Netflix Misses the Big Picture

So, "Argo" received the coveted Oscar for Best Picture. Hey, if you missed the flick while it was in theaters, you might want to check it out, right? Don't look to Netflix's (NASDAQ: NFLX  ) streaming service for it. I already looked -- it isn't there yet.

Fear not, if you're desperate to see the movie, get Amazon.com's (NASDAQ: AMZN  ) Prime service and rent "Argo" via streaming for $3.99. If you'd rather use Apple's (NASDAQ: AAPL  ) iTunes, you can rent it for $4.99.

Could investors, analysts, and other interested parties please acknowledge why the frequency in which Netflix's entertainment options are simply MIA is a major problem for Netflix's future?

Queuing up disappointments
I'm one of the subscribers signed up for Netflix's streaming-only service, and I'm personally pretty frustrated. I hardly use the service anymore. Every time in recent memory that I have looked for some movie that's relatively new that I'd really like to watch, I've ended up disappointed. I've ended up simply renting the movies and occasionally TV show seasons such as "Dexter" from Amazon.com (gasp).

Maybe I have quirky taste and my feeling here is way too anecdotal. However, I simply don't believe I'm in a minority of frustrated Netflix subscribers. Add up the rental fees to instantly watch what you want to see now through other services, and there's a point where the Netflix streaming service simply doesn't make economic sense anymore, especially when there are so many other areas vying for our time and attention.

A giant queue of second-string programming sure isn't going to help Netflix. What used to be a wonderful selection of high-quality and more obscure, artsier fare when Netflix was a DVD-rental giant has deteriorated into what feels like mostly a collection of antiques and also-rans.

What did Netflix recommend as a consolation prize for its lack of instant "Argo"? It offered up "House of Cards" (granted, putting out its own programming is one good idea the company has had). However, it also served up a variety of films that members are supposedly streaming instead of their first choice, "Argo:" "Barfi!," "Heroine," and "Seal Team Six." I can't say I have heard of any of those, and even if they're perfectly fine, underrated sleeper movies they're a far cry from the one that won Best Picture at the Oscars.

New Houses and Sesame Street aren't enough
Netflix does have original programming such as "House of Cards" (which I have heard is good ). Netflix also recently penned agreements with Disney (NYSE: DIS  ) and, more recently, DreamWorks Animation (NASDAQ: DWA  ) , the latter of which will provide an exclusive show called "Turbo F.A.S.T." Both of these agreements will probably make kids (and parents) happy and add some goodwill for Netflix, but I don't buy that these are suitable grounds to believe Netflix's day has been saved.

Take Amazon's recent deal with CBS (NYSE: CBS  ) , through which it will offer episodes of "Under the Dome" mere days after broadcast. Talk about instant gratification.

Services from such heavyweights as Amazon and Apple are stealing Netflix's bread and butter, basically. The irony is that they've got many more tricks up their sleeves product-wise than Netflix's one-trick pony, so destroying Netflix may be like swatting an annoying fly for them. This is particularly true in Amazon's case, since its streaming service comes as part of the Amazon Prime membership. In other words, it's just another nice perk to add Prime members into its ecosystem.

Meanwhile, Netflix simply keeps disappointing. This was once a company that rated incredibly high on user satisfaction. According to a major Consumer Reports survey last summer, although Netflix still enjoyed a large number of subscribers, user satisfaction dragged behind six other rivals. Pathetically, this list even included Wal-Mart's (NYSE: WMT  ) Hudu (who?). Ouch.

Show's over for Netflix
If you're looking for a cheap growth stock, buy Apple. Despite relentless buzz about business threats, Apple's share price has been ridiculously beaten down and the Apple brand and product selection are a long way from broken. Maybe the company won't be quite what it used to be, but the stock having fallen 20% in the last 12 months is simply absurd.

If you're looking for a contrarian play, go for Amazon.com. Many will tell you it's overvalued, but brushing at Netflix like a fly is just one example of how many ways this company is building insanely ironclad competitive advantage and helping itself to many, many other companies' businesses.

