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Netflix streams to forefront of video-rental industry

Sun., April 25, 2010

Do you think of Netflix (Nasdaq: NFLX) as a DVD-mailing service or an online video site? It’s a little of both, but the disc-mailing portion of the service is likely to become merely an afterthought within the next few years.

Instant-watch views are growing, and some researchers suggest that they might already outnumber DVD shipments. Netflix management says that 48 percent of its customers viewed some streaming media last quarter, up from 42 percent the previous quarter. At the same time, the company added more than a million new net subscribers. Since Netflix likes to drop you onto the “Watch Instantly” homepage whenever you click in, the growth should not be surprising.

There’s much more to come as the addressable market for streaming views continues to flourish.

It’s getting harder to find a TV set or Blu-ray player that doesn’t support Netflix streaming these days, and streaming is also possible to the Nintendo Wii, the Sony PS3, the Microsoft Xbox 360 and recent TiVo boxes.

Blockbuster is fighting for survival and dipping its badly burned toes into the streaming waters, but it may be too little, too late. For Netflix, the future is already here. The rest of the field is just playing catch-up.

Ask the Fool

Q: What companies make windmills? Would one of them be a smart investment? – M.K., online

A: You’re right to think about alternative energy as a field with a lot of investment potential. The Department of Energy is aiming for 20 percent of America’s energy to be supplied by wind power by 2030 – right now, only 1.5 percent is. The problem for investors, though, is to figure out which companies in the industry will be the winners. Some, for example, may have great technology but end up crushed by debt.

You should therefore study the industry closely and learn about the strengths and weaknesses of the various players before choosing any. Alternatively, consider investing in a fund that will spread your money across a bunch of wind-power companies. The PowerShares Global Wind Energy (Nasdaq: PWND) exchange-traded fund, for example, trades like a stock and holds shares of more than 30 companies. You might also look into funds that invest in a variety of alternative energies, such as solar and water power.

My dumbest investment

I bought Citigroup stock at $20 per share. It had already plunged from $40 to $20, so I figured it couldn’t drop much more. I thought it was a great long-term investment. Now that it’s trading for close to $5 per share, I wonder … what the hell was I thinking? – T.M.R., Long Island, N.Y.

The Fool responds: History is full of investors who’ve said, “Pan Am can’t go out of business – it’s an American icon!” Or, “Kmart won’t have to file for bankruptcy protection – it will recover soon.” Unfortunately, the unthinkable sometimes happens. Even if a stock has fallen by 90 percent, it could still fall further. The question is, “What’s the stock really worth right now?” That can be hard to pin down, but if it’s struggling, operating amid great uncertainty and is saddled with massive debt, those are red flags worth heeding. Banking can be a tricky business to understand, too, and Citigroup is extra-complex because of its size. It’s best to stick with companies you know and understand – and have great faith in.


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