Netflix Slips in Canada

Netflix (Nasdaq: NFLX  ) got caught -- stage-handed -- yesterday.

In an effort to drum up some buzz for yesterday's Canadian launch of its new streaming service, the flick flinger hired some extras to fill out the crowd.

The publicity stunt involved closing down a street block in Toronto, where a giant dollhouse was set up with three rooms showcasing Netflix's on-demand service where Canadians can pay $7.99 a month for unlimited streaming of its digital catalog. The media were invited, and Netflix didn't want to risk having jaded Canadians making disinterested glances at the spectacle, so it brought in excited extras.

This is already an ethical recipe for disaster, but things got worse when reporters wanted to interview consumers -- naturally drawn to those paid to be overly giddy about the service's launch.

It doesn't get any better for apologists who feel that extras may have overstepped their responsibilities by going through with media interviews. A leaked script instructs extras to "look really excited, particularly if asked by the MEDIA to do any interviews."

Netflix is a company that doesn't make many mistakes, so this blunder stands out.

This is a test that Netflix couldn't fail. The monthly $7.99 price point is already dubious, since it's just a buck less than what Netflix charges stateside subscribers for a plan that includes unlimited DVD rentals -- including new releases that are rarely available digitally -- as long as movie buffs only have one disc out at a time.

Success in Canada also opens the door to the rest of the world. Launching streaming-only plans doesn't involve building out costly distribution centers. It's just a matter of inking the right deals with moviemakers.

Right now, no one is doing what Netflix is doing, so yesterday's faux pas isn't fatal.

It won't always be that way.

Coinstar's (Nasdaq: CSTR  ) Redbox is set to reveal its digital strategy next month. Amazon.com (Nasdaq: AMZN  ) already has a minority stake in a DVD-rental service in Europe, and Canada is a logical expansion market if it wants to take on -- or acquire -- Zip.Ca. Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) have set-top boxes coming out in a few weeks, and that may be the first step in launching streaming subscriptions.

In short, Netflix has what may seem to be an insurmountable lead over its sleeping slackers, but it can't afford to go backward. Yesterday's amateur stunt was Netflix shifting into reverse. Let's see if it's smart enough to shift back into drive before it puts the pedal to the metal.

Did Netflix go too far? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers recommendation. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (5)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 23, 2010, at 11:52 AM, feldmail wrote:

    Rick, no matter how many times I comment, you continue to drum up interest in a Coinstar digital offering. Redbox has no edge in digital and will be swept aside as easily as the 100 others that try to compete with Netflix, Apple, Amazon, Hulu or Google! Let's stop talking about pie in the sky and look at companies realistically. Redbox has an antiquated business of physical disk rental and is doomed!

  • Report this Comment On September 23, 2010, at 12:42 PM, DeezExcalibur wrote:

    I agree...Coinstar is doomed and operates and antiquated business. I took a long hard look at coinstar and the conclusion is: Netflix has to large of a lead anyone else to catch up, let alone, coinstar.

    When I can get 1 at a time delivered to my home, and streaming video on my XBOX, Laptop, and Iphone4...what more do you need for one low price of under $10.

    I watch a lot of movies and at one time was a fan of redbox. But when I did the math..ie.. I would take 2 movies out at a time from redbox but would fail to return them with in the 24 hour time limit, I was paying BlockBuster prices (god help them). So, I save a lot of money with my Netflix Subscription and have access to tons of movies and great TV Series (i.e Dexter, Spartacus, Weeds, Family Guy...etc)

    Netflix currently has 0 challangers.....

    If netflix where ever to be caught....Steve Jobs...would be the man for the JOB....no pun intended!!!!!!!!!!

  • Report this Comment On September 23, 2010, at 1:00 PM, BioBat wrote:

    Why even bring up the Coinstar's digital strategy. It's something they've been talking about for a few years now but are no closer than they were back when they first started talking about it. Oh wait, now they're going to roll out an official 'online strategy'. Sure....I'll believe it when I see it.

    On the other hand you have a company like Netflix who backs up their words with actions. January 2010 - we're going to start streaming through Wii consoles soon. March 2010 - done. June 2010 - we're going to introduce a streaming service in Canada. Sept 2010 - done. That's not some talk of a strategy. That's doing something that gives you access to millions of additional subscribers instantly.

    And I also have to disagree that 7.99 is too much for streaming all you want, anytime you want. It's a bargain. Ever look at what you pay on Amazon, iTunes, or OnDemand for movie or TV show rentals? Two movie rentals and you're already past 7.99. Netflix is a friggin' bargain and nobody is close to delivering what they do. Canadians are going to gobble this up like a dozen Tim's donuts washed down with a double-double.

    I also don't see the point of brining up Apple, Amazon and Google. None of these companies have figured out a subscription model that works for them, which is why Netflix is integrated into AppleTV. They're not competitors, they're enablers.

  • Report this Comment On September 23, 2010, at 3:02 PM, chilero wrote:

    On a local morning TV show here in Calgary they profiled the new Netflix offering for Canadians. They tech guy was impressed with the quality of the streaming movies but all three of the TV personalities literally broke out in laughter when they compared the top ten "new" titles available here to the "new" titles in the US. While US customers had access to Iron Man 2, Canadians were left with the Blair Witch Project and 9 other very old or even unrecognizable titles in their top 10.

  • Report this Comment On September 23, 2010, at 3:35 PM, BioBat wrote:

    The top 10 list is the top 10 streaming rentals over time. It's not really indicative of what's new. And no, US customers do not have access to Iron Man 2 on streaming.

  • Report this Comment On September 23, 2010, at 4:07 PM, TMFBreakerRick wrote:

    Feldmail, I agree with you on Coinstar's antiquated model BUT the near-term reality is that Redbox is growing faster than Netflix right now.

    As for the model, folks said the same thing about Netflix in 2007. Coinstar is on record for an October announcement on its digital strategy, so it is relevant (at least domestically -- but the opportunity is ripe to underprice Netflix in Canada where the playing field would be more level sooner rather than later).

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