Regardless of what the "smart money" seems to be saying right now, avoid Netflix. It is terribly overvalued now. Those who bought shares at their lows should take the money and run. Given the major disappointments Netflix now consistently deals to customers in the real world -- as opposed to investors' theoretical numerical scenarios and misguided views of what a "value" is -- the show's over, folks.

The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.


Read/Post Comments (19) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On March 05, 2013, at 6:36 PM, AceInMySleeve wrote:

    I've always found myself explaining away the lack of VOD choices, mostly because those haven't historically had a lot of traction as independent services.

    It does seem though that if there is a competitor that draws eyeballs away via this mechanism, than that's a bad thing.

  • Report this Comment On March 05, 2013, at 6:39 PM, 987candyman wrote:

    If you want to watch a great documentary which is streaming on Netflix until October check out Candyman:the David Klein Story...This tells how Jelly Belly was started with an 800.00 investment.

  • Report this Comment On March 05, 2013, at 7:18 PM, riskyoptions wrote:

    Netflix targets kids and is very user friendly for them. No one is going to cancel if you have children for $7.99.

  • Report this Comment On March 05, 2013, at 7:25 PM, ButtHead89 wrote:

    If you could stream all of the latest releases for just a small monthly fee, why would anyone buy the DVDs? Are you sure it was Netflix that decided to restrict subscribers access to new releases? Or do you think the major film studios are worried about their profits being undermined?

  • Report this Comment On March 05, 2013, at 7:31 PM, Watcher760 wrote:

    An interesting take on the streaming landscape that misses two important items in my opinion.

    1. HULU....'nuff said there.

    2. Amazon prime costs $79/yr = $6.58/month vs Netflix $7.99/month

    Then add in, for example ONE movie or THREE episodes (per month @ $3.99 rental cost) that are not yet available on Netflix and suddenly you are paying $10.57/month. Or double that to TWO movies per month and the cost at Amazon is now approximately $14.56 per month.

    Ms. Lomax fails to note that Prime comes with added costs depending on the product you want.

    Ms. Lomax also fails to mention Hulu. Combining Hulu and Netflix for $15.98/month give UNLIMITED access to classics and next-day products. They were never designed to be all things to all people, but they come close for many of us on a budget.

    And that is one key aspect that Ms. Lomax also seems oblivious to...most people use streaming services to save money on overall entertainment, not for short term rentals. When there is a service that offers VOD at a better price than Red Box I will probably sign up for that too. Yes I might watch Argo a few days later than Ms. Lomax, but then I will also likely have spent less actual cash.

    Cheers

  • Report this Comment On March 05, 2013, at 7:40 PM, Kxk2007 wrote:

    I dropped Netflix after their price increase debacle when they split streaming and DVD rental customers. We did however, pick them up again along with Hulu plus. $7.99 for each. We find ourselves watching only Hulu. Every time I go to Netflix to look for shows or movies, they are never there. On top of this, they have raised my monthly price to $8.19. Never received an explanation for the price increase. I know it is only cents but this is how they all do it. $.10 here and there. I believe we will be dropping Netflix yet again. Amazon prime will probably be our next stop.

  • Report this Comment On March 05, 2013, at 7:41 PM, MandaK1022 wrote:

    I love netflix! It's much cheaper than cable and I enjoy watching the tv series. You learn to adapt to what you've got and $8 a month is fine by me. If we want to rent a movie we just hop on Vudu and rent it.

  • Report this Comment On March 05, 2013, at 9:34 PM, Burstedbladder wrote:

    I have been a NF member for many years. I get 3 dvds at a time and online streaming thru my Roku and DVD players, and when I am in the hospital, I have my laptop with me and watch them on my laptop.

    I think this is a ploy for Apple, amazon, and other to try and drown NF so they can corner the market with the inline streaming and video service as they have done with the music and iTunes.

    I'm not leaving NF anytime soon. They are great, reasonably priced imo, and I have never had bad streaming video issues.

    Goooooooooo Netflix!

