Netflix, Inc. (NASDAQ: NFLX) shareholders had plenty of concerns even before Facebook announced that it was going to get into video delivery of selected movies. In a SWOT analysis, the Facebook issue always fell under the O and the T as opportunity and threat alike. This no longer appears to be the case. Facebook has announced today that Reed Hastings, CEO of Netflix, will join the Facebook board of directors.
MarketWatch has a full backgrounder on the news here. Facebook is obviously gearing up its team for an upcoming IPO. It is one of our Top 17 IPOs To Watch in 2011.
Why this matters is complex, yet simple enough. There was a thought that it is only natural for Facebook to get into digital distribution of films. The outfit has even announced some limited streaming deals already.
If Facebook wanted to get deep into the video distribution business, it wouldn’t be difficult since it has hundreds of millions accounts already. The movie studios have already shown that they are all just about willing to take the arms-dealer business model and deal with anyone who will pay to deliver movies.
The only real difference is over who gets the new releases first. For Facebook to get into the video delivery business, all it has to do is to buy more bandwidth. Still, partnering with Netflix is a low-cost solution that could come with extremely high margins.
Netflix shares are up 2.4% at $254.74 late in the day and the 52-week range is $95.33 to $277.70.
JON C. OGG
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