If the Business Insider Report (click here) story is accurate and DISH Network (DISH) has won the bidding war for Hulu, then this is another negative data point for Netflix (NFLX). Let’s recap the recent news flow: 1) changing subscription terms alienating investors; 2) higher content costs; 3) STARZ termination; 4) missing subscriber targets; 5) DISH offering streaming from Blockbuster; 6) DISH reported acquisition of Hulu and 7) add Amazon.com (AMZN) to the list of competitors, strong competitors, taking aim at NFLX, through its new tablet.
AMZN has cash, distribution and great management. They are one of NFLX's most significant competitive threats. And the fact that Google (GOOG) bid $4 billion for HULU, but lost out to AMZN, indicates that they will arrive on the scene at some point soon. The playing field has become significantly more crowded. But $4 billion is a lot less than the $12 billion or so it would take for a company to acquire NFLX, particularly with no real content guarantees given that content providers are reluctant to sign exclusive deals unless they can get desperation pricing which is perhaps what characterizes NFLX 's deal with DreamWorks (DWA).
NFLX has had a virtual monopoly on subscription television and movie programming. This has ended with DISH stepping into the market from a position of strength. Now there is a competitor to drive up content costs in addition to the content providers potentially offering their own services.
Furthermore, as I look at the disparity between the reported $1.9 billion offered by DISH and the reported $4 billion offered by Google, the difference tied to contract extensions on content, it tells me that content is worth more than the technology. Content always drives subscriber growth and the providers now intend to take advantage of their positioning versus arguably cut rate pricing during NFLX’s earlier years of existence. Not all that much is known about the deal Netflix cut with Dreamworks but the number that sticks in my mind is $30 million a picture. The question is whether or not each film will be worth $30 million to them or if the price of the content is adjustable. Besides, this does not kick in for two years so it won’t help them now.
I am not short NFLX but I'm considering buying puts. i have tremendous respect for Reed Hastings but he is in a tough spot. Keep in mind that the information in this article is based on news reports and not a press release or 8-K from either company.