  • Report this Comment On March 05, 2013, at 9:49 PM, ottosmom wrote:

    I use NF streaming for their wonderful collection of documentaries and foriegn films that you cannot get any where else. If I can't wait for, say Argo to get to streaming, I pay Amazon for it. I'm still way ahead financially over cable and PPV. BTW, House of Cards first season was very good. I think NF has something going here. Bravo.

  • Report this Comment On March 05, 2013, at 10:57 PM, twmoody wrote:

    I love Netflix. We pay $159.00 for cable (which I can't wait to get rid of) and only watch stuff that is available on Netflix anyways. Once ESPN is available as an add on cable is toast. It is a rip off.

  • Report this Comment On March 06, 2013, at 12:37 AM, cmwt wrote:

    Why is it every time I come on this site there is an obvious slam on Netflix? Are you guys just heavily shorting it or what? I don't even own shares of Netflix and it's still annoying.

    Netflix shines on marathoning previous seasons of popular TV shows over movies and frankly it makes sense - a movie is 2 hours and done, a season of a quality TV series is between 11 and 22 hours of entertainment, and considering it costs them roughly the same they're making a wise decision. Go watch Breaking Bad, Walking Dead, Mad Men (alright AMC is on a roll), or something and quit moaning about the "lack of new movies". Really, Argo isn't on Netflix? It also isn't on HBO, Starz, Showtime or Cinemax. If you want to rent it, there are a dozen ways for you to do so - it's obvious Netflix isn't that service (I wouldn't be surprised if they eventually add it but it would go against their buffet style delivery). Go watch a quality indie movie like Safety Not Guaranteed, Sleepwalk With Me, Goon or the infuriating Compliance. I'd much rather see Netflix get 5 quality movies than a single decent big budget one.

    Amazon has a few decent exclusives to their Prime service (Justified, Dowton Abbey S2) but the movies are about the same and the interface is god awful.

    There's a reason why the internet doesn't talk up services like Vudu that focus on renting movies to consumers. iTunes movies would probably catch on better if, I don't know, Apple wasn't so strict on what devices could use their store (frankly this is a stupid business decision, they'd make far more money and have far more market penetration if they would just put iTunes on everything out there. $99 for a mediocre Apple TV or an abundance of money from media sales.)

    So consider me a mostly pleased customer, they've done a good job seeing the big picture by ignoring something they could technically dump all their money on (how many people would really keep the service simply because they added The Avengers, Argo, or Zero Dark Thirty?). I will say they need to organize and have a New Release Sunday or something along those lines, but in general it's a quality product, especially when compared to the rip off that is cable.

  • Report this Comment On March 06, 2013, at 12:57 AM, Avaspeaks wrote:

    I think people just want stuff "new and instant" immediately.

    Both Apple and Amazon can let you rent or buy the movie WHEN the movie is released on DVD. And you don't have to have Amazon Prime to rent a movie on Amazon.

    IF you do have Amazon prime, then what you can get is a large selection of movies for either 1.99 or for free. But most of those movies are also on Netflix as well.

    As far as Netflix goes, it still is a DVD service, that's what it started as and that's what it's really known for. So if you want to see Argo, then get it on Netflix DVD, if you don't want to wait, then pay the money and download it from Apple and Amazon.

    It baffles me how people complain about these new movies being instant or available to get from Netflix the day of the release. Because truth be told, if you REALLY wanted to see the movie, then you would had saw it in the theaters.

  • Report this Comment On March 06, 2013, at 1:04 AM, dantso wrote:

    Seriously? you're comparing services that charge $4-5 for ONE movie versus $8/mo for UNLIMITED content?

    Why don't you compare Amazon's pathetic "free" (+$79/yr) content to Nexflix's $8/mo content?

    I'm simply not interested in paying $4-5 to streaming ONE movie. If I want a relatively new movie and "can't wait", there is always Redbox for $1.30. Otherwise Netflix provides tons of unlimited movies streaming plus new-ish titles via DVD mailing. That's enough for me (us).

  • Report this Comment On March 06, 2013, at 1:20 AM, jb757 wrote:

    Finally, some says "I paid $3.99 to stream a movie on Amazon". That's really cable On Demand.

