Netflix's stock dropped 5 percent Wednesday amid worries that the Internet video service's subscriber growth will dwindle and licensing fees will rise now that cable-TV provider Comcast is offering an alternative plan to its customers.
THE SPARK: The downturn extended a sell-off triggered by Tuesday's news that Comcast Corp. is launching a Netflix clone called Xfinity Streampix to show older TV series and movies on devices with high-speed Internet connections. Comcast will give Streampix to its premium cable-TV customers at no extra charge and sell it to other subscribers for $5 per month -- $3 less than what Netflix charges.
Based on the details that Comcast has provided so far, Streampix doesn't look like it will have nearly as much content as Netflix Inc. The Los Gatos, Calif., company's video library has more than 20,000 titles, including some material that can't be seen anywhere else.
Nevertheless, Streampix might be adequate enough to satisfy many of the 22.3 million video customers that Comcast had at the end of last year. Netflix may have more difficulty expanding its U.S. customer count, which included 21.7 million Internet video subscribers through December. Some current Netflix subscribers who are also Comcast customers could cancel their Netflix plans when they discover they can find past seasons of many popular TV series, including "The Office," "30 Rock" and "Lost," on Streampix.
Comcast, which also owns the NBC television network, also can afford to buy more video rights for Streampix. As more bidders enter the fray, Netflix may have to pay higher licensing fees to keep its streaming library well stocked. Netflix already has projected it will lose money this year, partly because its expenses for video licensing rights have been rising at a more rapid clip than its revenue.
THE BIG PICTURE: Concerns about Netflix being trampled by bigger companies are nothing new. Within a few years of starting the DVD-by-mail rental service that established the company as a household name, Netflix faced formidable competition from Wal-Mart Stores Inc. and Blockbuster Inc. in that market. Wal-Mart wound up turning over its DVD-by-mail service to Netflix and Blockbuster landed in bankruptcy court.
Now, Netflix's success in Internet video has attracted another crop of heavyweight rivals. Besides Comcast, the list includes Amazon.com Inc., Wal-Mart, Dish Network Corp. and Verizon Communications Inc., which announced its plans to team up with Redbox's DVD-kiosk network on a rival Internet video service earlier this month.
Netflix CEO Reed Hastings thinks cable-TV channels and carriers may be in the best position to compete against his service.
THE ANALYSIS: Barclays analyst Anthony DiClemente said he doesn't think Netflix has too much to be worried about, largely because it has spent the past five years building a bigger and more appealing Internet video library. "Streampix is no Netflix (for now),'" DiClemente wrote in a Wednesday note.
SHARE ACTION: Netflix's stock shed $5.85, or 5 percent, to $111.55 in Wednesday afternoon trading. The shares are still up by about 60 percent so far this year. The rally has followed a pummeling that Netflix suffered during the final five months of last year, after a dramatic price increase triggered a customer backlash. The stock is more than 60 percent below its peak price of nearly $305 reached in July.
Shares of Comcast, based in Philadelphia, rose 10 cents to $29.17.