Netflix Investors May Want To Sit One Out. It May Be Popcorn Time

| About: Netflix, Inc. (NFLX)


In a few weeks, Popcorn Time went from unheard of to notoriety.

The emergence of Popcorn Time has reminded investors how little Netflix actually does.

Expect to see even more creative ways to distribute movie content.

Expect to see Netflix suffer pain as a result.

Popcorn Time just did a job on Netflix (NASDAQ:NFLX) by demonstrating how little technology is needed to do a better job than Netflix does. The Popcorn Time site was immediately shut down but it will almost certainly resurface and very likely soon.

Popcorn Time has a better library, a simpler interface and it is free. Just find the movie you want and click on it. That is all.

Click to enlarge

Source: Tech-Crunch

The lawyers will have a field day with this, but the ultimate resolution will be in the marketplace. Like so many other great ideas, Popcorn Time will find a way to capitalize on its instant popularity. Many extraordinary applications and platforms offer valuable content for free.

The barrier to Popcorn Time is the content. If pirated, it will not survive. But if it has a massive audience, it need not be pirated. Like Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and WhatsApp, the financial model that will make this a success does not have to be illegal, it just needs to be creative.

One thing is certain. Users hate to give their personal information to another web site and have to remember another log on and password with the exposure of the site being hacked. A solution is to have a site with a great service and no log on at all. Just point and click, sit back with some real popcorn and watch the movies.

Don't think it will work? I do. In fact I think that this whole concept can be advertising based. Just as Cineplex - a Canadian movie chain - augments ticket sales with advertisements before the main feature, ads could be displayed before movies on Popcorn Time. On a good night, a Cineplex theatre might have a few thousand people in the audience of its various screens across its chain of theatres. A good night at Popcorn Time might have several million people at the movies. Reliable audience counts existed in many industries long before the internet came into being, and it is easier to count viewers online than anywhere else.

In movie theatres, on screen advertisements are frequently targeted to local businesses. An advertising deal in Canada with a vendor like Pizza Pizza could precede a movie so that at-home movie watchers can order a pizza and a few drinks at a discount with a promotion code displayed on the screen. Just make it short, simple and targeted at viewers in delivery range to Pizza Pizza.

Content providers have no interest in whether the viewer pays the site or the site earns its money some other way - they just care that their content is properly licensed and the licensee pays to terms. Popcorn Time doesn't pay anybody for its content today, and charges no one for the service it provides. But once it has an audience, that could all change.

Of course, Popcorn Time could become a subscription model as well. Who knows? Its rapid emergence does make one thing really clear - there is nothing special about Netflix. And when investors decide there is nothing special about a company, the shares fall from grace.

Forbes ran an article titled: "Hollywood should be terrified of Popcorn Time". I disagree. Hollywood should emulate the music industry by getting ahead of the curve, embracing the shift in technology, and finding ways to make even more money from the new paradigm than the old one. Whether that is a subscription model like Netflix or an advertising model like Facebook doesn't matter - user support is the key.

There is an Alexander Pope poem that comes to mind:

"Vice is a monster of so frightful mien
As to be hated needs but to be seen;
Yet seen too oft, familiar with her face,
We first endure, then pity, then embrace."

I covered my short on Netflix this morning, too soon and before I learned about Popcorn Time. I expect I will put it back on tomorrow.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in NFLX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.