Goldman Sachs analyst Ingrid Chung says the deal Facebook cut with Warner Bros. to trial VOD and electronic sell through on the social media site could easily set it up as a strong competitor with Netflix (Nasdaq: NFLX). It was a point that investors didn't miss yesterday as they began selling Netflix shares almost as soon as the news hit the street, despite the fact that Chung, and others, also reiterated their pre-Facebook guidance on Netflix.
Still, as Chung said in her memo: "Facebook represents a new potential entrant that few in the investment community were concerned with prior to this announcement, so we believe it does indeed represent an incremental negative for Netflix shares," she said, adding that the company "could some day be a credible threat to Nexflix."
But that some day could be a long way off. Aside from Warner Bros. Dark Knight, Facebook currently has nothing else to offer... nada. And even if it does pick up more movies from Warner Bros., it runs up against the same stigma as Amazon--which last month rolled out Amazon Instant Video. Amazon has positioned its streaming media service as an add-on to Amazon Prime, the $79-a-year shipping service it provides Amazon.com customers. Amazon has said Amazon Instant will have some 5,000 pieces of content available to Amazon Prime members for streaming play.
And that's the problem. Amazon Instant is an add-on to an etailer.
While Facebook is taking a different approach, VOD vs. streaming, it runs up against the same hurdle: It's VOD aspirations are simply an add-on to its social media site.
There's no missing the fact that Facebook has 600 million users (compared to Netflix's 20 million), or that it currently sits at No. 2 in comScore's online video rankings. And there's no question that some Facebook users are part of its payment platform, although it's a small number according to analysts. But how many will opt to download video on-demand is a mystery right now.
Chung points out that the real threat Facebook may pose is to sites like Apple's iTunes and Amazon's movie rental service. You can add Vudu and a handful of other VOD outlets to that list as well, any of the companies with a business model that includes the EST or rental of movies.
Netflix? I don't think so, certainly not until Facebook builds up a more substantial library with more partners than Warner Bros. Even then, Netflix is a destination, you go there looking specifically to select and watch movies or TV episodes.
Neither Facebook nor Warner Bros. made a very big deal of yesterday's news. But that doesn't mean they aren't serious about moving forward, expanding the trial over time. If they do--when they do--it'll be a bigger deal, simply because of the reach Facebook has. 600 million of anything is a big deal; 600 million users who visit a site compulsively could be huge.
But, right now, Facebook is way back in the pack. Let's see how they're doing in a year. -Jim