Netflix (Nasdaq: NFLX ) shareholders aren't in a good place right now.
The stock has surrendered more than 80% of its value since peaking last year, and it's not as if Netflix is just a fifth of the company it used to be. It closed out its latest quarter with more than 30 million subscribers worldwide. Profitability and high-margin DVD-based subscribers aren't what they used to be, but is that really worth the pounding that the stock has received?
Thankfully, the easiest path to a turnaround is in the company's hands. Unfortunately, Netflix is too proud to make it happen.
In a Wall Street Journal interview earlier this week, Netflix CEO Reed Hastings was asked about moving away from the $7.99 monthly ceiling on the streaming end. Why aren't there tiered pricing levels? Why isn't Netflix offering piecemeal digital rentals of new releases the way Amazon.com (Nasdaq: AMZN ) and DISH Network's (Nasdaq: DISH ) Blockbuster do?
You're not going to like Hastings' response.
Get your new videos elsewhere, folks
"Our fundamental view is we grow revenue by expanding the number of members, rather than increasing the pricing," he says, emphasizing the clear and simple value proposition of its smorgasbord. "That's why we don't have pay-per-view video and we don't have ad-supported video."
It's easy to understand the reluctance to embrace ad-supported video. Let Hulu and Google's (Nasdaq: GOOG ) YouTube deal with the freeloaders willing to put up with video ads for the sake of viewing free content. It's also easy to grasp Netflix's aversion to tiered pricing. Cocky studios will begin demanding that their content be part of the highest tier, and that will stigmatize the programming on the cheaper tiers. Patrons may also resent the class warfare.
You win, Hastings. Nyet on those two revenue channels. However, this isn't a good argument against pay-per-view video.
Supply and On Demand
"Netflix is $7.99 for unlimited streaming," Hastings says. "That's what we're interested in. We don't do download and store on your device so you can go into the remote mountains and watch. It's not that there's not a little market for it, but it's just too complicated."
No, dude. It's not complicated. Amazon does it. Blockbuster does it. Apple (Nasdaq: AAPL ) does it. If it's a "little market," it's only because Netflix is not doing it.
Netflix is the only company with the foundation and credit card information in place to serve streams to tens of millions of people through their TVs. It's not about a single device along the lines of Google TV or Apple TV. It's not about trying to do so many things -- hello, Amazon.com -- that you become a jack of all trades.
Only Netflix has seamless streaming through all three video-game consoles. Only Netflix has several manufacturers of Blu-ray players willing to add a "Netflix" button to their remote controls.
What is the top knock on Netflix's streaming service? It's not the price. Folks leave because there's not enough new content to watch.
Why force subscribers to wait years -- if not longer -- for the new retail releases to be available through Netflix streaming? Why force them to keep their cable providers around so they have access to pay-per-view? Why make them drive out to the nearest Redbox or Blockbuster for a physical disc rental?
Hastings may think that adding pay-per-view would confuse subscribers. As a subscriber since 2002, I can vouch for most of my fellow members. We're not stupid. We'll get it. The $7.99 a month monthly smorgasbord won't blur as a value proposition.
More importantly, Wall Street will get excited in Netflix again. It will no longer be about the slow creep of average revenue per user down to $7.99 a month. The market will begin wondering about how much more Netflix can make by providing more value and convenience to its customers. The conversation won't be about Netflix as a "rerun TV" novelty. The focus will be on Netflix turning into the cornerstone of a home's media entertainment system.
How much lower must Netflix's stock go before Hastings realizes there is little to lose and so much to gain by opening this fire hose? Whether it's a retention tool or a revenue boost, it's time to get complicated because simplicity is failing.
A new premium report on Netflix details the opportunities and challenges in store for its shareholders. The report includes a full year of updates, so time's ticking. Check it out now.