While "Over The Top" technologies like Netflix and Hulu are clearly the wave of the future, the market has bludgeoned Netflix over the past 12 months, knocking 75% off its value. Is this punishment for Netflix's bad behavior, or a readjustment for the entire OTT market?
There's plenty of reason to see Netflix as an isolated victim of its own actions, beginning with its disastrous decision to split its DVD and streaming businesses and boost prices on both. And since a price hike was clearly on the table, Netflix might have at least tried to use it keep Starz/Disney content in the network, if only as a premium tier. And their decision to move from a pure content provider to a content studio (competing with its own suppliers) has met mixed reviews.
CEO Reed hastings has made some moves that are incredibly easy to second-guess, but there's more to the story than one mercurial cowboy. For all its foibles, Netflix is the gorilla of the OTT space, accounting for 20% of peak US Internet bandwidth and the majority of the space it defined.
It didn't get there by accident, so some of the stock's fall points to endemic weaknesses in the business model. Access providers will gripe as much about and and movie studios will demand even more from any less-established upstarts looking to challenge the king.
Courtesy of Statista
So where does this leave Netflix's competition? In the same boat, with second-tier catalogs and a limited margin through which to acquire premium content. For Hulu, the Netflix plummet could cause some reshuffling. Just a month ago, analysts were eyeing a 50x earnings multiple for a Hulu valuation.
Since then, Netflix has dropped from a 49.6 price/earnings ratio to just 32.37. Unless Hulu has some magic up opts sleeve (and it may, given its cozy relationship with current co-owners NBCUniversal and The Walt Disney Company), they should lower their target to the same range. Then again, with a third of its potential value off the table, putting Hulu on the market may not make a lot of sense.
You can read more about Netflix in this week's DeathWatch.