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Despite a stellar third quarter, particularly in the streaming area, Netflix may be in for a rough road ahead when it may be forced to pay more for content acquisition and marketing. One of the few blemishes in its Q3 financials was Netflix’s subscriber acquisition cost (SAC), which was the highest of the year at 14.5%.

Morningstar analyst Larry Witt believes that once competition from the likes of Amazon, Hulu, YouTube, Google and Apple heats up, Netflix’s head start in the streaming business will count for less and less. According to Witt:

“Netflix’s lack of a competitive advantage in digital delivery will eventually strain subscriber growth and will pressure profit margins due to higher content costs and increased marketing expenses.”

Witt believes that as more companies begin to compete with Netflix in the streaming business, it will be forced to make its prices more competitive as it fights for each new subscriber. Said Witt:

“As subscriber growth slows, we expect the decline in prices to lead to much lower revenue growth. Overall, we expect revenue growth to average 5.8% over the next 10 years, with 12% average annual growth from 2010 to 2014, followed by flat revenue from 2015 to 2019.”

Where do you put Netflix’s chances of increasing/maintaining its dominance in the streaming business, Insiders? Who will pose the greatest challenge?

(via Forbes)

2 Responses to “Analyst: Netflix May Experience Growing Pains in Streaming Biz”

  1. Member [Join Now]
    amtj03

    There are a few problems with the writer’s logic. Netflix is the regulator or the godfather, so to speak. They are the primary company right now offering streaming services. Amazon and Apple offer downloads and some VOD but it is really expensive; the average rental is 3.99 and the average season is about $20. Hulu, Youtube, and Google basically are dealing in a free content, surrounded by ads, realm. Netflix may not offer up-to-date programing like some of them may have available but look at the prices. How much will all those companies, who may not have the experience, pay for content? It also has to be taken into consideration the type of streaming the company wants to do; it is like comparing apples and oranges. If Amazon and Apple go into offering digital TV shows and movies but not with plans; that will be different then Netflix offering a $7.99-10.99 a month streaming plan. I believe that the other companies will be fighting to compete with Netflix. Even if Netflix raised prices to a $20 a month streaming plan to pay for newer content; it would still be cheaper then cable or anything Amazon, Itunes, or Google will offer.