Netflix Inc.’s (NFLX) users can now do a lot more than other Facebook members, as Netflix announced the integration of its video streaming services with the social networking site.
This new application will allow Netflix users to share videos and TV shows they have watched on Facebook. Additionally, they will also get to see what others are watching on Netflix. This partnership was announced by Netflix CEO Reed Hastings, who is also a board member of Facebook.
The strategic integration will enable Netflix to achieve its recently-set target of gaining more popularity in the overseas market. Netflix seems to be boarding the social networking bandwagon to create a brand for itself through the rapidly increasing popularity of Facebook.
Partnering Facebook with over 750 million active subscribers worldwide and a target of 1 billion subscribers in the very near term, Netflix perhaps has made the right move.
Netflix, US Users Rue VPPA Law
However, while users across the world get to use this service, the new application would not be available for domestic customers, for whom Netflix is a domestic name.
The Video Privacy Protection Act (VPPA), passed in 1988, prohibits the disclosure of personally identifiable information regarding video rentals, which is the main obstacle to enjoyment of this service by U.S. users. The company has been lobbying for an amendment of the act so that rental companies like Netflix can share consumer information on the Internet.
Netflix has seen an exodus of customers following the announcement of price hikes and the loss of the Starz contract. The limitation of streaming on Facebook for U.S. customers is another hurdle for the company.
Netflix had recently split its business in two – the DVD-by-mail business is now a wholly owned subsidiary, which will be called Qwikster, while the streaming-only business will retain the “Netflix” brand. We believe that separation of the business was a prudent decision, as it makes it easier for management of the two companies to focus on growth.
We believe that the increasing focus on the digital video service will be the key growth driver for Netflix over the long term. Higher adoption of mobile and tablet devices coupled with increasing broadband penetration will be the primary reason for this, in our view.
Our Take
We believe that content additions will enable Netflix to reduce its dependence on cable TV operators and provide it with the necessary competitive edge over its peers in the emerging market of online video streaming. Moreover, strategic partnerships will also be incrementally beneficial to expand its geographical foot print.
However, intensifying competition from large players such as Amazon.com Inc. (AMZN), Apple Inc. (AAPL) and Google Inc. (GOOG) in the online streaming market is a headwind because it will further push up license fees and also affect subscriber addition.
We maintain our Neutral recommendation on Netflix over the long term (6-12 months). Currently, Netflix has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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