Did Netflix Just Burn Your Money?

The following video is part of our "Motley Fool Conversations" series in which consumer goods editor/analyst Austin Smith discusses topics across the investing world.

Netflix made waves the other day with its announcement that it'd be investing big money in its own content delivery network. The news sent shares of other CDN companies spiraling, and some investors have worried that this is a big waste of Netflix's precious cash. The reality isn't that grim, for Netflix or the CDNs. While Austin admits he'd rather see this money spent on quality content, having its own content delivery network will allow Netflix to compete more competently with other big streaming players like Amazon and Apple, both of which have built their own networks already. It will reduce the company's costs over time, and enhance the streaming experience. As for the CDNs, while some may get big revenue from Netflix, it's generally not of the highest quality. They tend to realize lower margins on sales to Netflix. So despite the looming void in the top line, the bottom line shouldn't be as badly hit as companies fill the gap with more profitable traffic.

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At the time thisarticle was published Austin Smithhas no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Microsoft, and Netflix.Motley Fool newsletter services recommendApple, Microsoft, and Netflix. 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.

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