3 Reasons That Verizon Is No Threat to Netflix
Can you stream me now?
Verizon (NYS: VZ) wants a bigger seat in your living room. Reuters is reporting that Verizon is looking to take on Netflix (NAS: NFLX) by offering a streaming service that doesn't require an existing cable or satellite television subscription.
Sources say that the service would have a limited package of movies and perhaps children's programming, and it could launch as early as next year.
As vulnerable as Netflix may seem at the moment with months of open cuts and bruises, there's just no way that Verizon will make a dent in premium TV.
Let's go over a few of the reasons that Verizon will come up short.
1. Verizon is limiting its audience
When DISH Network (NAS: DISH) introduced the Netflix-like Blockbuster Movie Pass in September, it shot itself in both feet. Requiring subscribers to be existing DISH satellite television subscribers both limited the offering's reach and made it cost-prohibitive to couch potatoes approaching streaming TV services as a way to save money.
Verizon isn't making DISH Network's mistake. The rumored service will be a stand-alone digital buffet, along the lines of Netflix and Amazon.com's (NAS: AMZN) Prime platform.
However, since Verizon doesn't want to cannibalize its nascent FiOS broadband television service, it won't be offering the service to homes where FiOS is available. This may seem like a sound tactic, but it means that Verizon is ironically limiting its Netflix-like online service to households that have never considered Verizon as a home theater player.
2. Studios aren't interested
Movie studios and television networks don't like Netflix. They tolerate it, as you would respect any disruptive giant with more than 20 million streaming customers. The result is that they are reluctant to license streaming content, but some cave in anyway because they know that Netflix will just turn its attention to a hungrier digital vault if they pass on the chance at incremental revenue.
Why would they warm up to Verizon's push? Even if Verizon isn't offering the service where it markets FiOS, we're still talking about cannibalizing the cable, satellite, and broadband television providers in those areas. Why burn proven relationships for the sake of an upstart that is unlikely to succeed?
Reuters reports that Verizon may be down to digital movie distributors for content. This includes Viacom's (NYS: VIA) Epix -- which is already available through Netflix and even Microsoft's (NAS: MSFT) new Xbox platform -- and Liberty Media's (NAS: LMCA) Starz. It can always flesh out those newer offerings with the cheap licensed content that Amazon has been able to corral into its Prime instant streaming service.
3. No one can pay as much as Netflix for streaming
As slammed as Netflix shares have been, it's really in untouchable territory when it comes to streaming.
If Starz refused to renew its likely nine-figure deal with Netflix, how would it look if it opted for a much smaller deal through Verizon?
How do you compete against Netflix? If you try to undercut Netflix's price of $7.99 -- the way that Amazon appears to be doing with Amazon Prime -- you're going to deal with an inferior library, since studios won't want to devalue their hottest releases that way. If you aim for quality at a higher price point, you won't attract a lot of viewers and they won't stick around for long after they go through your best content.
Don't wait up
Verizon may be the top dog in wireless, but Netflix is the Verizon of streaming.
It may seem odd to be envious of Netflix these days. The stock has shed more than 75% of its peak summertime value. However, the company has distinct advantages.
For starters, all of the price hikes and the Qwikster fallout don't necessarily apply to the $7.99-per-month streaming service that has been in place for more than a year. As long as Netflix can stop the subscriber bleeding, as it expected would happen this month on the streaming end of its domestic business, it can continue to pad its industry-leading digital smorgasbord.
If it can't bounce back, it will probably be more of an indication that premium streaming services have fallen out of favor. Either way, Verizon loses.
Don't be surprised if Verizon ultimately realizes this and quietly moves on to a different strategy.
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At the time this article was published The Motley Fool owns shares of Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Microsoft, and Netflix, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story, except for Liberty Media. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.