Comcast (CMCSA) or DirecTV (DTV).

Further evidence of Netflix' network status is over its fireplace mantle, where it now has three Emmy Awards and a Golden Globe for the series House of Cards.

Keeping that momentum going, however, is going to be a challenge now that everyone knows how it's done. Other "over-the-top" networks -- networks that use the Internet to reach customers without broadcast and cable gatekeepers -- can acquire most of Netflix's catalog, and Amazon (AMZN) has even followed it into original programming, with shows such as the comedy Alpha House, created by Doonesbury author Garry Trudeau.

While Netflix has created a vast content delivery system called Open Connect that can get its content close to consumers, the last mile remains under the control of carriers such as Comcast and AT&T (T).

A court ruling this month gutting the Federal Communications Commission's net neutrality rules temporarily sank Netflix' stock price, but in a letter to shareholders, the company said it would lead consumer protests if "degradation" of Netflix downloads occurred.

The question for investors in valuing Netflix is what to call it. If you see it as just a network, like ABC, or even a set of networks like ESPN, it may be overvalued. But if you see it as a platform, competing with DirecTV, cable networks and Internet carriers, it still has a lot of room to grow and a lot of challenges to meet along the way.

Can Netflix maintain its content library in competition with Amazon, Comcast and the rest? Can it maintain access to customers without net neutrality rules? How much exclusive content can Netflix afford to create, competing for talent against both TV networks and Hollywood studios?

Netflix is clearly in a new league now. And we're only now going to see how good a game it's got, or whether it is, indeed, a house of cards.

At the time of publication, the author owned no shares in companies mentioned in this article.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs