How Netflix Is Failing You

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No doubt about it -- Netflix (Nasdaq: NFLX  ) has been an amazing stock. It kills me to think about the money I missed on this one by not buying. It's not because I couldn't find an attractive entry point. It's because I forgot (just plain, boneheaded forgot) to add it to my watchlist the last time it dipped into the $20s.

But this isn't the story of how I missed that eight-bagger. This is the story of how that eight-bagger might turn itself into something a lot less satisfying for shareholders. Netflix faces a big risk of becoming a victim of its own success.

The latest conference call from Netflix was all about the streaming. While DVD use continues to grow, the real growth engine here is Internet video streaming, via applications built into the plethora of new devices that are Netflix-ready, including the Apple (Nasdaq: AAPL  ) TV box and built-in TV apps. With Microsoft's (Nasdaq: MSFT  ) Windows Phone 7 supporting a Netflix app out of the gate, and Netflix promising to deliver one soon for Google's Android OS, phones and tablets will further stress the Netflix stream. That's exciting, but it's also scary, and investors don't seem to be paying much attention to the dark side.

I've seen the future, and it stutters
I was one of the earliest adopters of Netflix's streaming-video technology, watching it on my computer, then streaming it through my Xbox 360 -- one of the first devices to serve up the service to our big screens, thanks to Microsoft's cozy relationship with Netflix.

Ahhh, the good old days. Sure, most of the titles were standard-definition, and the movie selection was even weaker than it is now (and it's still pretty weak). But there was more than enough TV and foreign cinema in the queue to keep us satisfied, and we rarely had much of a hiccup.

Things have changed. As Netflix stock has gone ballistic on the back of the big subscriber growth brought in by streaming, Netflix's streaming service itself has gotten progressively worse. At my place, it's gone from good to bad, and from bad to horrible.

In the good old days, the streaming service would fall behind on buffering once in a while, maybe every 10 minutes or so, or even a lot less. Now, during peak evening hours, the stutters and pauses for buffering can occur several times per show, and at some times, every 10 seconds, making the service pretty much unwatchable

Is Netflix digging its own grave?
I'm beginning to believe that Netflix is destined to be a victim of its own success. According to this article about a recent Netflix streaming outage, Netflix's video streaming feeds are now the biggest single source of Internet traffic in the U.S. during peak hours. I don't think Netflix can handle the customers it's already got. The company is reportedly using many different companies to stream this incredible amount of traffic, but Akamai (NYSE: AKAM  ) , Limelight Networks (Nasdaq: LLNW  ) , and most recently, Level 3 (Nasdaq: LVLT  ) aren't capable of keeping my house adequately served with South Park, Veronica Mars, and 30 Rock.

Given that I can also stream hiccup-free higher-definition movies from Microsoft's Zune service on my Xbox 360, it's clear to me that this is a Netflix problem. They're either falling behind the curve on buying the hosting capacity they need, using unreliable providers, or relying on applications that just aren't up to the task.

Either way, I doubt regular folks will put up with a streaming service that burps more frequently and more obnoxiously than Rachael Ray at Old Country Buffet. They won't care why it sucks, only that it does suck. And they'll take their business elsewhere.

Times have changed
Hulu Plus just launched out of beta and lowered its price to $7.99 per month. I had my doubts about the service originally, but it's become my go-to. When Netflix can't deliver a standard def stream, Hulu comes through with beautiful high-def stream, interrupted only a few times by brief commercials.

Spare me the huffing and puffing about Netflix's being "commercial free," please. I'll take a 30-second commercial every 10 minutes over a 30-second Netflix outage every two minutes .

Moreover, the Hulu apps I'm using have leapfrogged Netflix's in quality and appearance. And they're showing up everywhere: on iPhones, iPads, Playstation 3, and soon, the Xbox 360.

Think Netflix can fix that?
If this were just a matter of getting service levels back to where they belong, I wouldn't bet against Netflix, but it's a different game now. The question's not just about service (and Hulu's is already better for me), but also price. Hulu's got the edge there now, at a buck less than Netflix's lowest-price streaming plan.

Hulu's in this game to win, and Netflix investors had better at least wonder whether their favorite team is heading for a giant upset.

Do so, and you might be thinking further out than Netflix CEO Reed Hastings, who seems to have been slow on the uptake. In July, he said Hulu was "too small to matter." By October, he was waffling on giving margin guidance, acknowledging that it all depends on competition. His comments contain an embedded challenge to analysts to tell him what the level of competition will be. I can tell him: A lot more than you're used to, Mr. Hastings.

Pick your army
This will be a price war. Whom do you want to bet on? Netflix already pays huge amounts of money to secure rights to movies and TV shows for streaming. Without good content, Netflix is hosed, and content providers know that. Expect the studios to drive hard bargains, especially as streaming services bite into their DVD sales and other former cash streams.

Hulu, on the other hand, is owned and operated by a consortium of content providers -- you know, the folks who already own the rights to the programs. And we're not talking about greasy-haired indie film directors here. The triumvirate that owns Hulu includes News Corp. (aka Fox), The Walt Disney Co., and GE's (NYSE: GE  ) NBC.

Who do you think will win a price war if one side pays a whole lot less -- maybe even nothing -- for its bullets?

Foolish final thought
I'm pretty patient, and as a long-term, satisfied Netflix customer, I'm willing to put up with some growing pains. But not forever. Just this week, I cut the amount of money I'm paying Netflix by 50%, and that may move to zero in the near future. I doubt I'm the only one making these kinds of choices. As Netflix is failing me as a customer, I'm making the easy choice to spend less on it. As more consumers are forced to do the same math, Netflix may very well fail you as an investor. Mr. Market doesn't seem to think anything can go wrong at Netflix. It would be eminently Foolish to think otherwise.

Think Netflix can win a price war with Hulu? Think it has some other competitive advantage that makes it a buy at these nosebleed levels? Let me know in the comments below.

At the time of publication, Seth Jayson had no position in any company mentioned here.

Walt Disney, Google, and Microsoft are Motley Fool Inside Value selections. Akamai Technologies and Google are Motley Fool Rule Breakers picks. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Comments from our Foolish Readers

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  • Report this Comment On November 18, 2010, at 10:55 AM, hwy61 wrote:

    Great article! I too am a long-term, satisfied Netflix customer, but recent lifestyle changes are making me consider changing my service plan (3 discs at a time). When I didn't own a tv, I frequently used their streaming option, and noticed a major improvement over the course of 2 years (2008-2009). But I haven't figured out how to stream to my tv, and I don't particularly want to buy another device to do so. On the other hand, the $18+ per month that I pay is locked into my budget, and I don't desperately need those few extra bucks each month. I'll probably track my viewing habits over the next few months, and make my decision based on that.

  • Report this Comment On November 18, 2010, at 11:35 AM, hellerbrewing wrote:

    Really, you are going to base your opinion on the future of the company on the service at your house? There are alot of other factors that could be coming into play here. I have not had any problems streaming to my roku.

  • Report this Comment On November 18, 2010, at 11:45 AM, 2trpop wrote:

    I stream netflix on a daily basis. If it buffers once every 2 weeks its a suprise.

    Streaming Netflix is better than sliced bread delivered on the wheel.

  • Report this Comment On November 18, 2010, at 11:47 AM, TMFBent wrote:

    I clearly said that this was only one piece, albeit a telling one, IMO. It's only an intro to the real issue, which is that NFLX had no credible streaming competition for a long time, and now it does. As streaming is the growth engine on which investors hang their valuation (making the large assumption that investors have a valuation in mind), it would be smart to think about just what happens to Netflix if there's a price war.

    Netflix beat blockbuster because it had a cost and service advantage. Going forward, it may have neither of those things.

  • Report this Comment On November 18, 2010, at 11:49 AM, bloodhoundgrl wrote:

    I'm a fairly new Roku user and netflix works great - no hiccups here, so perhaps it really is an issue with your devices? On the other hand, I was about to sign up for Hulu's new service at $7.99/mo but went to their website to check out what it had to offer and so glad I did before I spent the money. The new Hulu plus seems to mostly offer free over-the-air TV content but none of the cool cable series you get from regular Hulu. Seems the only "plus" is the ability to stream it over more devices but much, much less content. What a disappointment. So unless you just have to watch tv while away from home and without a laptop, why pay for content you can get free over the air? I can stream all those cable series without Hulu Plus so unless they intend to seriously ramp up the content, I don't see much use for it.

  • Report this Comment On November 18, 2010, at 11:58 AM, AprFool wrote:

    We use Watch It Now fairly regularly - my experience lately has been that when it is prime time, the movie will start, then have one stutter almost right away for maybe 10-20 seconds, then play flawlessly with a stunning picture for the remainder of the movie. So because I know it is going to be better, the one stutter doesn't bother me that much. We also moved down from 3 disc. but mostly because we use Watch It Now more.

  • Report this Comment On November 18, 2010, at 12:10 PM, Jaymroth wrote:

    I have both Netflix and Hulu Plus, and have used Vudu and Amazon VOD. I view these apps on Apple TV (the new one), Sony PS 3, and an Inexpensive Vizio TV. I am streaming from several different locations. In ever case, the performance has been exemplary, regardless of the device, service or location. However, Netflix and Vudu win in image quality for me, though I have seen improvement on Hulu's service recently. I did not bother with any of these services until I bought the Vizio TV with the Internet apps built in. I took a shot with the free Netflix offer, and was hooked.

    The issues raised in the article regarding competition are legitimate, but as noted above, I have not had any trouble with hiccups or buffering.

  • Report this Comment On November 18, 2010, at 12:12 PM, naandrews wrote:

    Thanks very much for the "bear" perspective on Netflix! I couldn't disagree with it more, but it's good to hear dissenting opinion to get everybody to think about the companies they own (or are thinking of owning or not owning) more critically.

    I too have never had any trouble with streaming stuff from Netflix to my television (using my web-connected LG BlueRay player, which I love). It even remembers exactly where you left off if you decided, say, to finish watching something the next day, so I couldn't be happier with the service; there's a reason why -- MF writer present company excluded of course : ) --Netflix gets such high marks from its customers.

    I'm sure there will be some growing pains to deal with the increased streaming traffic, but they always seem to figure this stuff out. Hastings is an engineer, so I'm sure he's thought a lot about that particular problem.

    I just wouldn't ever bet against Reed Hastings. I like companies with visionary management, and he fits the bill (I think the article is unfair to him; I'm sure he knows a heckuva lot more about what the competitive threats are than Wall Street analysts, and I felt you used one quote to tarnish him, unfairly).

    Yes, I am a shareholder, but not all shareholders think NFLX can do no wrong; lots of us think about the competitive threats, about potential problems, etc., it's not just uncritical acceptance (which I think the article tends to suggest is the case).

    The long-term story is just very appealing with this company, and I'm curious to see where NFLX will be 5-10 years from now.

    Neil (long on NFLX)

  • Report this Comment On November 18, 2010, at 12:12 PM, TMFBent wrote:

    I suppose it *could* be that the 3 different Netflix-equipped devices I have sport lousy Netflix aps -- but that would still be Netflix's problem.

    I haven't tried VUDU on my new TV yet. Zune's high-def xbox 360 streaming has been amazing, but that's an a la carte video rental plan.

    I would love for Netflix to be the best service at my house, and maybe they can get it back there. But that still won't help them much if there's a price war coming up.


  • Report this Comment On November 18, 2010, at 12:21 PM, TMFBent wrote:

    "I just wouldn't ever bet against Reed Hastings."

    Why not? Everyone assumes that talent can overcome all obstacles, and history shows that's clearly not the case. Managers are always given credit for being superhuman when their companies succeed, and are just as quickly made the goats when inevitable competitive pressures sink the stocks. (There's a great book about this called The Halo Effect.)

    There are some landmines no one can manage around, and Netflix may just find one of those in online streaming competition.

    What's Netflix's real competitive advantage if it's moving its business model to a space where competition can enter more easily?

    To me, it looks a lot like AOL, which was a huge hit for investors until the public realized that it was paying a premium for service that had become a commodity.

    I think the odds are very good that internet streaming video becomes a commodity very soon.

    Moreover, a bet against Netflix stock at these levels isn't necessarily a bet against Reed Hastings. It's more a bet that Reed Hastings can't catch bullets in his teeth or leap tall buildings in single bounds.

  • Report this Comment On November 18, 2010, at 12:37 PM, naandrews wrote:

    I don't think it's so easy to do what NFLX does. Well, check that. It is easy, as long as you're willing and able to spend hundreds of millions or billions of dollars. If you're willing to do that, then yes, you can do what NFLX does. But I do think that with a first mover advantage and network effects, NFLX will remain a big player, if not the sole one.

    (This criticism of NFLX, which is voiced repeatedly year after year after year, is also discussed in SA on the NFLX Board).

    I would recommend that people interested in NFLX take a look at this presentation on their website:

    They discuss not just the business opportunity ahead of it, but also the competitive threats, and I think people will find it interesting and enlightening. Sure, take it with a grain of salt since it's the NFLX point of view, but it's really interesting nonetheless.

    Finally, yes, of course, things can go wrong with visionary management; I'm just saying that if I can choose to have mediocre or visionary, I'll go with visionary.

    Finally, trading at 40x 2011 earnings, I don't think Netflix is priced crazy for a rapidly growing company in an emerging market. In fact, Anders Bylund makes the argument (just do a search and you'll find the articles) that NFLX is actually undervalued. So I think it is an under-examined assumption that NFLX is crazy expensive.

  • Report this Comment On November 18, 2010, at 12:42 PM, TMFTypeoh wrote:


    Love the article, love the points. Netflix seems to be a very polarizing stock....people either think it can do no wrong or they think its way to expensive to consider.

    I sit in both camps. I bought a very small steak in the 50's eariler this year, only to see it now triple. Sure, I'm happy with that, but not tripping over myself to add more. Great articles like this are great for seeing the bearish side of a stock as well.

    However, with them entering new markets (canada) and still offering the DVD service as a backup, don't you think you'll still pay the extra $1/month over hulu?

    To me, this is such a play on convienence, where most devices moving forward will accept netflix service directly. Thats huge, in my mind.

    I still see hulu as an online only play, where i have to sit on my computer and watch......not so with netfilx thanks to my wii. Thats a huge advantage, and I think NFLX subscribers will be stickery than most early adopters, such as yourself.

    Margins at this company are the biggest concern IMO. If they can be maintained, or only decrease slightly, great. I think NFLX is a buy.

