Shaw and Netflix – Bandwidth vs. Content

This is probably old news to a lot of people, but I’m awfully curious how the competition dynamics between Netflix vs. the bandwidth providers (e.g. Shaw/Rogers/TELUS) will play out. Shaw announced a streaming movie service recently.

I look at a company like Netflix (Nasdaq: NFLX) and ask myself how many more legs the company has before it starts to hit a competitive wall like TiVo (Nasdaq: TIVO) did.

I’m not going to call winners here, although I am quite aware that it is necessary for bandwidth providers to exist in order for companies like Netflix to exist; the question is where is the most profit to be obtained in the value chain? Is it about the bandwidth, or the content?

The biggest pure play on bandwidth has to be Level 3 (Nasdaq: LVLT), which has successfully been losing money since its history and is a darling of Southeastern Asset Management and the Canadian Berkshire-equivalent, Fairfax (TSX: FFH).

Time will tell, but I’m sticking to the sidelines.