Hot Stock Watch – Netflix: Oh No, Here Comes Google

Posted by on Aug 31, 2010 | No comment

It was Black Monday yesterday for Netflix (Nasdaq: NFLX) investors. But the stock hasn’t reflected the devastating news, yet. Oh, just give it time.

According to the Financial Times, Google (Nasdaq: GOOG) is sniffing around Hollywood to make a deal that could catapult the Internet superpower into the retail movie business. Google is expected to launch a streaming video-on-demand service in direct competition with Netflix, Apple and Hulu.

Details from the Financial Times’ anonymous source include Google’s right to offer movies the same day as the DVD release, presumably available from its video search engine YouTube.com.

Oh God! Netflix investors knew this day would come, but have been in denial, according to the latest quote for NFLX.

What does Netflix think it is, Google? Granted, the price of the stock has retreated a bit from its manic highs of three weeks ago, but it appears the stock requires a little more slimming down before slipping back into those tight britches.

With the planet frequenting YouTube by the 10s of millions each day already, the platform for Google’s next market grab is in place, like a U.S. aircraft carrier anchored off the coast of an enemy country.

May we be reminded of the mismatch here? Google’s $145 billion market cap should be big enough to destroy Netflix within a year of the date Google launches. Netflix presently trades at a $6.4 billion market cap.

But first, convincing the studios (probably Fox/News Corp., ABC/Walt Disney, NBC, and CBS) to grant online distribution rights to the box office biggies at the same time of the DVD release must be overcome. Then again, the studios are well aware of where the market is going. The eyeballs are on the web now—mostly eyeballing content on YouTube, in fact.

Fast Times quoted a top executive at Google as saying, “Google and YouTube are a global phenomenon with a hell of a lot of eyeballs – more than any cable or satellite service. They’ve talked about how many people they could steer to this.?It’s a huge number.” And the studios know this, and probably opine daily about this sobering (to them) fact too.

Blockbuster executives would probably agree as well.

Any deal struck by Google and the studios could be a whopper of a change in the industry, and not unlike Apple’s break into the music business with its deals with record labels to offer music for iTunes.

“That sort of tipping point is going to have to be reached in movies before online [viewing] becomes the industry standard,” said Jack Plunkett, chief executive officer of Houston-based Plunkett Research.
It’ll be a tipping point, all right—for Netflix investors.

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