If things don't work out as expected for Netflix (Nasdaq: NFLX ) CEO Reed Hastings, he could have a future in baseball. Or at least that's what an untrained ear might have surmised from Hastings' comments at a recent event.
Speaking to an audience in New York City, Hastings said his company's goal was to be "the Moneyball of content providers." For those unfamiliar, Moneyball is a book -- later made into a movie -- written by Michael Lewis. The book chronicles the unorthodox strategy Oakland A's General Manager Billy Beane uses to field a successful team on a shoestring budget in the late 1990s.
Initial reaction to the analogy
At first blush, I was thoroughly flustered with Hastings' analogy. What he meant was that Netflix intended to use the information it had on users' viewing habits in order to efficiently determine how much each piece of content was worth to the company.
But part of what made Billy Beane's approach so effective was that he was the only one doing it. And when he was doing it, he was doing it under wraps.
If you've seen the movie, there's a crucial scene that highlights this. In the scene, Beane has a bunch of different GMs on the phone, going back and forth while trying to sell off his excellent first baseman for peanuts. The other GMs are so confused by Beane's approach that they're trying to figure out what they're missing.
"By giving his strategy away," I thought, "Hastings is losing the very advantage he's trying to put into use." With competition coming in from Amazon (Nasdaq: AMZN ) Prime, Hulu Plus, a rumored service on the horizon from Verizon (NYSE: VZ ) , and content providers such as CBS (NYSE: CBS ) , Time Warner (NYSE: TWX ) , and Disney (NYSE: DIS ) all either demanding more money or refusing to do business with Netflix, he can't afford to be giving away such secrets!
But then, the analogy isn't perfect
So flustered was I with the move that I immediately took to our Stock Advisor boards decrying the move. But then -- thanks in large part to user JSergeant -- I was forced to reconsider.
JSergeant pointed out something that should've been obviously to me, but I missed: "Netflix is the only one who has the data, based on their own collection of their user stats. In the Moneyball comparison, they were using publicly available information."
Touche, JSergeant. That is a key difference. Netflix is the only company that has been able to aggregate as much information on users' viewing habits. No other company has access to that type of information ... yet.
Does that make it a buy?
While I'll admit that the company's Moneyball strategy does give it an advantage for now, whether the company can count on it as a sustainable competitive advantage is another question altogether.
You can be sure that other streaming companies out there are starting to collect their own data. And while they may not match Netflix's database right now, with subscribers who have left after the summer of bad decisions, Netflix's advantage becomes weaker and weaker.
To be clear, I still hold my shares long. I think Netflix still has the best streaming service out there, and I think international expansion has a ton of potential. But until Netflix is able to shore up its subscriber base to the point where it can continue to provide the best content out there, I won't be buying any more.
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