This is truly a market that cares more about events and headlines rather than fundamentals. The latest example: Netflix (NASDAQ:NFLX), which bounced up this morning on news of its new streaming video service.
Never mind that this isn't the "downloading" many have expected -- and certainly not the set-top box system that had been making the rumor rounds -- and in retrospect shows why the company has in the past used the term "internet delivery" when discussing downloading. Boasting a mere 1,000 old titles, the announcement is long on hype and short on substance, with a broadband-hungry service that is costly to deliver (more costly, some say, than downloading) and technologically inferior to DVDs (unless, of course, you don't mind an occasional stall due to a buffer or two.)
But is it worth the $40 million Netflix plans to spend this year -- and whatever it plans to spend in future years? Time will tell, and I'm sure this will be a focus of considerable conversation on the company's earnings call next Wednesday, as was promised a quarter ago.
Reality: As I mentioned here several months ago, if Netflix truly wants to compete in the online delivery of a broad library of current titles it will have to spend hundreds of millions every year -- if not more -- on studio licenses. (HBO is believed to spend upwards of $1 billion.) And that's before getting into the issue of studio "windows," regarding when certain movies can be shown.
Among those not impressed (not surprisingly) are Wedbush analyst Michael Pachter, who has long rated Netflix a "sell." "We think that this new service will become irrelevant as more robust services are offered by competitors Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) over the next few years," he wrote today in a report to clients. "Should any of these companies escalate the dowload battle, we think that Netflix's resources will limit its ability to compete in the future." Stay tuned.