Cowen & Co. analyst Jim Friedman view on Netflix (NFLX) gels with mine 100% according to this Forbes article.
First, Friedman said it should take several years for "download-ready" mass market consumer electronics to be adopted widely. Second, "we expect the availability of popular content for digital video subscription platforms to be restricted over the next five-plus years due to existing contracts between studios and premium cable networks," he said. Third, the DVD cycle should be extended because HD-DVDs require several hours to download, he said. Finally, the analyst called Netflix "well positioned to be a significant player in the video download market."
Yup, he touched on all of the points I was thinking about. HD-DVD movie downloads just take too damn long and will be too poor quality at this time to affect Netflix. And when they do begin to affect Netflix maybe 5 years down the line there is nothing in the world that stops them from become a major player in that segment.
They have the brand identity and the subscriber base to become the leader in that field. If that happens the company will expand their margin because they don't have to deal with distribution centers, physical inventory, or sending a bunch of little red envelopes through the mail and eating the postage for users sending them back.
However they will have to ramp up capital spending to get servers, storage, software writers etc. in place. I think they should work closely with Apple (AAPL) to develop a Video ITunes like application with the Netflix logo. Apple will get a chance to become a major player in the digital distribution of HD-DVDs just like they are today with songs. They will be able to dominate a very lucrative industry when networks get faster and content doesn't have to be physically in your hand anymore. Hmm, maybe they will come out with an Ipod that will double as a HD-DVD downloader that will plug into a TV. Now that would be cool.
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