
Will YouTube Hurt Netflix?
NEW YORK (
) --
Netflix
(NFLX) - Get Report
jitters are being felt yet again as
Google's
(GOOG) - Get Report
YouTube is encroaching on its turf. Should investors worry?
YouTube announced on Monday that it is adding more than 3,000 mainstream movies for users to rent. The Internet video giant will offer a mix of recent blockbusters like
The King's Speech
and
Inception,
as well as older films, independent movies and foreign flicks. Prices will range from 99 cents to $3.99 each.
|
Once users purchase a movie, they have 30 days to begin watching, and about 24 hours to finish the movie once they start viewing.
>Netflix Subscribers to Top 30M by 2013: Poll
The company signed a deal with major studios including Warner Bros, Sony Pictures, Universal Picture's and Lions Gate Entertainment. Most of the streaming movies will be made available at the same time as the DVD release.
Users will still be able to take advantage of YouTube's previous offering of hundreds of free movies.
>Click here to take our Netflix poll.
This announcement once again calls into question Netflix's ability to sustain its rapid subscriber growth rate.
The company hit 23.6 million subscribers at the end of March, with 22.8 million of these users coming from the U.S. In its first quarter, Netflix added 3.3 million new domestic subscribers and now boasts more subscribers than any other video service in the U.S.
As Netflix begins to tap out domestic users, it is making a push internationally. Latin America may become Netflix's third market, as reports surface that the company is in talks with movie studios for rights in the country.
Netflix made its first foray outside the U.S. when it launched a Canadian streaming subscription service.
Janney Capital Markets analyst Tony Wible believes this week's news is just icing on the cake to the competition that already exists for Netflix.
"The bigger issue, as we have laid out in the past, is that
Amazon
(AMZN) - Get Report
, Google,
Dish Network
(DISH) - Get Report
,
HBO
,
Wal-Mart
(WMT) - Get Report
,
Best Buy
(BBY) - Get Report
,
,
Coinstar
(CSTR) - Get Report
and others are looking to take advantage of the lower barriers to entry in digital distribution," he says. "I think of each one as like a new channel on TV... Ratings erosion is inevitable even if 10 new players emerge and only get 5% market share; that would eat up half the market opportunity."
More players will also mean higher content costs, Wible says.
Content costs have been a significant concern for Netflix investors
as the company aggressively ramps up its streaming video offerings.
>6 Netflix Deals: Will Content Costs Bust Its Bottom Line
So far in 2011, Netflix has struck up five new deals, with one other partnership rumored to be in the works. The company has kept mum on just how much these deals will cost, but in its first-quarter letter to shareholders, management noted that it expects content costs to "increase substantially" in the second quarter and beyond.
With other companies vying for these deals, studios will have even more leverage when it comes to pricing.
But at least, in terms of market share, Wedbush analyst Michael Pachter, doesn't believe YouTube's expansion is cause for concern.
"It's a VOD
Video on Demand arrangement, not a subscription streaming service," he says. "It's essentially the same thing available to consumers through Apple, Amazon, cable and several other Internet services. I'm not sure that another
McDonald's
(MCD) - Get Report
restaurant impacts Hometown Buffet very much...There are plenty of places to buy burgers, and if you're in the mood for all-you-can-eat, another burger joint won't impact your decision."
Given all this, will YouTube's expansion threaten Netflix's growth momentum?
Take our poll below, and see what
TheStreet
thinks....
--Written by Jeanine Poggi in New York.
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Jeanine Poggi
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