Over the last decade, Netflix (NASDAQ: NFLX) has been one of the biggest winners in the stock market with a nearly 3,800% gain. Of course, the company's revenues, earnings, and subscriber count have moved in-line with the stock but even more impressive is its dominance of online streaming.
Netflix's original business model was quite modest - ship DVDs to customers who managed their accounts online. In fact, its CEO Reid Hoffman was more than happy to be bought out by its largest competitor at the time, Blockbuster. However, the company's initial forays into online streaming proved successful, even if it required significant sums to be invested in the technology infrastructure and licensing content.
Current Streaming Landscape
Due to its first-mover advantage, Netflix has secured a dominant position in this space. Of course ten years ago, it was hard to fathom that online streaming would become the most popular way to consume video content. Currently, Netflix has 87% market share in streaming which is slightly down from 90% five years ago, although the total number of hours spent streaming has significantly grown as well over the last five years.
In the interim, Disney's (NYSE: DIS) Hulu and Amazon's (Nasdaq: AMZN) Prime Video have gained market share. Disney is also launching Disney+ which already has a massive content library and is expected to quickly become a major competitor. Some other formidable streaming competitors include HBO, AT&T's (NYSE: T) Warnermedia, and Apple's (Nasdaq: APPL) streaming offering. Additionally, there are a number of niche offerings as well.
While the number of platforms proliferates, the item that they are competing for - human attention - remains fixed. The result will be more competition to secure content and talent. Additionally, streaming bundles are typically launched at lower prices, leading to the possibility of price-cutting in order to win and keep customers.
Netflix's Future
As a fast-growing tech company, Netflix's ethos has been to focus on winning market share instead of short-term results. This strategy has been so far validated by the stock market, and the company did marginally hike prices earlier this year. However, it seems that Netflix's success has attracted other well-heeled competitors. And many of these companies have deep pockets and sources of revenues with deep and wide moats such as Amazon, Disney, and AT&T.
These companies are willing to endure multiple years of losses in order to win the war. In contrast, Netflix is solely reliant on streaming revenue. The company also has no homegrown content that it can build its platform around. Instead, it must license content, and the cost will continue rising due to increased competition. Additionally, the company will be forced to continuously develop attractive, original content to keep subscribers from jumping ship to a competitor.