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August 27, 2010
Share ThisThe Neflix application (app) is used for intuitive viewing of movies and TV shows and requires a Netflix membership. Netflix subscribers who are already using its service for $8.99 per month will be able to view their selected TV episodes and movies from Netflix to their iPhone and iPod touch.
Netflix is already delivering first-run movies on a broad range of devices, which subscribers can access through different platforms such as Apple’s iPad, personal computers, laptops, mobile phones and game consoles such as Microsoft Corp.’s (MSFT) Xbox 360, Sony Corp.’s (SNE) PS3 and Nintendo’s Wii.
Netflix is broadening its footprint in the mobile market. In our view, the Netflix app for iPhone and iPod device will allow the company to increase its market share in the mobile segment as well as expand its subscriber base and open up new avenues for top-line growth over the long term.
The Netflix app will support any iPhone or iPod touch device running on the iOS version 3.13 or later and will be available from any App Store, the company said.
Netflix’s members can choose movies or TV episodes from a wide range of lists available and can instantly view the chosen program with the help of the multi-touch user interface. It also contains add-on features such as fast-forward, rewind, saving or stopping the video stream at any time. Additionally, Netflix allows users to manage their movie queue on the screen even on different devices capable of streaming from Netflix.
Competition
Although Netflix has more than 13 million subscribers who pay $8.99 for unlimited DVDs by mail and films streamed over the Internet, it faces stiff competition from providers of streaming content.
The company competes against Hulu, the online site for streaming movies and television, who is also planning for an IPO. Hulu recently unveiled Hulu Plus that will allow users to view TV shows for just $9.99 per month.
Netflix also experiences competitive threats from Red Box, the kiosk company owned by Coinstar Inc. (CSTR) that rents DVDs for $1.00 per night and Comcast's (CMCSA) on-demand library.
Verizon Inc. (VZ) has also started tapping into Netflix’s market with its FiOS TV, allowing its members to watch live shows on their iPads. Verizon currently allows subscribers to watch on-demand video on mobile devices. Netflix also faces stiff competition from Blockbuster Inc. (BBI) and Movie Gallery Inc.
Recommendation
Netflix had entered into a partnership with Starz Entertainment LLC that enables Netflix to offer new movies from The Walt Disney Co. (DIS) and Sony Corp. over the Internet.
Last month, Netflix signed a multi-year $1 billion movie licensing deal with the movies-on-demand and online company, EPIX, a joint venture between Paramount Pictures, a unit of Viacom (Via-B), Metro-Goldwyn-Mayer Studios Inc. (MGM) and Lionsgate (LGF).
Netflix remains focused on new partnerships, Internet streaming and international expansion as it continues to upgrade its digital delivery, thereby broadening its subscriber base and ensuring increased profitability.
Netflix exited the second quarter of 2010, with approximately 15.0 million subscribers. The EPIX deal could add up to 20,000 new titles to Netflix's streaming content, according to The Street.
Netflix’s potential move to Apple’s mobile devices reflects its strategy of delivering an increased number of movies, thereby building up its streaming business. However, competition for Netflix has been heating up.
We maintain our Neutral recommendation on the stock on a long-term basis (6-12 months). Currently, the stock has a Zacks#3 Rank, which implies a Hold rating on a short-term basis (1 to 3 months).
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