    If they fall faster than predicted, and big price war comes, look out below......

  • Report this Comment On November 18, 2010, at 12:46 PM, dargus wrote:

    I've had far worse problems with Hulu during peak hours. I used to quit watching Hulu on Friday nights and switch to Netflix because of all the buffereing. To be fair, Hulu has improved in recent months, and Netflix has gotten worse, but it isn't a terribly difficult problem to tackle. However, it might cut in to profits.

  • Report this Comment On November 18, 2010, at 12:54 PM, orangefloyd wrote:

    I'll chime in with another anecdote of trouble free service from Netflix here. More than that, Netflix runs acceptably (assuming no high action content that doesn't compress as well) on my netbook, where Hulu struggles (this is due to processing power, not bandwidth). We even stream to multiple devices at once with no issue.

    I'd say your experience is an aberration, and not indicative of the potential for network problems. Bandwidth is certainly a concern, but it's working for now for most people.

    As for Hulu, they really (at this point) target very different niches. You really can't use one as a replacement for the other. Not yet, at least. That said, you'll certainly see some consumers making a choice between the two, but Hulu at this point has to be banking on being an add on to Netflix users rather than actively stealing customers.

  • Report this Comment On November 18, 2010, at 12:55 PM, frankzen wrote:

    Ahhhh... change your provider... I haven't looked back since cutting the cord three months ago! If you think NetFlix is out, you're going to lose more money.

  • Report this Comment On November 18, 2010, at 1:01 PM, oikukio wrote:

    If Netflix is the big fish in the pond, then the small fish are at risk for acquisition, right?

    Right now Hulu doesn't appear to be a threat. But if Hulu has some better technology or service, NFLX could easily just buy the competition.

  • Report this Comment On November 18, 2010, at 1:38 PM, caltex1nomad wrote:

    Your buffering problem has more to do with your DSL or Cable speed than it does Netflix. You might want to do a speedtest on your connection. I have had a few problems the last couple of years with streaming but, when I do Netflix usually will credit my account.

  • Report this Comment On November 18, 2010, at 2:07 PM, TMFBent wrote:

    "Your buffering problem has more to do with your DSL or Cable speed than it does Netflix."

    Absolutely not. I've tested both ISP speed and nework speed numerous times, including during periods where Netflix is reduced to a stuttering mess on all my devices. But due to some heavy-handed editing, there's no way you could have known that.

    From my original text: "And don’t try to blame the trouble on my home network or ISP. I’ve tested them both (during periods when Netflix can’t get me my video)."

    My ISP can reliably deliver more than 32 Mbps. (My speakeasy scores haven't been below 30 for years). What's that mean for streaming? It's about 10 times what's required for Netflix high ef streams.


    Here's what Netflix says it needs to deliver HD: "We experimented with first-generation WMV3 encodes at 4000kbps and 5500kbps, but settled on second-generation HD encodes with VC1AP at 2600kbps and 3800kbps, which extends their accessibility down to lower home broadband connections."

    My download speeds as measured from DC area servers:

    "Download Speed: 31933 kbps "

    From NYC area servers, that drops only to about 28000. From Seattle, Wash, I still get 4854 kbps.

    My home network (all hardwired with CAT 5e Ethernet cables and using a series of dedicated Gigabit switches to direct traffic) is capable of moving a lot more than that. (Testing throughput to a slow little media server I've got, gets 512000 kbps, or about half the rated 1 gbps that the network is specced for.

    But even if you didn't know that, you can refer to the article, which explains that I'm able to hop to Hulu and get high def while Netflix is flailing.


  • Report this Comment On November 18, 2010, at 2:21 PM, TMFBent wrote:

    "However, with them entering new markets (canada) and still offering the DVD service as a backup, don't you think you'll still pay the extra $1/month over hulu?"

    Maybe. I'm a bit of an outlier, however, willing to spend on all this nerd stuff just to see what it's about.

    What matters more for NFLX shareholders is what the average, late-adopting consumer might do. What if Hulu gets to $6 and Netflix is forced to follow suit? $5? What if Hulu's relationship with the studios that own it can allow it to drive prices into the dirt while Netflix is forced to cough up?

    What if Google gets into this game (they're trying) and can use its vast knowledge of viewing habits and its vast advertising machine to scratch studio backs and get better pricing on what it streams?

    If this becomes a race to the bottom on price, I have a hard time seeing how first mover advantage protects Netflix shareholders from taking a major bath.

  • Report this Comment On November 18, 2010, at 2:30 PM, Babble100 wrote:

    "And don’t try to blame the trouble on my home network or ISP. I’ve tested them both (during periods when Netflix can’t get me my video)."

    I don't doubt your veracity, but many other posters here say Netflix works just fine. The real question then becomes, why would you base your company recommendation on the bad experience of only a single user?

    Your second point - that the Hulu conglomerate could cartel Neflix into the dust - is a more compelling one. However I would imagine that gov't regulators would not take this kind of competition-squashing in a kindly way.

