Netflix in Absolute Disarray: Here's How to Play It

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  • Report this Comment On September 24, 2011, at 4:36 PM, beachdudeca wrote:

    Good conversation but you made lot of mistakes when you spoke of Amazon, Netflix and Hulu.

    When you talk about Hulu, you need to go beyond the 1 million paid members you need to also include the shared advertising revenue which should be the bulk of cash flow. Plus the bids are a combination of revenue sharing and long term access to content. Depending on the terms of the sale the cost will greatly vary.

    As for Amazon, there is nothing preventing them from expanding their entry into the market plus Amazon provides Netflix with the streaming infrastructure. The only thing holding back Amazon is a need to refine their interface plus they will integrate this into their new tablet.

    Okay Netflix, lets crunch the numbers and look at Netflix will look like after they divest themselves of the physical disk division and cease showing movies. They are currently at about 24 million subscriptions give or take a million per their last press release of which at least 1/2 have moved to Blockbuster, so lets shave off 2 million off the DVD only clients, subtract 1/2 their mixed use clients which number about 12 million so another kill 6 million, and knock out another 1/4 of their streaming only clients for about another 2 million since they are changing their focus from movies to non current television programing. So in the end we have maybe about 12 million users when the dust settles paying the streaming fee and that is pretty generous given they will no longer have current content or movies on their site.

    So when you crunch the numbers do the evaluation based on the new Netflix model, about 12 million accounts that are paying for television programing from prior seasons versus Hulu that is showing the latest television content, Amazon that has a similar lineup to Netflix but is integrated with their new Tablet and Blockbuster that will by the end of the year expended have their streaming content beyond their Dish clients and snatched up at least 6 million new subscribers just based on their physical disk subscriptions.

  • Report this Comment On September 24, 2011, at 7:24 PM, thesmartestfool wrote:

    Horrible move by Netflix to split the company. If you have to enter into two separate agreements for streaming and physical DVD's, what stops users from switching to Amazon Prime for the streaming service and only keeping "Quickster"? Users get more for their money with Amazon's streaming service... Now instead of paying Netflix for the simplicity of the bundle (i.e. both services), users can pay Quickster for the DVD's and switch their streaming to Amazon, and get the extra Amazon services on top of the streaming content to boot...

    Look to see Netflix die a slow death and Amazon to move into the space that Netflix used to control.

  • Report this Comment On September 24, 2011, at 9:25 PM, AceInMySleeve wrote:

    I think there has been a tendency to say 'competitor X is almost as good as Netflix and so customers will substantially switch to this competitor' yet it never plays out that way. Netflix hybrid customers are agitated by the changes for good reason, but they aren't going to find substantial alternatives yet or likely in the near future. Hulu has a model of similarly attractive convenience but a nearly orthogonal selection. How many Hulu Plus members also subscribe to Netflix? I'd bet that's not an either\or. All other competitors lack evidence of being able to acquire customers. The dust will settle and the vast majority will remain with Netflix\Qwikster.

    For the moment though I think the risk is that Netflix is not going to be able to migrate beyond being an 8$ aggregation of low quality content. That indeed appears to be their deliberate strategy so long as they maintain subscriber growth. Higher quality content will continue to pop up in various scattered places, but the confusion for the casual consumer keeps it from picking up much traction. Frankly I think the content owners are happy with that. They see no need to rush into giving Netflix the keys to the kingdom.

    So for many years you will see Netflix basically operate as a catch all for garbage at cheap prices, and at 8$ this is a reasonable decision for customers to stick with the service and supplement their premium needs as necessary elsewhere.

    The last time the stock broke like this was 2004 and it took 5 years to reach it's previous high as the next business model (streaming) took off. I think it could again be some time before that kind of appreciation happens again (if ever), and would be triggered by premium pricing\content.

    The chief question my investment would turn on is this: what are the odds of another online-only service acquiring 10M+ customers while charging $20+ a month? No one does that yet. If someone else manages that, then Netflix is a bad buy. If no one else does, Netflix will remain strong.

  • Report this Comment On September 25, 2011, at 11:15 AM, jb757 wrote:

    beachdudeca: great scientific number crunching. I guess you used an assortment of random chaos theories or drew the numbers from a hat. Consider: 12 million subs x $17/mo x 12 mo. - $2.4 billion alone for actual dual subscribers.

    DVD/streaming-only plans are same/cheaper and you can switch monthly between the two. No reason to run anywhere.

  • Report this Comment On September 30, 2011, at 2:01 PM, PanzerWatts wrote:

    Consider: 12 million subs x $17/mo x 12 mo. - $2.4 billion alone for actual dual subscribers.

    That assumes Netflix can keep 12 million dual subscribers. I think that's a flawed assumption, despite the cool little Venn diagram press release.

    I expect that when the dust settles from this there will be less than 6 million dual subscribers by 1/1/2012. I think that most of the missing 6 million dual subscribers will jump onto either DVD or streaming only, but it's quite possible a lot of those subscribers will completely cancel their service.

    I personally have changed my account to DVD only, because I find the streaming side pretty second rate.

  • Report this Comment On September 30, 2011, at 5:18 PM, Threedollarbill wrote:

    AceInMySleeve--I agree with your assessment. They still seem to have a good business model for now, hopefully though they can continue to please their customer base, which Hastings has not been too keen on listening to their desires from his past performance--not a good thing imo.

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