Another Streaming Newcomer Undercuts Netflix

Netflix has to be getting sick of this.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Since its latest price hikes went into effect earlier this year, Netflix (NASDAQ: NFLX) has been charging subscribers $12.99 per month for access to its most popular plan. That may not seem like an outrageous rate given the fact that Netflix is the dominant service on the streaming market, and some competitors, including AT&T‘s HBO Now, are in the same ballpark. Yet all of a sudden, Netflix’s current price is looking a bit too high.

That’s thanks in part to the new competition offered by Walt Disney‘s (NYSE: DIS) Disney+. The entertainment giant’s new streaming service will cost just $6.99 per month when it debuts in November, and Disney will also offer Disney+, Hulu, and ESPN+ in a bundle for $12.99 per month. Combined with a rough quarter for growth following the Netflix price increase, this new competition suggests that Netflix has a pricing problem. And now it’s getting worse, because Apple (NASDAQ: AAPL) is looking to undercut Netflix, too.

Apple’s pricing play

Apple, like Disney, has been working on a new streaming video subscription service that seems designed to challenge Netflix in the subscription video on demand (SVOD) space. Apple is building its service on its TV app, a streaming platform that offers free content and also acts as a hub that gives users access to premium content from subscription services like HBO. Apple’s TV app is already up and running, but it will soon add a new source of premium content that comes straight from Apple itself: Apple TV+.

Apple announced this month that Apple TV+ will cost $9.99 per month. That’s not quite as cheap as Disney+, but it’s still cheaper than Netflix’s most popular plan (Netflix does offer an $8.99 per month plan that limits viewers to standard-definition streaming on a single screen, but it’s not as popular as the $12.99-per-month Standard plan, which includes HD streaming on two screens).

It’s more trouble for Netflix, which is now facing two new major competitors at lower price points — in addition to Hulu, which has long been cheaper than Netflix.

Betting on a fractured market

It was one thing when a pricier Netflix faced down a cheaper Hulu in a relatively sparse streaming market. Netflix has been the king of streaming for more than a decade, and its huge library of strong content has long made it the prohibitive choice for consumers.

But that won’t be true for much longer. Even if Netflix pours more money into its original series and manages to keep its content library from shrinking, it still won’t have the monopolistic position that it once did. While Apple is relying on huge investments in original content to build its new service despite a background in tech rather than video content, other companies are simply taking their own media properties home, and in many cases, away from Netflix. Netflix has lost Marvel Studios content from Disney and will soon lose popular sitcoms from Comcast‘s NBCUniversal — including The Office, which is Netflix’s single most popular show.

The streaming market is becoming increasingly fractured. That’s likely to lead to much more subscription churn as more users hop from service to service to catch up on favorites. It’s also likely to give an advantage to cheaper services that position themselves as a part rather than the whole of a user’s streaming media solution.

Hip to the hub

Apple knows that the market is getting fragmented — in fact, the company is among those betting on it. Again, Apple’s TV app allows users to subscribe to other services and view all of their content (along with free ad-supported content) within one app. Netflix users can’t do that. And hubs like Apple’s — as well as Amazon Channels and platform-style hubs like Roku — will be able to take a cut of each subscription that their users add.

Netflix has a pricing issue, and it’s not just competing against individual services. It’s competing against bundles and all of the different a la carte setups that consumers can create on competing platforms. The streaming market seems poised to shatter into a world of cheaper and more numerous subscriptions — and everyone seems ready for it except Netflix.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stephen Lovely owns shares of Amazon, Apple, AT&T, and Netflix. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, Roku, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

More on Tech Stocks

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Tech Stocks

TFSA Investors: 3 TSX Stocks You’ll Regret Not Buying on the Dip

Among wide range of investments allowed in a TFSA, now is the time to invest in stocks.

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Tech Stocks

2 Stocks That Lost Over 50% in 2022

The recovery of the TSX’s tech superstar and a promising high-growth stock that lost more than 50% in 2022 is…

Read more »

Man holding magnifying glass over a document
Tech Stocks

Why BlackBerry Stock Looks Way Too Undervalued After Q1 Earnings

BB stock hasn’t seen any appreciation lately, despite its continued progress on the IVY platform and early signs of the…

Read more »

A stock price graph showing declines
Tech Stocks

BlackBerry Q1 Earnings: The Declining Revenue Streak Continues!

Will BB stock break below $6?

Read more »

A bull outlined against a field
Tech Stocks

After the Recent Fall, it’s Time to Turn Bullish on 2 TSX Growth Stocks

With the kind of lows these TSX stocks have seen, the negatives appear to be priced in.

Read more »

man sitting in front of 3 screens programming
Tech Stocks

3 Ultra-Cheap Tech Stocks to Consider Buying

Three ultra-cheap tech stocks are interesting picks for their favourable business outlooks and long growth runways.

Read more »

Question marks in a pile
Tech Stocks

Crypto Selloff: Has the Bottom Shifted After the Interest Rate Hike?

The measures taken to control the inflation in the U.S. and Canada, including an increase in interest rates, can adversely…

Read more »