  • Report this Comment On November 18, 2010, at 2:38 PM, TMFBent wrote:

    Competitive advantage, and how quickly arguments about who's got it, and who doesn't start to look silly.

    From "Judo Strategy" by David B. Yoffie and Mary Kwak, 2001.

    "Two years before Netscape was born, another company set up shop a few miles up the road in Los Altos, California. After tread¡ng water for a few years, Palm Computing shipped the Pilot, a

    handheld electronic organizer, in April 1996. The giants of comput¡ng and consumer electronics, including Apple, Microsoft, Hewlett-Packard, and Sharp, were already fighting for the category, and any one of them could have crushed Palm. So the company’s founders,Jeff hawkins and Donna Dubinsky, held their breath in the months

    following the Pilot’s release. By the end of 1996, however, it was clear that Palm had created

    a star. Like Netscape’s Navigator, the Pilot dominated its market within a year. But unlike Netscape, Palm went from strength to

    strength. Despite Microsoft’s repeated efforts to take over the market, Palm’s share remained close to 70 percent after four years, and

    first-day trading valued the company at $53 billion when Palm went public in March 2000. Eight years after its birth, Palm was not only

    alive and kicking, to borrow from the Apple lexicon, it was “insanely great.”

    Why did Palm succeed where Netscape failed? What distinguishes challengers who build successful businesses from those who

    fall by the wayside despite an auspicious start? Which strategies hold the most promise for companies facing powerful opponents,

    and which are most likely to lead to defeat? These are questions that all ambitious businesses eventually face."

    What's the deal with Palm again? The shining example of a company moving from "strength to stregth"?

    By the end, Palm couldn't sell life preservers and "shark off" to the patrons of sinking cruise ships.

  • Report this Comment On November 18, 2010, at 3:53 PM, johnnettles wrote:

    If you like Hulu so well, then thank Level 3 LVLT as they have the account and adobe.. so if your having probs with netflix its not lvlt...

  • Report this Comment On November 18, 2010, at 3:59 PM, Borbality wrote:

    Am I the only one that actually wants things to come in DVD format? I like the streaming for my wife's netbook but we are just looking into getting our first HDTV and blu-ray player, and I doubt the streaming will really look that great on a new TV.

    Maybe Internet connections will be able to stream REAL HD/Blu-ray content, but I just don't see it happening anytime that soon on my lowly AT&T DSL connection (i refuse to get cable TV or internet).

    I think streaming is a nice bonus, but if I want to watch any intense stuff, I hope to see it in Blu-ray or at least a real DVD with progressive scan and all that stuff without waiting for it to buffer and compromising on quality. I get one DVD at a time and love being able to stream stuff at the same time, but streaming only would be lame and put all our nice home theatre setups to waste, wouldn't it?

  • Report this Comment On November 18, 2010, at 4:34 PM, CMFStan8331 wrote:

    No trouble streaming Netflix for me. What is it exactly that Hulu is selling that compares in any way, shape or form to Netflix's massive catalog?

    I'm a Netflix shareholder, but I'm also a consumer. If a competing service could actually deliver a better deal, I'd be willing to switch. Nobody else is even remotely in the ballpark, at this point.

  • Report this Comment On November 18, 2010, at 5:57 PM, TMFBent wrote:

    "and I doubt the streaming will really look that great on a new TV. "

    It looks amazing when done right. Much better than DVD quality. Unfortunately, if your service can't deliver the high-def stream, and sputters a lot like mine, you'd be a lot better off with the physical DVDs.

    When it works, Netflix high-def streaming looks pretty good, and it's 720. Zune streaming looks better, and is supposed to be at 1080 already, but I have no way of verifying whether or not it is.

    Hulu Plus high-def streams look better to me than Netflix on the same TV (a brand new samsung with an ethernet cable plugged right in the back), but that might be because Netflix is sending lower-quality streams.

  • Report this Comment On November 18, 2010, at 6:09 PM, TMFBent wrote:

    Hmmm. Maybe my service is being throttled by Netflix, as alleged in this interesting post.

    Of course, I've done nothing but watch a ton of on-demand content. But if anyone at Netflix reads this, maybe I should expect a permanent downgrade to Commodore-64 graphics.

  • Report this Comment On November 18, 2010, at 7:50 PM, lazarus7 wrote:

    This reminds me of when I owned AOL stock in the 90's, there was a period of time when AOL was also a "victim of its success" when they didn't have enough phone lines to service all the people who wanted to get online using AOL. The stock took a massive dip but AOL did end up dealing with it and the stock went quite a few baggers before 2000.

    I hope you're right and this issue makes people sell this stock down, I'll be buying it and holding it. imo they've got a great business model (content providers want to go the Netflix route because they get paid, and content consumers like the "all you can eat" for 1/5th (or even 1/10th depending on what package you have) of their cable cost. imo this is the future (or at least, the near future).

