Can Netflix Beat the Competition?

A report issued by the research firm NDP has revealed a trend that could significantly boost the growth of Netflix’s (NASDAQ:NFLX) streaming-video service. According to the data, more than half of consumers between the ages of 18 and 24 with an Internet-connected TV use it to watch Netflix.

The author of the report, Device Research Director John Buffone, noted that the “inherent success of Netflix streaming can be attributed to its content library and TV centric strategy initiated in part by the Roku launch in 2008.”

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Success is a word that was tacked onto Netflix by commentators and analysts during the first few weeks of 2013, after the company’s stock price soared over $100 briefly for a few days earlier this month. Janney Capital analyst Jon C. Ogg contributed to the positive assessments of Netflix, raising his rating on the company from “neutral” to “buy” and increasing the price target to $129. He based his upgrade on the fact that “competition has not yet materialized to the extent that it poses significant near-term risk,” reported Fortune.

However, this analysis may have only taken into account a short-term view. While the stock was making gains, Fortune contributor Dan Mitchell argued that Netflix was still overvalued. “Investors act ‘as if it it’s the undisputed leader,’” he wrote quoting CNNMoney‘s Paul LaMonica. But Netflix may not be able to stave off the competition for long.

Among Netflix’s problems are its content deals. The streaming-video service lost several important licensing agreements with movie and television providers last year and the cost of the content it has been able to retain is increasing. Rivals are doing more than simply matching Netflix’s offerings, their libraries are surpassing that of Netflix. In particular, Amazon (NASDAQ:AMZN) recently signed a deal with A&E, and its agreement with Epix provides its library with movies from Paramount, MGM, and Lionsgate (NYSE:LGF). Further competition is expected to come from Time Warner’s (NYSE:TWX) HBO and a new partnership between Coinstar’s (NASDAQ:CSTR) Redbox and Verizon (NYSE:VZ).

With the market for content becoming aggressive, Netflix has to improve and expand its content to acquire and retain customers. But already murmurs of future difficulties are beginning to be heard. Analysts have forecast that the company will report a loss for the fourth quarter, according to CNBC, as a result of increasing costs for Internet licensing fees and its expansion abroad. During the quarterly earnings call, Chief Executive Reed Hastings is expected to comment on the recent content deals Netflix made with The Walt Disney Company (NYSE:DIS) and Time Warner. However, analysts are concerned that his overview of the content acquisitions will show that the agreements were overly expensive, and may require the company to increase its prices.

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