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Netflix (NASDAQ: NFLX), the leader in the video-streaming industry, more than doubled in stock price 2015, soaring 134% and making it the best-performing S&P 500 stock of 2015.
However, with such incredible gains, other tech giants aren’t leaving the multi-billion dollar streaming industry untouched as more and more people “cut the cord.”
YouTube Red Enters the Arena
Alphabet’s (NASDAQ: GOOGL) Google recently introduced its ad-free video streaming service, YouTube Red. For $9.99 a month, users can watch videos ad-free, save videos and music offline, and stream music through the app while using other apps or with the screen turned off.
So, for the same price as Netflix and other streaming services, you receive both the video and music streaming in one place.
Google reportedly plans to expand its service even further.
Netflix, Amazon.com (NASDAQ:AMZN) and Hulu spend billions to license movie and television content. With competition heating up, those prices have increased as the competitors bid for exclusive content.
The Wall Street Journal reported in December that YouTube, which was acquired by Google in 2006, is now joining the licensing battle ground. YouTube executives (many of whom previously worked for Netflix) are in talks with major Hollywood studios to discuss licensing content to add to the YouTube Red service.
Already, Netflix is shifting more of its budget to creating original programming. With Google entering the bidding wars, Netflix may get pushed out of streaming license deals or be forced to shift more of its budget back to licensing.
YouTube has a much larger budget for licensing, and it can afford to pay more and offset costs from its already strong ad-based revenue while it builds up its YouTube Red user base.
YouTube isn’t stopping at ad-free videos, music and licensed content. It also announced its own plans to create original series and movies. It is investing in original content starring YouTube sensations.
Is YouTube Already Worth Twice as Much as Netflix?
Barron’s analyst Jack Hough has already claimed that YouTube is worth twice as much as Netflix. He values it at $100 billion.
YouTube is expected to bring in $9 billion in gross revenue during 2015, while Netflix is expected to generate $6.8 billion.
YouTube has 1.3 billion monthly visitors compared to Netflix’s 69 million subscribers. Users and viewing time continue to grow for YouTube. Last year viewing time jumped 60% and mobile viewing doubled.
Right now, the two services are in different arenas. Netflix has vowed to remain ad-free. YouTube, on the other hand, is supported nearly entirely by ads. YouTube Red was only very recently introduced, and YouTube Red is still more comparable to Pandora Media’s (NYSE: P) free service versus its premium offering. Currently, ads are removed but subscribes do not receive extra content.
However, if the talks with Hollywood studios for content licensing progress, YouTube Red could be Netflix’s biggest threat yet.
Can Netflix Sustain Instant Streaming Competition?
In March, Netflix customers that were grandfathered into the $7.99 per month rate for streaming will lose that privilege and see their rate rise to the $9.99 a month price tag. The price elasticity of the service is still unknown, but executives are not concerned with losing users with the price gain. After all, why would a user cancel if he is already hooked on Netflix originals like “House of Cards”?
Currently Netflix is spending more on licensing than HBO, Hulu and Amazon combined. But, Google’s deep pockets and the offset created by YouTube’s ad revenue means YouTube can make licensing much more expensive for Netflix.
Tesla, Apple and Google Are Creating This
When people think of Tesla, what immediately comes to mind is the world’s first electric car. It’s an astounding achievement. But what few people realize is that Tesla’s next technological wonder could easily put it to shame. Morgan Stanley says this breakthrough could save the American economy $1.3 trillion each year. And Tesla’s not the only one racing to get it out the door. Apple and Google are working on their own versions too.