You're Asking the Wrong Questions, Netflix

Netflix (Nasdaq: NFLX  ) wants to know what customers think about its content library. I know because management sent around a survey earlier this week. There's just one problem: It asks too many unimportant questions.

They seem like important questions, though. Netflix wants to know what I think about its available choices of TV and movies, and what my friends and family think about these same selections. Does the service measure up when compared to Amazon.com's (Nasdaq: AMZN  ) Instant Video library or Hulu's selection of just-aired shows?

Source: Netflix.

Source: Netflix.

Only the paranoid survey
In another instance, the survey asks whether respondents agree or disagree with the idea that Netflix's library is occupied with "filler" to make its catalog appear larger for marketing purposes. Has CEO Reed Hastings gone paranoid? I'm honestly wondering.

Perhaps it doesn't matter. After all, former Intel chief executive Andy Grove once described paranoia as a survival mechanism in the cutthroat tech business, and Netflix has plenty of competitors who'd be glad to take its lunch money.

Apple (Nasdaq: AAPL  ) stands out as a partner, sure. Yet the iEmpire's primary interest is creating content diversity outside of Netflix for iPad and Apple TV users. Witness the company's recent move to bring Amazon Instant Video to the iPad. Content diversity creates differentiation, which feeds Apple's premium pricing model and keeps margins high and cash flowing.

And the good news is?
In surveying the installed base, it's safe to presume Netflix understands that existing customers sell the service far better than any advertising or marketing campaign can. Executives are itching to find out whether we still evangelize the service:

Source: Netflix.

Source: Netflix.

Co-authors Fred Reichheld and Rob Markey call the act of asking whether a good or service is worthy of recommending to others "The Ultimate Question" in their book of the same name. Hastings and his team want to know the same when it comes to Netflix.

And that's good, even if the survey still misses some very big questions when it comes to assessing Netflix's core advantage: distribution and viewership data.

Streams filled with dams
More than Amazon, Hulu, or Google's updated and expanded YouTube, Netflix is available on almost any device that can connect to the Web. Users can start a program on one device and continue on another, assured that the watching experience remains pervasive and seamless. Most of the time, anyway.

In recent months, I've seen Netflix shows stop and "buffer" when streamed via the highest available Wi-Fi speeds, but only via our Apple TV device. House computers rarely suffer the same issue, which leads me to believe that the set-top box probably isn't serving us as well as it should.

On the other hand, we know from the headlines that Netflix is well aware of its need to better control content speed and delivery. The company has announced plans to cut back on outsourcing to the likes of Akamai Technologies (Nasdaq: AKAM  ) and Level 3 Communications (Nasdaq: LVLT  ) and create its network for digitally delivering TV and movies to streaming subscribers.

That's a huge investment that requires not only capital but also knowledge and planning. Why not ask about performance? Why not ask about streaming quality, broken down by device? There are good questions to be asking, Netflix. You just aren't asking them yet.

Breaking bad rules
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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google, and Netflix at the time of publication. He also had a long-term call options position in Netflix. 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 Netflix, Amazon.com, Google, Intel, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, Intel, Netflix, and Amazon.com and creating a bull call spread position in Apple and a bear put ladder position in Netflix. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 30, 2012, at 2:49 PM, mark516119966 wrote:

    Loading up netflix using a Ruku box I hold my breath wondering if it's going to takeoff or send a message that reads ...paraphrasing... "Are you Signed in", "internal problems".

    If it does go with in 30 seconds which is quick I can almost be assured within a minute it will buffer again. At other times, which is an exception, it will load up and not hick up once. I just never know. I would like to know if it's the Ruku, my internet provider, my router that is too far away? But if it is, then it's only too far away sometimes?

    I would like to see some kind of explanation on the screen to fix it if I could. It's the weekend does that mean something?

    Will that be on the questionaire? If not I hope I don't get one because I won't satified and will be on the same side of the room as you.

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