Netflix CEO: 'We got overconfident'
money.cnn.com
money.cnn.com
I had friends that had been paying for netflix for years, barely checking out a movie or two a year. What netflix did was stir the pot - their price hikes kind of jolted these people and reminded them of their subscriptions. Had netflix done things slowly, these same people would never have noticed and everything would be ok. The reason I am so harsh on netflix, is because surely they were aware that a large segment of their users were almost dorment - did it really not occur to anyone what would happen if they rocked the boat?
Then they hiked the price of my plan by over 25% without any consolation at all. I cancelled my entire plan. Loss of $23/mo from me alone.
I won't be signing back up, either. There's other options and Netflix has done nothing to win me back at all. They expect me as a loyal US customer to fund their expansion into Europe (which was the cause of the major content fee hikes that everyone was using to excuse the price hikes.) Uhh, no. I'm not an investor, I'm a customer.
Had I a few dollars to invest, Netflix at a 74% discount seems like a pretty sweet long-term deal. If they pull it out I make out like a thief, and if the stock drops much lower they become a very tempting acquisition target for Amazon/Apple, or possibly even Google.
The missing piece of data is that Netflix was massively overvalued before, and that now they've just jumped down to a very normal price to earnings ratio. Just for comparison:
NFLX P/E: 15.49
AAPL P/E: 14.12
MSFT P/E: 9.33
GOOG P/E: 21.26
AMZN P/E: 101.21
Or Microsoft. They're not the prettiest girl at the dance anymore, and they don't get a lot of love on these pages. But they've quietly positioned themselves as a very serious force in the entertainment space with the XBox platform. And they've been known to throw big chunks of their warchest at strategic acquisitions.
Facebook may also be a potential buyer. They've got a huge userbase that they need to keep engaged, and if they acquired a blue-chip content platform, it would be a huge deal.
Amazon, absolutely. Makes total sense for them across so many dimensions.
Apple, yes and no. Owning Netflix would be nice, but their hands would be tied on how to leverage it. How do you use Netflix to sell iPads, because restricting it to iPads is not a viable option? Doing so would piss off the entire userbase -- possibly devaluing the platform fundamentally, and giving competitors a major opening. They might be able to offer some sort of premium tier that is available only on Apple devices. But even that would be iffy as a draw. Then they've got the issue of how to make Netflix and iTunes live together in a coherent, cohesive, sensible way. I could, however, see Apple's buying Netflix as a purely defensive maneuver if Amazon made a bid.
Google, I could see pretty easily. They've been trying to make premium content deals for years now. Netflix could make sense for G+, YouTube, Android, etc.
Either Netflix gives in to the movie studios' demands and enters licensing/pricing agreements on the studios' terms, or the movie studios will use a separate provider of streaming services and cut Netflix out entirely. The studios have been fighting web technology tooth and claw (usually in stupid ways), but the underlying motivation is that they want control of the price model. There is no technological reason why they won't be able to achieve this, even if their products will in the end be distributed through the web.
There are already startups working on portable and efficient streaming software which is specialized for licensing to content _producers_. If one of these companies can create a unified brand and payment portal while giving control to each individual studio, Netflix will be a second-class citizen in the media distribution world. I guess Netflix could take this role on its own, but it would go against its vested interests (ironically, exactly the same situation Blockbuster was in before it got crushed by Netflix).
There are probably some antitrust issues that will come into the light if this scenario plays out, which might mitigate things a bit. But to me this seems like a very large threat to Netflix's success. I am going to say the unpopular thing here: Netflix's best option for long-term survival is to allow each studio to set its own pricing/licensing terms.
Could you extrapolate as to why? I don't know anything about the industry, but it seems like the only reason the movie studios control production is because they own distribution. With Netflix controlling a massive distribution channel and having access to large amounts of capital, it seems that they could easily compete with the movie studios on production (and probably win because they're not encumbered by old business models and can offer better deals to top talent).
Netflix are great at distribution, but they need to have something to distribute. There is no use in distributing a product that no one wants. The movie studios' key product isn't distribution, it's the movies themselves. Things are different in the music industry, where many of the labels are simply an intermediary between the musicians and the customers. But the product and distribution are much more connected in the movie industry.