Wall Street Weighs Amazon, Netflix, and Comcast
Barclays Capital analyst Anthony DiClemente cut his rating on shares of Netflix (NASDAQ:NFLX) this morning from Overweight to Equal Weight while maintaining his $115 price target. His reason for the downgrade? “New competitive threats have emerged” in subscription on-demand video, said DiClemente.
Amazon’s (NASDAQ:AMZN) Prime member service is just one such example. Prime “was the first real competitive threat to emerge in teh SVOD market,” said DiClemente. “The service continues to add titles to an impressive clip.”
The analyst thinks that Amazon’s recent deal with Discovery Communications (NASDAQ:DISCA) may result in the streaming service adding another 17,000 titles to its library, roughly half of the number in Netflix’s library.
DiClemente sees Amazon emerging as a real and immediate threat to Netflix. If the company makes the right moves, Prime could be positioned to become a top source for streaming video. So what moves should Amazon take to get itself in fighting shape? DiClemente breaks it down:
In order for its streaming offering to become even more of a competitive threat to Netflix, we believe Amazon needs to take the following actions: 1) market its SVOD service as a standalone entity outside of Prime to gain more subs and compete more directly; 2) offer a lower price point than Netflix’s streaming plan; 3) improve its user interface and title recommendation algorithm; and 4) expand its connected device ecosystem. Should Amazon take the necessary steps to improve the competitive position of its SVOD service, we believe Netflix will have a far more difficult time gaining incremental streaming subscribers domestically.
Comcast (NASDAQ:CMCSA) also has the potential to create a real presence in the streaming space, according to DiClemente. The cable company introduced “StreamPix” in February, a service it could eventually market “outside of its footprint and compete more directly with Netflix,” he said.
In fact, DiClemente thinks the longer-term threat for Netflix is the proliferation of options for watching “TV everywhere.” AT&T’s (NYSE:T) U-Verse and Comcast’s Xfinity allow subscribers to view content on various other devices, from desktops to laptops to smartphones and tablets.
If cable operators begin offering mobile viewing capabilities into the mix while maintaining their wider variety of offerings and the ability to watch live programming, they’ll have a clear advantage against services like Netflix and Amazon that might justify their higher prices, which in turn help them afford higher content prices, something with which their online-only competitors have been struggling.
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