By Tuomo Kallio, Benzinga Staff Writer

This has been the year of new streaming video services. Coinstar's (CSTR) Redbox and Verizon Communications (VZ) announced this month that they will partner on a new service to challenge the market leader, Netflix (NFLX).

And two days ago, Comcast (CMCSA) unveiled plans to enter the competition by offering a streaming-video service to its Xfinity customers. In the future, Comcast is planning to make this service available on additional devices, such as the Xbox 360 and Android gadgets.

Shares of Netflix have reacted strongly to the news of increasing competition, with the stock down 11% since Comcast's announcement. Shares closed Friday down more than 1% to $111.67. The question is whether traders are overreacting or if the new competition actually poses a serious threat to Netflix.

A Dawson James analyst, Justin Colatosti, who has a sell rating and a $50 price target on Netflix, noted that even minor competition is a serious threat to Netflix, which already operates at razor-thin margins. Colatosti pointed out that Netflix's content costs are exploding, which significantly hurts the company's profitability.

Therefore, Netflix should make some drastic strategic changes, such as adjusting its content offerings. According to Colatosti, Netflix cannot offer everything for everyone, as the company's cash flow and growth rate don't support new content deals. The alternative option is to rapidly grow Netflix's subscriber base, but Colatosti said he does not see this as a feasible option because Netflix already captures approximately 50% of U.S. broadband users.

In fact, the company has been losing domestic subscribers, and Colatosti is not expecting international growth to offset these losses. He noted that Netflix is facing fierce competition in the United Kingdom and Ireland from Amazon (AMZN), and while Latin America would be the best option for international growth, it would take about five years until the demographics in the region are favorable.

Out of the new competitors, Colatosti sees the Verizon-Redbox joint venture as the most serious threat because it is the only service that will be available universally to all consumers. Other competitors' services, such as Dish Network's (DISH) Blockbuster@Home and Comcast, are only available to current subscribers and essentially serve as "sweeteners" to keep customers and attract a larger user base. Colatosti also mentioned that the larger competitors have the ability to run streaming services at a loss, whereas Netflix is more dependent on subscriber revenue.

Overall, the high dependency on subscriber revenue and increasing competition on the content front make Netflix very reliant on the growth of its customer base. This might put more downward pressure on the company's shares, which have rallied more 60% this year.

• Go long Netflix.

• Short Dish Network

• Go long Comcast

• Go long Coinstar