Netflix (NASDAQ: NFLX) has long been the dominant player in the streaming subscription video on demand (SVOD) space. Competitors like Hulu and Amazon's (NASDAQ: AMZN) Prime Video service have done well in their own right, but they've never seriously competed with Netflix for market share. But now a fresh onslaught of services, including a much-hyped Disney (NYSE: DIS) unit called Disney+, threatens to finally make Netflix look mortal.
As more and more companies like Disney and Comcast (NASDAQ: CMCSA) create their own Netflix-like services, Netflix stands to lose its most popular licensed content as those companies take it back for themselves. Soon, it will be forced to compete on a playing field that is more level than the company has ever seen before.
While Netflix has dominated streaming in the past, it may not be best suited to come out on top in the future. That's due in part to three big problems -- problems that not all its competitors have.
1. A matter of delivery
Netflix was founded as a service that mailed DVDs to people and it became a true tech giant when it debuted its streaming service in 2007. Later, Netflix created its own studios and video content in an effort to keep costs down and expand its exclusive content library. Netflix is killing it in original content, but it relies on other companies to serve its content to viewers.
Unlike Amazon, Netflix doesn't have a streaming ecosystem or device that puts its content front and center. Amazon's Fire TV devices surface its content on main menus while Netflix is merely one of many apps and options. And, of course, Amazon is much more diversified than Netflix, as are soon-to-be competitors like Apple (NASDAQ: AAPL) and Disney.
2. A matter of money
Diversification is important because the streaming space is very new and not exactly chock-full of profits. Apple, however, has the cash to drop a reported $1 billion on new streaming content for its upcoming service, and Amazon can take cash from other parts of its business to fund less profitable efforts like streaming. Netflix, on the other hand, is in debt.
Unlike Amazon, Apple, and Disney, Netflix's only real source of cash is credit.
And the company has an awful lot of debt. Netflix had more than $10 billion of long-term debt on its books at the end of last year, and that was an increase of nearly 60% over the previous year. Competing with new rivals is very expensive and the Fitch credit rating agency calls Netflix a "serial issuer of debt" and has hit it with a B rating, meaning "highly speculative."
A Netflix default isn't on investors' radar right now, but that doesn't mean any of this is a really good sign for the company. It is suddenly finding itself in a content war with some very deep-pocketed competition.
3. A matter of impact
Netflix started creating original content to maximize profits over the long term. It's possible that it also foresaw this moment: a day of reckoning when content producers would start yanking content from Netflix's platform and striking out on their own.
Netflix has had six years since the release of its first true original, House of Cards, to build up its IP. But it's not the most impressive in the streaming space by any measure, especially after Disney's acquisition of 21st Century Fox (a move that was made in large part to set up Disney's streaming plans). Disney owns Star Wars, Marvel Studios, and a huge catalog of classic family favorites. Netflix's Stranger Things is great, but it's not Star Wars, which some argue is the most valuable IP ever created, given all the movies, products, theme park rides, etc. it has spawned.
Times are changing
For years, Netflix was the top dog in streaming. Its catalog was the biggest, its exclusives the best; when it began supplementing its content with original series, it only seemed to grow more powerful.
But now the playing field is leveling very rapidly. Netflix has seen big titles go to rivals before -- Hulu paid big bucks for Seinfeld a few years back -- but the upcoming exodus of Disney and NBC properties is going to be brutal.
Netflix will soon be fighting for market share with Disney, Apple, and others -- plus all the old rivals, like Amazon. And with these three problems, Netflix is looking a whole lot less like the company to beat.
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