Fast Money: Behind the Money
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Third of Young Netflix Users Cut Cable
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Executive Producer, Fast Money & Strategy Session
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An alarming survey by Credit Suisse should serve as a wake up call to the broadcast networks and cable companies that they need to take control of their revenue destiny right now, while they still have some negotiating power.
Analysts there found that 37 percent of Netflix subscribers aged 25 to 34 substitute Netflix for pay television. Almost 30 percent of users between 18 and 24 are using Netflix’s streaming service instead of cable or satellite. The Credit Suisse survey was of about 250 Netflix subscribers.
“Netflix’s low cost, subscription streaming service (with improving content) is our biggest worry and could become ‘good enough’ for consumers with moderate income and TV usage to use as a substitute for pay TV,” said Credit Suisse’s Spencer Wang and a team of analysts, in a 50-page treatise on the entertainment industry.
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The team downgraded the whole sector to ‘underweight’ from ‘market weight’ because of the oncoming ubiquity of high-speed broadband opening the door for these delivery services.
Netflix, Microsoft’s [MSFT
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] X-Box and Hulu are already here, but Apple’s revamped TV service and Google TV [GOOG
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] are coming this year. Amazon [AMZN
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] is reportedly working on a subscription service as well.
Shares of Netflix are up more than 150 percent this year. Disney [DIS
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], News Corp [NWS
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], CBS [CBS
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], Comcast [CMCSA
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], Cablevision [CVC
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] are all up less than six percent this year or in the red.
“Between cutting back on ‘extras’ and the fact that a true on-demand situation exists that is also portable via iPad and iPhone, the Netflix story just works,” said Jon Najarian, co-founder of TradeMonster.com. “My worry is how long Apple runs with them before deciding to run the same through iTunes and crushes 'em.”
Credit Suisse maintained that the content and cable kings are not necessarily overthrown yet. Their survey found that just 17 percent of Netflix subscribers of all ages and incomes are substituting that service for cable.
“In the near term, we submit that Big Media has a small window of opportunity to control its own destiny,” said Credit Suisse in the note. “The major U.S. entertainment conglomerates control approximately 70 percent of all TV viewing through its various broadcast, basic cable and premium TV networks and channels. And, content remains the lifeblood for distribution systems.”
But with their downgrade, they apparently decided that this is already an investable theme. Not all investors are ready to do the same.
“The analyst’s premise is right,” said Patty Edwards of Trutina Financial. “But I’m not sure how quickly this is going to eat into profits. People change habits slower than he might think.”
* For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.
John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.______________________________________________________
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Trader disclosure: On Sept. 16th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (APA), (AAPL), (ARUN), (BMO), (C), (DO), (EOG), (FCX), (FTO), (XBI), (GS), (HES), (IBM), (JOYG), (MA), (NBR), (NOV), (OXY), (ORCL), (PEP), (POT), (RSH), (GLD), (SLB), (SWN), (SU), (SPLS), (RIG), (UPL), (VRTS); Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman’s firm is short (ANF); Finerman & Finerman’s firm own (CFN); Finerman & Finerman’s firm own (HPQ); Finerman owns (ORCL); Finerman owns (WMT); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Finerman’s firm owns S&P 500 puts; Finerman’s firm owns Russell 2000 puts; Pete Najarian owns (F) bonds; Pete Najarian owns (POT) call spreads; Pete Najarian owns (RIMM) call spreads; Pete Najarian owns (DD) call spreads; Pete Najarian owns (GDXJ) call spreads
For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners own more than 1% of (ABAX)
Virtus Investment Partners own more than 1% of (ALK)
Virtus Investment Partners own more than 1% of (AMKR)
Virtus Investment Partners own more than 1% of (CASS)
Virtus Investment Partners own more than 1% of (CSVI)
Virtus Investment Partners own more than 1% of (IGE)
Virtus Investment Partners own more than 1% of (LDR)
Virtus Investment Partners own more than 1% of (LPHI)
Virtus Investment Partners own more than 1% of (MGRC)
Virtus Investment Partners own more than 1% of (NRCI)
Virtus Investment Partners own more than 1% of (DBV)
Virtus Investment Partners own more than 1% of (XLB)
Virtus Investment Partners own more than 1% of (XLP)
Virtus Investment Partners own more than 1% of (XLY)
Virtus Investment Partners own more than 1% of (XLF)
Virtus Investment Partners own more than 1% of (XLI)
Virtus Investment Partners own more than 1% of (XLU)
Virtus Investment Partners own more than 1% of (SUBK)
Virtus Investment Partners own more than 1% of (WDFC)
Virtus Investment Partners own more than 1% of (YDNT)
Virtus Investment Partners own more than 1% of (DLUEY)
Virtus Investment Partners own more than 1% of (DRYS)
For Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (ANDE)
Accounts managed by Kanundrum Capital own (RIMM)
Accounts managed by Kanundrum Capital own (ALK)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital are short (OIH)
Accounts managed by Kanundrum Capital are short (IAI)
Accounts managed by Kanundrum Capital are short (XLF)
Accounts managed by Kanundrum Capital are short (BA)
For Dennis Gartman
Funds managed by Gartman own Gold
Funds managed by Gartman own Australian Dollars
Funds managed by Gartman own Canadian Dollars
Funds managed by Gartman are short Euros
For Peter Boockvar
***No Disclosures***
For Brian Stutland
***No Disclosures***
Data is a real-time snapshot *Data is delayed at least 15 minutes
