How Precarious Is Netflix’s Lead in VOD?

Netflix has been the lightning rod of the VOD revolution for a long time, whether for good or ill. As a subscriber since 2000, I’ve

followed the company’s evolution from DVD distributor to VOD leader and for this entire period, Netflix has had the privilege of being the name mentioned first and most often when conversations about the burgeoning VOD market occur and articles are written about the changing face of home entertainment. Yet while Netflix still retains the coveted position of the market leader, some analysts are starting to wonder whether CEO Reed Hastings and company can retain the top seat:

Witness the note issued last week by Jon C. Ogg of Janney Capital. He raised his rating from “neutral” to “buy,” with a price target of $129, based largely on this conclusion: “Competition has not yet materialized to the extent that it poses significant near-term risk.” Once past the “near term,” however, things look a little different. HBO recently struck a deal with Universal Pictures that will make it—and its streaming service HBO Go—the exclusive outlet for those movies for the next 10 years. HBO also has similar deals with other studios including Fox (NWS) and Warner Bros (TWX).

“Once past the “near term,” however, things look a little different.” That sounds ominous. Back in 2011, during the Quikster debacle, I joined many who wondered whether Netflix could survive this significant misstep in the face of growing competition. Yet Reed Hastings has managed to put off a recovery and continued to dominate the market with what is arguably the best selection of content available in the marketplace. (Note I’m not claiming they have an exhaustive content selection. There ARE too many other competitors in the marketplace for Netflix to make this claim and even I’ve added Amazon and Hulu to my VOD choices in order to access content Netflix doesn’t offer.) Yet Netflix is very nearly the ‘default’ choice when it comes to VOD streaming.

Netflix’s subscription video-on-demand service in the fourth quarter was a popular attraction among households with televisions connected to the Internet. About 40% of households with a connected TV streamed Netflix content during the period — a percentage that topped 50% among consumers age 18 to 24, according to new data from The NPD Group.

My advice back in February 2011 was that Netflix should continue to broaden the streaming choices, mend fences with the studios, provide service and selection and most importantly remember who their customers are. It seems like they’ve accomplished three out of four. While a myriad of choices exist for the tech-savvy consumer, I have a feeling that Netflix’s core audience will value convenience more than anything else. I initially signed up to avoid having the darken the door of another poorly stocked video store, staffed by the uninformed and disinterested. My Netflix queue stands at over 100 titles, despite several ruthless purges. Yet the kernel of truth in the analysts warnings can be seen in the streaming habits in my living room too. I’ve been using Hulu to catch up on Community (and enjoying it tremendously, I might add) and my wife’s been diving into some of the Hulu exclusive series such as Endgame. It think it’s too early to write off Netflix, certainly for the near term. If Netflix can successfully mend fences with the studios, avoiding, at least, a shut-out of current content, then I think there will be a healthy life ahead. Unfortunately for the leader of any pack, whether runners in a marathon or crabs in a bucket, there are always plenty of competitors looking to pass you (well, except for this guy). Slow and steady, Netflix. I’m with you.   Edit: Spelling corrections, including “Reed” Hastings.