  • Report this Comment On November 18, 2010, at 8:02 PM, TMFBent wrote:

    "The stock took a massive dip but AOL did end up dealing with it and the stock went quite a few baggers before 2000"

    And then? For people who sold at the top, it worked out great. For those who held, or bought into the euphoria, the results were quite different.

    If Netflix is similar (and there's no proof it is... yet) where do we suppose we are in the story?

    "imo this is the future (or at least, the near future"

    We agree. Except, I don't believe the only streaming future is Netflix.

    There's a remark above about how streaming video over the internet isn't so easy. No. Here's a non-tech analogy: Neither is building cars. Yet there have been scores of car companies over the years, and almost all of them have ended up bankrupt, with precious few making investors any money. (Not the first movers, by the way.)

  • Report this Comment On November 18, 2010, at 9:48 PM, TMFBent wrote:

    Just a quick update. Netflix streamed 15 minutes worth for me tonight before disconnecting me. Resumed, and it re-buffered 5 times in a couple of minutes.

    Switched to Hulu on the same TV, got an uninterrupted higher-def stream without a single re-buffer or quality change.

  • Report this Comment On November 19, 2010, at 9:26 AM, DRovito wrote:

    Seth - Don't you suppose Netflix could also start offering commercials in their streaming and reduce their subscription by $1 to match Hulu's model . . . if it works, why not? I would prefer to pay $1 more and commercial free.

  • Report this Comment On November 19, 2010, at 9:38 AM, DivingDan wrote:

    I have Netflix streaming theu my Wii and now I just upgraded my TiVo box and have NetFlix streaming thru it. I haven't had any problems with streaming or buffering. May be the problem is just in your area and not a nationwide problem.

    Personally, we love it. We have a queue a mile long set up for the upcoming cold, dark winter nights.

  • Report this Comment On November 19, 2010, at 9:57 AM, TMFBent wrote:

    "Seth - Don't you suppose Netflix could also start offering commercials in their streaming and reduce their subscription by $1 to match Hulu's model . . . if it works, why not? I would prefer to pay $1 more and commercial free."

    I don't know if they can do that. I haven't read their licensing deals. But if Hulu can get a cost advantage because of its relationship with its owners (and I don't know that it can, only suspect it can) then it would be very tough to keep up.

    As I said, commercial free sounds nice, but when your streaming Netflix craps out every other minute while Hulu works flawlessly, it's pretty easy to pick a commercial, which you know will be over in 30 seconds (because they tell you) versus an unknown and unknowable series of delays due to Netflix's faulty app/CDN/throttling or whatever it is.

    For those who think that the absence of problems for them means an absense of problems for everyone, I recommend The Google. There are hundreds and hundreds of posts out there on the interwebs from people having the same kinds of problems.

  • Report this Comment On November 19, 2010, at 10:55 AM, shonufshogun wrote:

    Ok. I may be going off on a tangent similar to your post, but like many others I use netflix all of the time and I get buffering issues maybe once every 2 weeks. The problem seems like you need to invest less time trying to drive the stock down of a perfectly good company because your internet provider has changed their service. My recent issues with netflix (if there where any would be caused by the fact that I have to reboot my modem once in a while because my provider has been quote "upgrading the network". You also seem a little jaded at the fact that you didn't buy in when the stock was low. Is this your way of driving the price down so that you can feel better about yourself and purchase the stock. As for hulu, I haven't looked at their pay version, but their non-pay version only put the currently streaming seasons from the different broadcaster in one place so you didn't have to search for it on each of the corresponding sites. So you can pay $7.99 to have them direct you to their site while I'll type in their URL for the show and do it for free.

  • Report this Comment On November 19, 2010, at 11:02 AM, ejclason2 wrote:

    1st: I don't own any Netflix stock (unfortunately). I do subscribe to Neflix (2 disc).

    2nd: I have not had problems with Netflix streaming.

    3rd: I still watch more Netflix DVDs then Netflix streamining. The reason I started Netflix was because of their huge DVD library.

    4th: Today I won't switch to a streaming only service, even if it was alot cheaper. The reason: Larger selection available on DVDs.

    5th: The DVD service model won't die until most of the DVD titles are also available for streaming. I think it's too early to tell who the winners will be when that happens. However until then, Netflix will continue to do well, which will put them in a good position for the streaming market of the future. But it doesn't guarantee success.

  • Report this Comment On November 19, 2010, at 11:26 AM, shonufshogun wrote:

    The fact that netflix is the only true streaming venue on the market today that isn't regurgitating content found on other sites (once again not familiar with hulu's pay service) shows that their is no valid competitor against them. Hulu's niche, if they have one, is streaming the latest shows available from the prospective provider, while netflix may have to wait for dvd (not true for some shows as I saw Heroes when it was on in its last season show up every week on Netflix). I hate to use the term, go green, but If the vast majority of us actually cared about ourselves (not the planet, because it will be here when we are all gone), would demand all content be streaming and stop polluting our land fills with things like DVDs and CDs. So I say thank you netflix for having the insight to bring the joy of streaming some of my old time favorite shows and movies to most of my internet ready devices. The only valid media I see that could even be remotely considered for mass production on disc would be blu-ray because of its stellar quality. And for the record I don't have netflix stock either so this isn't the ramblings of an investor upset about his bottom line.

