Battle of the bubbles

In case you haven’t been paying attention to Facebook news, Warner Brothers (Time Warner, Symbol: TWX) just  launched a Facebook application that would allow users to rent and watch movies directly on Facebook for $3. The first movie available would be the smash hit The Dark Knight.

Almost immediately Netflix stock price dropped 6% and is still dropping as of today.

The concept of charging a rental price for digitally distributed media is not new. charges very similar prices and even recently gave its Prime customers free access to thousands of digital movies and television shows. Hulu and others also offer streaming services.

The stock price of Netflix did drop a after’s Prime movie incentive started, but why should it drop a large amount from an announcement from Warner Bros. releasing only 1 movie and charging $3 per rental? The reason is because Facebook is involved.

Forget that the movie isn’t free. Whenever Facebook is mentioned investors go crazy with speculation. Is the use of Facebook enough to get people to pay for old movies through them rather than Netflix? I personally can’t see it happening unless Facebook comes up with something VERY creative to warrant the extra cost.

We can see that even though investors started getting rid of Netflix stock, the opposite effect was not seen with Time Warner.

However, while the drop of Netflix stock price can be partially explained because of the influence and aura of Facebook, it does show that perhaps Netflix was a bit overpriced. After all, their P/E ratio is a high 65.

In the long run I would suspect the real competition for Netflix will come from or the cable companies. If in the future Facebook does indeed take over the digital movie streaming market, I will admit I am wrong. However, I won’t come to that conclusion from mere bubble hype or conjecture.

I’ll need to see some real numbers and business models.

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7 Responses to “Battle of the bubbles”
  1. I would like to see what happens to Netflix if facebook and Time Warner make anything available for a flat monthly rate. Yes, steal the model. Overpriced stock yes, comparable product no. Time (not Warner) will tell.

    • Gian Sorreta says:

      If they do steal the model I would think Facebook right now would have more influence on movie and television studios than Netflix.

      However, I wonder if it would even happen because of the revenue loss cable companies will incur (Time Warner has a cable division). We can see a battle between Netflix and Comcast going on right now.

  2. Bret Simmons says:

    damn good content. Is there a call for action? keep it up!

  3. Jessica says:

    I personally would not pay $3 to watch a movie on Facebook. I use Netflix for all of my movie rentals and we can watch as many movies as we want for $15 a month. I would agree that I think Netflix’s real competition will be from Amazon or from cable companies.

    • Gian Sorreta says:

      I think a lot of people are the same way, especially when higher value alternatives exist. I guess we’ll have to wait and see how Netflix stock ends up after the Facebook hype settles down.

  4. Gian Sorreta says:

    I should add that NFLX is going up today on speculation that Blockbuster will be liquidated today.

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