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Netflix Facing Competition from Cable Companies

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Aug. 10 2015, Published 10:16 a.m. ET

Crowded online video-streaming market

The online video-streaming market is an increasingly crowded one. Besides Netflix (NFLX), other pay-TV providers such as Dish Network’s (DISH) Sling TV and media company Time Warner’s (TWX) HBO Now are now vying for audiences in this market.

On July 12, 2015, Comcast (CMCSA) announced its new streaming OTT (over-the-top) service called Stream, priced at $15 per month. It will be launched in Boston at the end of the summer, and Comcast plans to make it available everywhere in the US by early 2016. Stream will be at first available to Comcast’s Xfinity Internet customers only.

Currently, pay-TV providers such as Comcast and Time Warner Cable (TWC) are on the losing end of a phenomenon called cord-cutting and are losing subscribers to online video-streaming companies.

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According to a report by Sandvine, and as the above chart indicates, Netflix accounted for 36.5% of downstream Internet traffic in North America as of March 2015. Google’s (GOOG) YouTube accounted for 15.6% of this downstream traffic. This report reinforces the fact that many consumers are moving from television to online video-streaming services such as YouTube and Netflix.

Netflix facing threat from cable companies

Netflix has always maintained that OTT services from pay-TV providers like Comcast are a threat to other pay-TV providers but not to it. Yet there’s one crucial difference between the services. Cable companies such as Comcast provide video services over their own networks. And OTT companies such as Netflix don’t own the networks over which their users stream videos.

In such a scenario, Comcast could give streaming priority to its own OTT service rather than to Netflix’s. It could lead consumers to experience slower Internet speeds while using Netflix’s streaming service, which could influence them to move to Comcast’s OTT service. This would be against the net neutrality rules, but if Comcast were to implement it, it could lead Netflix to lose its subscribers in the long run.

You can get diversified exposure to Comcast by investing in the Consumer Discretionary Select Sector SPDR Fund (XLY), which invests 6.58% of its portfolio in the stock.

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