  • Report this Comment On November 19, 2010, at 11:41 AM, Puck519 wrote:

    Canada won't really be a good environment for Netflix as the major carriers all cap their bandwidths to any and all users of their fibre backbones. This went through the courts and the CRTC and was upheld. So whatever your throughput speeds are, and regardless of the IP provider, once the carrier sees this kind of streaming they throttle back the service. So how can Netflix work in this kind of environment? Also, our programs here (at least in Ontario) are all capped for month maximums. My current plan caps me at 30G total download. If I were streaming Netflix every night I think I'd blow this out of the water, and get charged HUGE overage fees.

  • Report this Comment On November 19, 2010, at 12:28 PM, fredericch wrote:

    What I find more annoying than the buffering pauses is when I receive a DVD that is defective. This has happened to me many times - I would guess about 10 times in the 4 years I've been a subscriber.

    A defective DVD is unplayable, and if it the movie you want to see, there is no other option.

    I see problems with both hard discs and streaming, and there is no avoiding them up to a certain %. The question is whether Netflix has an acceptable profit margin in both modes of delivery.

    I think you could have an argument concerning the increasing costs related to streaming, which are higher PER VIEW than with a hard disc.

    Thank you for starting the discussion!


  • Report this Comment On November 19, 2010, at 1:41 PM, mbawharton wrote:

    NFLX's moat is weak. The barrier of entry for the streaming market is low. Hulu, AMZN, AAPL, and even Redbox can eats its pie anytime.

  • Report this Comment On November 19, 2010, at 3:49 PM, themaxpain wrote:

    @hellerbrewing hit the nail on the head. You can't jump to these conclusions based on your home network. That's a sample size of one - completely meaningless - with literally hundreds of potential technical reasons why your network sucks.

    I stream netflix movies several times per week, g/n wireless or gigabit wired, next to the router or 2 floors down, in HD or SD ... and maybe 1 in 200 times does it need to take a 5 second buffering break. Can I take that to mean Netflix has no problems with their service whatsoever? Of course not. I'd be an idiot to think that I can derive any meaningful conclusion from just my own experience.

    Some actual research would be nice to read ... rather than just a huge, rambling personal anecdote.

  • Report this Comment On November 19, 2010, at 5:13 PM, DukeGuy wrote:

    I think this is a great article that highlights a VERY real problem. I don't have this problem in the 'Burbs (Never, not even 1 time). But literally no one else out here has it.

    I remember Internet providers a few years ago freaking out over increases in online gaming. That was maybe 1% of the population, during the most peak hours of the year, MAX. If you believe some of the estimates, however, NetFlix (or similars) could be in 1/2 of homes by the next decade. On an bad TV night, this could amont to 15%+ of U.S. Households streaming at the same time. While I admit it's unlikely that current internet infrastructure won't increase ten-fold in the next decade, I agree that it's something NetFlix needs to take a hard look at.

    From a consumer standpoint, they also need to significantly improve their user interface and get more titles online! Like Now! Suggestions include: Ghostbusters 1, Back to the Future, Avatar, and the other 99% of movies that people actually went to the theater to see that aren't currently on there.

  • Report this Comment On November 19, 2010, at 7:26 PM, tulsastorm wrote:

    I have never had a problem with Netflix streaming, and, based on the other readers' comments, most have had a good experience with Netflix streaming. I think the author of this article needs to be shopping for a new ISP if he is having that much trouble. Just because you have trouble doesn't mean you trash Netflix and its CDN partners on a public website, hope for a dip in the stock, and invest. A real journalist would do some scientific research on the Netflix's customer experience before printing such drivel.

  • Report this Comment On November 19, 2010, at 8:33 PM, Mstinterestinman wrote:

    I think the real point is the moat is narrow and competition is coming. If a price war ensues this could get ugly for shareholders. There are much bigger companies wanting to get into this space and it could affect netflix's growth which your already paying a premium for.

  • Report this Comment On November 20, 2010, at 11:31 AM, pete163 wrote:

    Who cares, I don't like ether company and don't use them at all.

  • Report this Comment On November 20, 2010, at 4:49 PM, casinojohn wrote:

    @the writer of this and any other TMF articles: Can you just write an article and be confident that what you wrote is what you meant? All the rebuttals just take up space and, in my eyes, take the credibility of the article far far away. Please don't reply TMFBent.

  • Report this Comment On November 21, 2010, at 11:05 AM, Rouleur wrote:

    I think the article and everyones thoughts are what makes a market. Buyers and sellers. I will say while there are good points on both sides, many of concerns posted in the original article remindvme of what some pundits said about the stock at $20. I frankly think it will depend on many unknowns and how nflx manages opportunities and threats. In the meantime, I love the service. It makes my iPad indispensable.


