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Mere Competition Can’t Disrupt Netflix Stock

Josh Enomoto

In the entertainment world, streaming companies like Netflix (NASDAQ:NFLX) have levered a profound impact. Naturally, Netflix stock has provided long-term stakeholders with much to smile about.

Netflix stock

Source: via Netflix

But on Sunday night, the program that received the most cheers came not from streaming platforms but from a traditional cable powerhouse. According to The Wall Street Journal, a whopping 19.3 million viewers tuned into watch HBO’s Game of Thrones. Due to the buzz surrounding the final episode in the popular series, it was a record-breaking night for HBO.

It also gives some food for thought regarding NFLX stock.

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The AT&T (NYSE:T)-owned HBO truly had a gamechanger in its hands. Although I don’t dare to guess where Hollywood executives take this momentum, a logical pathway is a spinoff series. Whatever the ultimate result, should we worry about the Netflix stock price?

NFLX Stock Sees More Competent Competition

Hindsight being 20/20, we can clearly identify the two major catalysts for the Netflix stock price: content and platform.

Currently, the viewing public’s attention focuses mostly on the former, and for good reason. Netflix routinely submits groundbreaking original shows, such as Narcos and the extraordinarily popular Stranger Things. Additionally, they’ve widened their portfolio to include international titles.

But from an investor’s perspective, the latter component carries significant importance. How so? Well, let’s face facts: going first to market with the streaming platform resulted in easy money in NFLX stock. But fresh competition will now raise that low-hanging fruit by at least a couple yards.

Of course, I’m referencing entertainment behemoth Disney (NYSE:DIS) and its Disney+ streaming service. On paper, DIS is a dual threat as it’s competing on both platform and highly lucrative content and brands. But with Game of Thrones’ runaway success, another factor comes into play: scheduling.

CNBC’s Sarah Whitten made a compelling argument: Thrones releases its episodes on a weekly basis, which forcibly creates anticipation and tension. But NFLX largely incorporates a binge-watching format: the subscriber chooses how much (or how little) they view in one sitting.

Should management then switch to this episodic format to help boost the Netflix stock price? I think the evidence points to yes. On a week-to-week basis, viewership declines significantly under the company’s binge-friendly format. But with Thrones, viewership remains robust and consistent.

In other words, the data suggests that Netflix has lost some revenue-synergies due to inefficient scheduling. And with NFLX stock going rangebound for most of this year, the company could use a change of pace.


No Need to Panic on Netflix Stock

Still, I don’t think a need yet exists to tinker significantly with what brought the Netflix stock price to its present heights.

Sure, most people prefer episodic formats as opposed to binge-watching. But according to data from Parrot Analytics, it’s a very small majority. Over time, it’s conceivable that this trend will shift in favor of binge-watching.

I say this because streaming is mostly popular with young Gen-Xers, millennials and of course Gen-Z. They’re the ones dictating this new direction in media, and how we generally consume content. Since they’re obviously going to be around longer than older generations, I’d put more emphasis on what they think.

Furthermore, an inherent risk exists to suddenly change expectations. Netflix is Netflix because it first allowed consumers to binge-watch. Previously, such a concept was either impossible or extremely cumbersome. To take that away cuts into what makes the company and the streaming platform special in the first place.

Therefore, management’s best decision is to maintain the status quo and focus on original content. Despite the big guns crowding the sector, NFLX stock still has the advantage. Primarily, the underlying company is winning on that critical content game.

Second, Netflix is a lean and focused organization: they don’t have to worry about resorts or integrating a next-generation telecommunications network. Their sole job is to entertain people at a reasonable price. They show no sign in losing strength in this department, which is why I’m not worried about Netflix stock.

As of this writing, Josh Enomoto is long AT&T stock.

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