Netflix shares soar after Blockbuster bankruptcy

LOS ANGELES Fri Sep 24, 2010 9:33am EDT

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LOS ANGELES (Reuters) - Shares of Netflix Inc hit an all-time high on Thursday after rival Blockbuster Inc filed for bankruptcy protection, but Hollywood said it was too soon to call it curtains for the once-mighty video vendor.

Shares of Netflix, which launched in 1999 and has 36 percent of the $6 billion U.S. rental market compared with Blockbuster's 22 percent, hit a record high of $163.72 on views that it would grab customers from Blockbuster store closures.

The shares closed up $3.54 at $160.47.

"Our long-standing relationship with Blockbuster has been mutually beneficial and profitable, and will continue to be so," said Simon Swart, executive vice president and general manager of News Corp's Twentieth Century Fox Home Entertainment.

"We are confident that Blockbuster will emerge from its reorganization financially healthier and able to innovate to serve the entertainment needs of its huge customer base."

According to Home Media Magazine Market Research, low-cost Coinstar Inc's Redbox kiosks have also surpassed Blockbuster with 25 percent of the market. Independent stores comprise the remaining 17 percent of the market.

"Blockbuster still has lots of profitable locations. If they could get out from under their debt load they could conceivably generate between $400 million and $500 million in annual revenue for movie studios," said Jan Sexton, an analyst at Adams Media Research, a division of Screen Digest.

"Netflix for now is operating in an environment with limited competition," said Tony Wible, an analyst with Janney Montgomery Scott, adding that could change as newcomers to the streamed video market like Google TV and Apple TV and a potentially stronger Blockbuster gain traction.

"Blockbuster may be able to redeploy cash into new technologies, kiosks, DVD by mail and focus on some of its advantages," Wible said. For example, Blockbuster rents new releases 28 days before Netflix and Redbox through deals with studios.

While studios have been grappling with how to offset declining DVD sales, analysts and entertainment executives are increasingly bullish on views that the proliferation of streaming services will boost their asset values.

Speaking at the Goldman Sachs Communacopia Conference this week, Walt Disney Co chief executive officer Bob Iger said Disney should benefit from demand for more content.

"Given what I'm seeing in the marketplace, it's possible that Netflix will continue to try to amass more content, something that, by the way, we could benefit from. They're already paying for some of our content, and I know they're interested in more," he said.

Analysts believe competition for content will continue to grow, which will be good for entertainment companies.

"It's in Hollywood's best interest to focus on as many competitors in this space as possible," said Michael Pachter, analyst with Wedbush Morgan Securities. By Sue Zeidler

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