Cash Cow for Media Companies - Netflix

Not long ago, media companies were wondering whether Netflix (NASDAQ: NFLX) was going to be disruptive to their traditional models.

It turns out that Netflix was not and, in fact, turned into a cash cow for the industry. But now the question is for how much longer will it remain so.

Three media firms - CBS (NYSE: CBS), Time Warner (NYSE: TWX) and Discovery Communications (NASDAQ: DISCA) – reported strong quarterly results last week. All three companies said it was benefiting from a windfall of cash from online video services such as Netflix, Hulu and Amazon (NASDAQ: AMZN).

These three digital distributors are battling for market share now and ahead of the entry into the market by both Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG). So each company is aiming to set itself apart from the competition by spending large amounts of money for the rights to stream popular movies and TV shows and even older “library content”.

This new source of revenue represents a very lucrative third revenue stream for media companies, supplementing advertising along with cable and satellite operators.

Nomura analyst Michael Nathanson called Netflix “the gift that keeps giving” and summed up the situation this way, “Netflix has been a friendly contributor to everyone's year.”

That is great for shareholders of media companies, but not so good for Netflix shareholders as they have found out recently with the stock falling some 70 percent.

Especially the deals reached with the media companies in many cases are not exclusive...the media companies have sold their content, in some cases, several times.

Add to that, the loss of 80,000 subscribers in Netflix's most recent quarter and a rational investor will see nothing but losses for the company in the quarters.

Like many other technology stocks, Netflix seems like a shooting star across the night sky whose light is quickly fading.