What Netflix Can Do for Investors Right Now

Welcome to Oscar weekend, Netflix (Nasdaq: NFLX  ) . In honor of Hollywood's most fancy night of the year I've a few ideas for sprucing up your digital persona. Call it a long-overdue social makeover.

My aim with the three suggestions that follow isn't so much to criticize as to point out that, as consumers, we're exposed to more noise than ever. We rely on experts, friends, and extended networks to filter the good from the awful. At Netflix, this isn't easy to do.

Remembering when
You used to be good at this. Remember when we had Netflix friends? That feature allowed us to check in on what our buddies liked and loathed. We could also see what they planned to watch.

All that ended a little more than two years ago, when data showed that less than 2% of customers used the "friends" feature. So executives pulled the plug and redeployed the engineering resources elsewhere. High returns on equity and capital have since validated that move, unpopular though it might have been at the time.

Yet the landscape is also more competitive today. Sure, DISH Network (Nasdaq: DISH  ) is shuttering a third of its 1,500 Blockbuster stores, but Comcast (Nasdaq: CMCSA  ) has announced plans for its own streaming service. Amazon.com (Nasdaq: AMZN  ) is also growing its library of digital content as the Kindle Fire establishes itself as a legitimate iPad alternative.

Most recently, the e-tailer put out the call for a "Creative Director of Comedy" to develop original programming for the Web and other distribution channels. And that's one of a handful of what appear to be serious programming jobs. Plans apparently call for Amazon to be just as aggressive as its peers in finding and funding new content.

So far, Netflix, your response has been to stay the course, forsaking personalized filtering in favor of an automated and mostly toothless recommendations engine and generic member ratings. I think you can do better. Here are three ideas for how:

  • Start with the buttons. Every Netflix page for every show should have social-media buttons embedded. That way, if you're thinking about a show you haven't watched or a film not yet out on DVD or Blu-ray, you can ask your network for thoughts. Who cares what some random Netflix member thinks? I want to know what those who know me think. That's the genius of entertainment-themed social network GetGlue; I'm connected with those who know my tastes.
  • Build collections. Why can I have a queue but not a list? Amazon lets members go so crazy with lists through the feature it calls "Listmania." On Netflix, I should be able to develop lists of shows and movies I like for staying in bed sick, working out on the treadmill, having family movie nights, and so on. Anything that allows members to personalize the experience strengthens the competitive moat and in so doing enhances the prospects for long-term investment returns.
  • Rethink affiliate marketing. Forget payoffs for banner ads. How about sponsoring a blog network of fan pages written by real Netflix members? Every blog would have a Netflix address and link back to the program being covered. Readers would get the option to watch previews, juicing the subscriber rolls as non-members are encouraged to sign up. The program could also placate Hollywood as undiscovered shows find a home and a following.

Netflix hasn't done much for investors recently. As bullish as I am on the business -- I have a real-money position, and I've made a long CAPS call on the stock -- I'd be remiss if I didn't also admit that there are other ways to make money on the rise of streaming video. Tablets, for example. A new Motley Fool report titled "3 Hidden Winners of the iPhone, iPad, and Android Revolution" spotlights a handful of stocks poised to benefit as mobile computing goes mainstream and is free and available now, but only for a limited time. Get your copy before this offer expires.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Netflix at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Netflix and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

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 February 26, 2012, at 4:15 PM, TSAJAMES wrote:

    Bullish on Netflex! Mr. Hastings just sold over 75,000 shares of common stock. Is this a good thing for Netflex? I like the stock too but, this recent transaction is very surprising as well as confusing.

  • Report this Comment On February 27, 2012, at 1:30 PM, bearsNbulls wrote:

    Bearish on NFLX. Hasting has consistently sold 15K shares. The last transaction at 76.5K shares seem like a "CASH-OUT" on his own company. This is over 5 times his normal amount.

    I remain Bearish. I can't hold a company that the CEO himself does not believe in.

  • Report this Comment On February 27, 2012, at 3:32 PM, TMFMileHigh wrote:

    @TSAJAMES and @bearsNbulls,

    As is often the case with these sorts of transactions, there's a lot more to the story than first meets the eye. Find the actual filing here:

    http://www.sec.gov/Archives/edgar/data/1033331/0001033331120...

    Three things you should notice:

    1. He didn't sell common stock. Hastings exercised and then sold a long-held option for 76,500 shares.

    2. He sold on the final day of expiration, 10 years after the options were first issued and in accordance with a programmed trading plan. (Meaning he had no direct control over the action to sell.)

    3. Hastings still holds more than 1 million Netflix shares in trust.

    In other words, the facts don't support the conclusion he no longer believes in Netflix. If anything, Hastings seems to be as fervent as ever.

    FWIW and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst

    Web: http://timbeyers.me

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