Is Netflix’s Video Streaming Moat Under Attack From Free and Illegal Uploads?

[Len]

Netflix Inc. is the world’s leading premium video streaming network. The company has enjoyed stellar performances over the last few quarters in terms of both subscriber growth and a more compelling bottom line. Yet, even at the current price of approximately $174, the company is still viewed as a growth stock given its intensive investments in content creation and partnerships with leading content creators.

Netflix is on its way to becoming one of the leading film and television services in the market, but there are a few rivals out to make sure they too capitalize on the changing environment in the entertainment sector.

In addition, consumers are taking advantage of free streaming services. Therefore, Netflix finds itself in a situation where the threat to its massive business moat in the video streaming market is not only coming from rivals like Amazon.com Inc., but also from freeware services like YouTube and illegal streaming portals. While YouTube’s content policies offer a significant level of protection, they can only be enforced when someone reports a copyright infringement.

The problem with this policy is software developers have developed freeware products that can be used to download videos from YouTube, which can then be spread to the public through other channels. There are even products capable of converting videos from YouTube to MP3 format, which makes it easier to share across various mobile applications due to the compatibility of MP3 content. This means if some Netflix content were to find its way onto YouTube through illegal uploads, then some consumers could take advantage of various software to spread it further even after the video is deleted.

This means most users who have yet to embrace premium video streaming services are unlikely to join the market as there are cheaper or free options available. Netflix will find it hard to shake off this threat as advances in technology continue to penetrate the most undeveloped and remote markets of the world.

On the other hand, Amazon has sought to tap into its massive user base by offering Amazon Prime packages that are aimed at improving customer experience, which includes streaming video conent. In this case, any Amazon users that were initially subscribed to Netflix are likely to cancel their membership to take advantage of Prime.

The e-commerce giant also dealt a killer blow to Netflix when it introduced a monthly payment option for its Prime subscribers last year.

Other streaming service providers could also shake things up a bit. Streaming device manufacturer Roku filed for an initial public offering on Sept. 1 as it seeks to raise $100 million. The company applied for a Nasdaq listing under the ticker “ROKU.” The company sells devices that can incorporate several streaming service providers.

There are also other players, like Alphabet Inc.'s Google Chromecast and Hulu, that are in direct competition with Netflix. In addition, content creators The Walt Disney Co., 21st Century Fox and Comcast have substantial access to funding, which means they could compete aggressively on pricing. Therefore, Netflix will have to dig deeper in its ability to produce quality content to withstand the coming storm.

Conclusion

In summary, Netflix’s advantage over its rivals is weakening as the likes of Amazon continues to offer streaming services to its Prime members. Additionally, Hulu and other complimentary streaming devices like Roku and Chromecast are also providing an alternative option while freeware platforms continue to pose a long-term threat. But for now, Netflix looks strong as its stock price continues to rise.