Netflix Stock Drops After Facebook Movie Streaming Announcement

7:43 AM PST 03/08/2011 by Paul Bond
Warner Brothers Pictures
The Dark Knight

The movie rental giant's shares dipped 6% on Tuesday as another new competitor joined Amazon.com in the movie-streaming business.

One day after Warner Bros. said it will let Facebook users stream The Dark Knight for $3 over their computers, Netflix stock dropped 6% Tuesday on worries of another rich competitor entering the fray.

It's a small initiative, to be sure, but Warners says it will add titles over time, and at least one analyst said in a research note Tuesday that Facebook could someday be a meaningful digital distributor of films.

"On a longer-term basis, we think that Facebook could become a credible threat as its video business evolves," Goldman Sachs analyst Ingrid Chung wrote.

She said Netflix investors should consider Facebook's 500 million users worldwide before they dismiss the initiative as too tiny to worry about.

"Facebook represents a new potential entrant that few in the investment community were concerned with prior to this announcement," she wrote, "so we believe it does indeed represent an incremental negative for Netflix shares."

Short term, Chung acknowledges Facebook is not a problem for competitors. Others Tuesday dismissed Facebook's entry into movie distribution much more forcefully.

"We are surprised that Netflix shares are trading down today on what appears to be a reaction to what we believe is small news," Lazard Capital Markets analyst Barton Crockett wrote.

Even more dismissive was Aristotle Munarriz, writing for the Motley Fool.

In a piece rife with Batman references, Munarriz opined that the only folks who'd want to stream a 3-year-old movie on their computer screen for 152 minutes are the diehard fans, and they already own the movie on DVD or Blu-ray.

"Warners' biggest failure is that it's trying to push a Web 1.0 concept on a Web 2.0 platform," he wrote.

Warners has been experimenting with various distribution methods. Last month, it allowed The Dark Knight and Inception – two films directed by Christopher Nolan – to be viewed as applications for the iPhone and iPad.

Stock in Coinstar, the parent company of DVD distributor Redbox, also took a hit Tuesday, with investors bidding the price down 5% for likely the same reasons that they pushed down shares of Netflix.

Netflix investors have been taking a beating since Feb. 22, when Amazon.com said it was giving away streaming movies to its subscribers of Prime, Amazon's discount shipping initiative. Since then, Netflix shares, which fell $11.95 Tuesday to $195.45, have plunged 17%.

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