Netflix’s shares went south today after Bank of America analysts Brian Pitz and Brian Fitzgerald came out with a research report with concerns over operating expenses in 2007 and 2008. “While we do not question the company’s progress at driving subscriber growth nor their long-term decision to be a player in digital downloads, we think that the $40 million earmarked for 2007 could prove insufficient,” and that other costs could rise as postage rates increase and Netflix spends more on marketing, they said. Pitz estimates, for example, that it cost Amazon $42 million-$64 million to develop Unbox, and even with that ballpark, the cost estimates are low, reports HR.
While Netflix CEO Reed Hastings predicts it will be as many as five years before digital downloads threatens the Netflix DVD subscription model, Pitz predicts meaningful competition from technologies a couple years earlier than that.
Also, Pitz said Netflix’s effort to produce some original movies “potentially puts it into direct competition with studios as well as cable TV players,” a risky proposition that should “be watched carefully by investors.”