With consumer-technology icon Apple (NASDAQ:AAPL) likely announcing its content-streaming service on March 25, most industry-watchers have the same question: How will this news affect streaming leader Netflix (NASDAQ:NFLX)? It’s not an inconsequential inquiry. As NFLX stock has gained more than 37% so far in 2019, a corrective pullback is more than possible.
As is often the case, a technically overheated company is now facing a fundamental challenge. As I wrote earlier this week, Apple isn’t streaming as a side-hustle. Instead, the tech firm has paid serious cash to recruit top entertainment industry executives.
Add that to Apple’s signing of Hollywood A-listers like Jennifer Aniston and Reese Witherspoon to headline its original programming. If that wasn’t enough, Tim Cook and his team have also secured the services of renowned directors Steven Spielberg and J.J. Abrams. So, at first glance, this spells trouble for NFLX stock.
However, I wouldn’t panic if you’re a NFLX stock holder. While Netflix stock has acted pensive in recent weeks, it’s more likely a reaction to broader market weaknesses. Over the long run, I don’t see AAPL denting the streaming giant’s domain. Here are three reasons why.
Netflix Enjoys a Possibly Insurmountable Lead
I’m going to start off with the low-hanging fruit. But just because this is an obvious point doesn’t make it any less valid: what was Apple waiting for?
When the company launched the iPhone a decade ago, the product upended all competitors. BlackBerry (NYSE:BB) phones, colloquially called “CrackBerries,” were quickly relegated to the sidelines. So, too, did quirky offerings from Nokia (NYSE:NOK).
Later, Apple released products like the iPad just for fun. While their follow-on products didn’t achieve iPhone-level fandom, they certainly facilitated the streaming revolution. Essentially, Apple owned the content platform; they just needed to take the next step and move into content creation.
But they didn’t and that has allowed Netflix an uncontested road to streaming success. During this time, the company experimented on both the entertainment industry’s front and back-end. Based on their successes at the Emmy awards and in winning rave reviews, Netflix found its groove. Naturally, this boosts confidence in NFLX stock.
And it’s not just about this possibly insurmountable lead. Instead, Apple must prove it can generate momentum with its content, not just throw money at their latest venture. Coming in so late to the game, I have my doubts.
People Actually Want to Watch NFLX
This is another obvious point, but it’s worth mentioning: To survive as a content creator, you must first create compelling content. What separates NFLX stock from the competition is that they excel in this department.
But this argument becomes more critical when you bring Apple into the discussion. While other organizations will gladly ruffle some feathers to deliver groundbreaking programs and films, AAPL has a decidedly different mindset. From the get-go, management will steer its original content away from vulgar, violent or sexual content.
In other words, they’re not going to show anything interesting on their service. Okay, I’m being facetious but only a little bit. Check out Forbes’ top-20 list of streamed TV shows, where only one entry isn’t on Netflix. It’s chock-full of gritty programming or controversial topics, like the top-rated show 13 Reasons Why, which addresses teenage suicide.
Is that content suitable for an Apple store? I don’t think so.
However, it’s perfect for Apple’s rivals, if only because the tech giant won’t compete in that manner. Because of this self-imposed creative limitation, I don’t see AAPL gaining much traction. Therefore, I wouldn’t worry about Netflix stock.
NFLX Stock Isn’t Demographically Challenged
Finally, I’ll stray from my Captain Obvious routine and provide an underappreciated argument: NFLX stock has performed well in part because the underlying company casts a wide, demographic net.
With streaming TV, content providers have an opportunity to highlight underprivileged or overlooked minority communities. Since Netflix seeks to reach and eventually dominate the international arena, it must facilitate diversity.
But with Apple recruiting well-known and established Hollywood folks, their strategy seems anachronistic. Bluntly speaking, streaming companies have gravitated towards dynamic, eclectic programming. Partnering with profoundly respected, but nevertheless over-the-hill people like Spielberg doesn’t quite jibe.
Just look at the demo for online streaming. According to the Pew Research Center, roughly 60% of young millennials primarily watch streamed content. To attract this prime audience, you have to speak their language.
But Jennifer Aniston and Reese Witherspoon? They represented the magic formula, circa 1999. Chalk that up to Apple’s inexperience, or why I’m not overly concerned about Netflix stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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