Everyone has access to a Netflix (NFLX) account. Whether you're piggybacking off your parents (who wouldn't?), grandpa (guilty), or even, perhaps (sadly), your ex-girlfriend, every human has unfettered access to an account. There's no denying it: everyone loves Netflix. Don't believe us? Just reference Google's (GOOGL) traffic results and you'll realize that, during peak Internet times, Netflix accounts for 37% of bandwidth usage. For comparison, one of Netflix’s main competitors, Amazon (AMZN) Prime Instant Video, only accounts for 2.6% of data transmissions. Even some of the world's best-known brands, like Facebook (FB) and YouTube, only account for peak web traffic of 2.7% and 15.6%, respectively. Netflix is clearly the king of online video streaming, and new internally produced content is currently driving company growth; however, HBO Go is an emerging threat that could possibly dethrone Netflix and reshape the video streaming industry.
At present, it is our opinion that HBO’s "Go" service poses the biggest competitive challenge for Netflix. In addition to HBO's vast media library, the company arguably creates the industry's best original content. For example, HBO just released “Ballers," a sports show that has already been compared to the critically acclaimed Entourage series.
One of the main differences between HBO Go and Netflix is that HBO Go streams new content on a weekly basis, whereas Netflix releases entire seasons at once. For HBO, this strategy prevents users from “binge watching," which is otherwise extremely popular on Netflix. Hence, HBO Go’s video content is often in higher demand. Moreover, whereas HBO's critically acclaimed content is original, meaning the company needn't pay for syndication rights, Netflix must participate in, and win, bidding wars against Hulu and Amazon Prime for the bulk of its content.
Although Netflix acknowledges its vast challenges, nearly all Wall Street investors are incredibly bullish on the name. Perhaps this is because Netflix will release 320 total hours of original programming in 2015, a 200% Y/Y increase from 2014. Nevertheless, HBO currently supports over 20 original programs, in addition to live sports content (an area Netflix has avoided). If HBO can successfully expand its paid sports offerings, it has the potential to claim significant market share from Netflix. However, if Netflix can maintain its membership growth rate, HBO's future may be in serious jeopardy.