  • Report this Comment On November 21, 2010, at 1:03 PM, riffdex wrote:

    I gotta say. I am not having the constant streaming problems you say happen all too often. I don't doubt that you might be having problems, but the single biggest problem with netflix you have written about seems to be nonexistent to many of the people who are posting here...

  • Report this Comment On November 21, 2010, at 2:22 PM, Rouleur wrote:

    Riff- I agree, the weakest part of the argument is the sample size. Furthermore, nflx is constantly trying to improve service, and as someone who lives in NYC where the amount of users is very condensed I don't see tmfbents complaints.

  • Report this Comment On November 22, 2010, at 9:23 AM, DRovito wrote:

    And in today's news . . . (from Marketwatch) . . . "Netflix ups by $1 its streaming/DVD monthly plan". Last week or so NFLX also "hinted" it was amplifying its streaming infrastructure by signing up additional vendors to its existing contract with Akamai.

  • Report this Comment On November 22, 2010, at 9:39 AM, naandrews wrote:

    Indeed, Netflix is actually RAISING prices! Seems to indicate confidence in the underlying business.

  • Report this Comment On November 22, 2010, at 8:13 PM, Mary953 wrote:

    Perhaps I am lucky that I don't subscribe to Netflix. I have been able to invest happily, knowing only the market share, the business model, and the price of movie tickets. Netflix has been the outstanding holding in my portfolio. I only wish the other stocks were matching its performance!

  • Report this Comment On November 23, 2010, at 8:41 PM, ecloud wrote:

    It's not that bad, at least not everywhere... I manage to stream movies even when connected to my regular old WiFi (802.11g) router. When there is a hiccup (not so often) I blame it on that; if I break out the Ethernet cable it's quite good every time.

    I think I still prefer the quality from actual discs though, so with the one-at-a-time-plus-streaming price being as low as it is, and our movie-watching habits not so spontaneous (I have near the limit of 500 movies in my queue and it's been growing faster than we get around to watching them) I think we will continue with the mail-based service at least until most movies are available for streaming.

    I always thought the ISPs should themselves be in the caching business, competing with Akamai et al. by making popular content available on city-area servers just a couple of hops away from your cable modem or whatever. But I guess they don't have the financial motivation to do that, or just too much inertia. Their cost of doing it could be less than the incumbents' though.

    I too wish I'd bought the stock when it was still cheap.

  • Report this Comment On November 26, 2010, at 1:50 PM, azmfool wrote:

    If anybody is left, and if you've scrolled all the way to the bottom in hopes of getting past all of the 'my connectivity is better than yours' issues...YOU'RE IN LUCK!

    My thoughts: The issue that made AOL relevant, and later irrelevant is CONTENT. Keep in mind it was at one time their competative advantage. Heck fire, TMF was an AOL portal at one time!

    Later, as access became a commodity, AOL made the worst decision in the existance of the human species, which was to merge with Time Warner. Keep in mind this was an attempt at increasing content.

    So my take away here is that Netflix could potentially get into trouble going against three of the creators of the very content Netflix seeks to deliver to you. I would hope that both Netflix and Hulu are too smart to make all the same mistakes as AOL-Time Warner. Hopefully they won't make all new mistakes either.

    Disclosure: I own an eleven-bagger NFLX, but have never used it. On the other hand, I do subscribe to Cox Cable, but do not own their stock. And furthermore, dear Fools, none of you have a clue what real trouble is unless you have tried to use Cox On Demand delivery service. So there!

  • Report this Comment On November 28, 2010, at 6:51 AM, tbrownjt wrote:

    We stream from an 802.11g router to our laptop, then to the TV-never have buffering/stuttering movie problems. Maybe the extra device in the line is a problem (X-box)-I'm gadget ignorant-too much to keep up with-but why add another device when you can stream direct?

    Yup-selection is thin, but expansion of what's available is visible, almost every time we go on looking for something to watch.

    I feel the author is doing them a dis-service, trashing them based on a single method of accessing their content.

  • Report this Comment On January 24, 2011, at 10:08 AM, fmedinamm wrote:

    This is a very odd article in that I find Hulu unwatchable saturdays and sunday nights, while Netflix streams along beautifully on my PS3 or Roku. I am actually getting rid of Hulu after this month, unwatchable with the streaming hiccups plus the commercials... now that is a business model I don't understand from the client side. You pay for this service AND you get commercials, c u Hulu.

    Netflix, good to go..

  • Report this Comment On January 28, 2011, at 10:33 AM, jodibadger wrote:

    I suspect that your internet connection may be part of the problem! I run Netflix through my Roku and hardly ever have any slowdown or buffering issues. Maybe once a month? I've had the Roku for a few years and love it. I also wonder if some of the other devices themselves aren't as good.

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