Netflix
did two things the other day: It officially opposed Comcast’s proposed
acquisition of Time Warner Cable, and it announced its decision to hike fees on
new subscribers by a dollar or two a month.
Netflix stock soared (up more than 27 dollars a share) on the announcements
– and on the fact that Netflix earnings and new-subscriber count both exceeded the
market’s expectations.
All
of which causes one to consider whether, in the three-way competition among the
cable owners (the pipes), the movie studios (the content owners),
and, increasingly, companies like Netflix and Amazon (the streamers), who holds
the strongest hand.
The
truth is, all three need each other. Without content, the pipe owners are
helpless. Without pipes, the studios can’t reach our homes. And the streamers need both content and
pipes. Wireless technology may
eventually replace coaxial pipes, but that’s a long way off, and anyway, the
new pipe owners would be wireless companies.
Still,
certain facts cannot be ignored. The first is that content, unlike the
installed base of hardware, is mobile and will flow to where the money is. Kevin Spacey was drawn to Netflix’s House of Cards by money and is free to
leave Netflix when someone offers more money. So content is king, in a way that
pipes are not. However, viewers (especially people in the cherished 20-to-35
age group) are a fickle and unpredictable bunch, as Hollywood and the TV
networks find out every week. Certain
talent is bankable until it is not; and while content is a crapshoot, the pipes
are not. A length of coaxial cable is a length of coaxial cable, and it can be
depended on to deliver both quality content and garbage. So the owner of the pipe is king.
On
the other hand, there is no question that the trends favor streaming. Netflix
has about 50 million subscribers in 40 counties, and it adds more every
day. The market values Netflix at over
$22B, which means that it can afford pricey talent. So Netflix is king,
which exactly is what the Netflix bulls are betting on.
In
other words, I don’t know how the contest will play out. I don’t know whether
Comcast’s takeover of TWC will be approved. I don’t know whether Netflix’s next
show will be as successful as House of
Cards or a turkey. In short, any bet
on any of these stocks is a pure gamble.
