Blockbuster makes a move. Should Netflix be scared?
Today's Financial News - Posted March 25, 2009
The battle continues. For several years, companies like Blockbuster (NYSE:BBI) and Netflix (NASDAQ:NFLX) have been fighting for a leadership position. So far, no winner has emerged. Could today’s news change the outcome?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): If you want to watch a movie, you have a lot of options. The days of going down to the corner video rental store, plopping your membership card on the counter and taking home a weekend worth of flicks is permanently over.
The magnitude of the options available to consumers in the Web 2.0 environment is making it tough for investors to pick the winners from the losers. It is also making it very tough for companies trying to plan their strategic futures. For several years there has been a lot of jockeying for the lead, yet no one service or provider has emerged as a clear leader.
After Netflix (NASDAQ:NFLX) just about destroyed its brick-and-mortar rental business, Blockbuster (NYSE:BBI) is doing all it can to fight back. It has offered online video and mail-based rental services for several years, yet it has not been able to steal the sort of market share it needs to survive in the current environment.
Today the company is announcing a deal that may help it achieve its goals, but the outcome is far from certain.
Rolling the dice
So far, a relatively small number of viewers have the technology or the ambition to get online videos from their PCs to their TVs. The technology is available, just not widespread. That is why Blockbuster is teaming up with TiVo (NASDAQ:TIVO) to offer its online video library directly to TiVo subscribers. It is a strong attempt at cornering at least one small corner of the market.
While there are no financial figures available on the deal, do not go running to grab shares of either of the two companies just yet. With an array of digital recorders on the market, many available directly from cable providers, TiVo sales are not up to the levels the company needs to be considered a dominator.
Instead, TiVo is nothing more than a small, shaky chihuahua biting at the legs of the major cable providers like Verizon (NYSE:VZ) and Comcast (NASDAQ:CMCSK), both of which have a large library of on-demand videos. (For TFN’s take on Comcast, click here.)
As investors, we are always trying to look into the future to pick out the next big winner. This race is far too close to call (and far too boring to want to sit back and watch), but the long-term winners are becoming obvious.
The big players, Comcast and Verizon are the dominators. The only way Blockbuster or Netflix will get large exposure on their cable networks is by entering some sort of strategic agreement.
TiVo stands little chance of long-term success now that the DVR market is flooded with all sorts of the products it brought to the market. In this case, being a first-mover was not an advantage.
The profit opportunity lies in picking the company that gets the most deals. So far, it looks like the market is right and Netflix will be the winner. It has the online presence and the name recognition it needs to pair up with the big players and secure a lucrative long-term future.
But today’s news from Blockbuster marks a pivotal moment for the company. If it can find success, it may be a real threat to the current market. You can bet all eyes will be watching how this deal plays out.
The news does not make Blockbuster a buy, but it should be on your watch list. If it finds success, Netflix may lose its stronghold.
Next Article: Earnings report: Is Best Buy a good buy?
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