Netflix, Inc. (NASDAQ:NFLX) was the subject of a surprise announcement last night when Virgin Media announced the company would be available to its TV subscribers in the United Kingdom. On today’s market, the stock has lost more than 2 percent as investors question what direction the company is going in with the new deal.
The word disruptive has been popping up a lot recently. In essence, the word is used to justify buying a growth stock. Whether right or wrong, Netflix, Inc. (NASDAQ:NFLX) has been described as disruptive nearly as often as Tesla Motors Inc (NASDAQ:TSLA) has in the last year.
Is Netflix disruptive?
Netflix, Inc. (NASDAQ:NFLX) was called disruptive because it was going to change premium television forever, like HBO did in the past. Netflix doesn’t seem to be thinking about itself that way. As of today, the company looks like a premium cable channel with the best online service in the industry.
Investors are asking quite a lot of questions about Netflix, Inc. (NASDAQ:NFLX) today. At a P/E of close to 400, questions lead to price drops. If this is a short term plan designed to demonstrate the value of the video streaming service to international customers, it might work, but it offers problems for Netflix, Inc. (NASDAQ:NFLX), even with that limited goal.
The first problem is brand identity. Netflix, Inc. (NASDAQ:NFLX) is going to come as part of a TV package in the UK. That means customers there will think of it as a TV service. Netflix, Inc. (NASDAQ:NFLX) is so much more than that if you go along with the “disruptive” thesis.
The brand identity problem extends to pricing. Netflix, Inc. (NASDAQ:NFLX) is no longer positioning itself as a complete alternative to premium cable channels. Under the terms of this deal, it’s part of the package. Finding someone to pay for the service alongside the Virgin service will be difficult, and finding someone to pay for it after they’ve already gotten it as part of a package in the past could be impossible.
Netflix: Cable in fibre’s clothing
If Netflix, Inc. (NASDAQ:NFLX) does follow this strategy, it could be lucrative, and it may be the best decision the company has ever made. It’s unlikely, however, that the deal will add to the “disruptive” quality of Netflix, Inc. (NASDAQ:NFLX) stock. It turns out Netflix is a channel on cable, or that’s what many Britons will be thinking.