  • Report this Comment On March 06, 2013, at 7:10 AM, brown23455 wrote:

    We use netflix and hulu plus for cable. Thats 16 a month as opposed to what 70 for cable or satellite. It works great. If we want to watch a new release, we rent it on vudu or cinema now for somewhere between 2.99- 4.99.

  • Report this Comment On March 06, 2013, at 9:08 AM, zeneb98 wrote:

    While I agree that Netflix's streaming selection isn't the best, I've been a member for several years now and will continue. The price point for me is fine. I have streaming shows and one at a time DVD's. If I want a recent movie or show, I get it via DVD. If I'm catching up on older TV series, I go streaming. If Netflix doesn't have it yet, I check Hulu.

    There is a gap that is frustrating between what is on Netflix and Hulu, but I don't know if that is a Netflix issue, or a Hulu issue. I find for example season 1 and 2 streaming on Netflix, then season 4 on Hulu, but the only way to get season 3 is via DVD. If someone comes up with a service that allows me to watch every episode of a series including what is currently running, I'm dumping Netflix and going with that. Maybe Hulu+ does, I don't know.

  • Report this Comment On March 07, 2013, at 8:20 PM, Darwood11 wrote:

    Wow, Alyce, you really skewered NFLX.

    Now, I do get that there is a big distinction between the service and the company as an investment.

    "...there's a point where the Netflix streaming service simply doesn't make economic sense anymore, especially when there are so many other areas vying for our time and attention."

    True, in the entertainment world, there certainly are. However, I do like what NFLX has made available. Yes, it's not necessarily the latest or the greatest on the streaming site. But I really enjoy finding gems such as "Woman in the Moon" (Die Frau im Mond) and "Jiro Dreams of Sushi." These are merely examples.

    Yes, there's a lot of "cr@p" out there, but that's the way it is with entertainment. After, all, it is just entertainment!

    Returning to the core question as an investor. Is NFLX worth my dollars? Well, I did purchase NFLX a while back, because I liked the service. However, when the stock skyrocketed, I got nervous and I sold an amount equal to my original investment. Shortly thereafter, the stock tanked as the founder faltered. I was simply lucky. I really have an aversion to fads. When pundits, analysts and stock owners begin hyping a company and its stock, I usually become wary.

    I bought NFLX because I am averse to services that are ancillary to the core competency of a company. Streaming and DVD is what NFLX does. It will grow or perish based upon how well it does these things. Will it succeed? Who knows. Tech is so ephemeral and I was so burned by the dot-com bust that I'm probably a bit gun-shy and pricked by the hype.

    However, I do still own a few NFLX shares. Will I be selling before that 5-year time line? Who knows.

    I do like the product and that's one of my incentives to own the stock. When the day arrives that the product is below my expectations or the management makes a fatal flaw, then I'll sell and put my investment interest elsewhere.

    With thousands of publicly traded companies, it's difficult to get to absorbed by any one. Of course, with a distributed portfolio and about 25 stocks, there is no reason for me to be hooked.

  • Report this Comment On August 14, 2013, at 3:03 AM, Cheerytoes wrote:

    The only problem with this article is their complete lack of understanding of Amazon Prime. You do NOT have to have a Prime membership to rent movies. You do have to have a Prime Membership to get Amazon Prime's FREE content. What used to be just about getting 2nd day delivery for free on anything sold or shipped directly by Amazon now has an additional benefit of having an enormous amount of content streaming for FREE to Amazon Prime members.

    So, you don't have to pay for Prime and then pay to rent movies, you can rent movies to your heart's content without any enrollment in Prime at all. Get your facts straight, Motley Fool, otherwise you look foolish.

    Amazon Prime member for 8 years.

    Netflix member since before there was streaming.

    HuluPlus member since it's inception.

  • Report this Comment On August 14, 2013, at 3:10 AM, Cheerytoes wrote:

    Let me repeat/rephrase. Renting movies/TV Shows at Amazon DOES NOT require an Amazon Prime membership.

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