Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB) are teaming up to make movie watching more social. The partnership makes a lot of sense and could help both companies cement their industry leading positions. It also makes Facebook’s business prospects look a little more desirable.
Changing Television
Netflix, Inc. (NASDAQ:NFLX), which started as a mail based dvd rental service, made a prescient switch to online video delivery. At that moment, the way in which people interacted with video began to change. The company didn’t stop there.
More recently, facing increasing costs for video content, it set out to create its own television shows. Lilyhammer, Netflix’ first effort, was a testing ground that was used to launch House of Cards. The second series, which featured popular actor Kevin Spacey, was promoted with much greater fanfare. Netflix CEO Reed Hastings, not one to hold back, even suggested that House of Cards was going to hail the advent of Internet TV.
Friends
Facebook Inc (NASDAQ:FB) has been similarly disruptive to the normal way of doing things. While it isn’t the only social network out there, it is easily the most populated social network. The huge benefit that Facebook offers is connecting with friends and family, both quickly and frequently.
The company, however, has had a hard time turning its vast network of customers into a a vast revenue stream. While games played on Facebook have been a big hit, and revenue source, advertising is the holy grail that investors want to see the company crack. The only problem is that customers don’t want the company to share too much of their private information or see ads impede their Facebook experience.
Things People Share
A connection between these two companies makes a great deal of sense. People like to share their media watching experiences with others, recommending and panning movies and shows as gleefully as they share gossip. Thus, customers of both companies will likely find this partnership a fun and desirable change.
Longer term, however, it has even greater potential for both companies. For example, not too long ago Facebook Inc (NASDAQ:FB) introduced Facebook Credits. This currency substitute allows customers to make in-game purchases. However, Facebook has envisioned a day when it also allowed customers to purchase video content, such as movies and television shows.
Those shows could be in the form of a download or streaming directly through Facebook’s site—or perhaps via a partner’s service, like Netflix. Of course there is also the more mundane option of allowing a third party to use the video information to post advertising for DVD sales.
Netflix, Inc. (NASDAQ:NFLX), meanwhile, gets customers used to sharing their viewing choices with others through the world leader in online social engagement. However, it doesn’t need Facebook Inc (NASDAQ:FB) to allow customers to share like this. Once customers are used to the idea via the big Facebook push, it can start to do the same thing on its own systems.
Netflix ultimately gets more people sharing, which creates a push to watch more and an increased stickiness to the service. That’s a clear win that helps to cement its position at the head of the online video industry.
Vital for Facebook
This partnership, then, will be good for both companies. However, such integration will be vital for Facebook if it wants to remain an industry leader. The power of the company is in its network of connections, but today those connections have limited financial appeal. This is why LinkedIn Corp. (NYSE:LNKD) has been a market darling and Facebook Inc (NASDAQ:FB) hasn’t.
LinkedIn customers have reasons to pay extra for services, mostly predicated on the hope to earn more money. This has translated into steadily increasing revenues and a growing customer base. Greed, unsurprisingly, is a big motivator. Facebook doesn’t have that to offer and, once the company opened its books to the public, investors quickly grasped that fact.
A Buying Opportunity?
While LinkedIn and Netflix, Inc. (NASDAQ:NFLX) shares are fully priced, if not over priced, Facebook Inc (NASDAQ:FB) shares are still languishing below their IPO price. If the company can pull off more deals like this one, recent prices could present an opportunity for more aggressive investors.
The article How To Legally Share Movies originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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