Morningstar | Netflix Faces Increasing Competition While Continuing to Burn Cash
From its origins as a DVD rental by mail service, Netflix has morphed into a pioneer in subscription video on demand and the largest online video provider in the U.S. Our economic moat rating of narrow is based on intangibles and a network effect resulting from the use of Big Data stemming from the firm's massive worldwide subscriber base.Already the largest provider in the U.S., Netflix has expanded rapidly into markets abroad as the service now has more subscribers outside of the U.S. than inside. The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as "Orange Is the New Black." We believe that this data and ability to leverage will help Netflix remain the largest provider in the U.S. and enjoy success in many of its newer markets. We believe that many consumers use, and will continue to use, SVODs like Netflix as a complementary service, especially as SVOD prices increase and pay-television bundle prices decrease (due to the shift to over-the-top, or OTT, delivery). Media firms will continue to reap the benefits of both an additional window for existing content and another platform for new content. Larger firms like Disney and WarnerMedia are launching their own SVOD platforms to compete against Netflix. We think this usage pattern and increased competition will constrain Netflix's ability to raise prices without inducing greater churn.We expect that Netflix will expand further into local-language programming to offset the weakness of its skinny offering in many countries. This will likely generate a competitive response from the firm's global and local rivals, which will augment their own first-party content budgets. In turn, we think Netflix's international expansion will disappoint, particularly in terms of the speed of margin expansion.Netflix is engaged in subscription streaming entertainment service including TV series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, without commercials. Additionally, several members in the United States subscribe to the company's DVD-by-mail service. The company improves its streaming content with a focus on a programming mix of content. The company's members can download a selection of titles for offline viewing. The company operates its business as a global operating segment.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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