What If Netflix Has a Flop on Its Hands?

Netflix (NASDAQ: NFLX  ) is in a good groove these days.

Goldman Sachs bumped its target on the shares from $125 to $184 on Thursday, encouraged by Netflix's widening addressable market -- not just the 84.2 million U.S. homes with broadband connectivity, but the fact that Netflix is now a viable subscription option for those embracing Web-enabled mobile devices.

Netflix CEO Reed Hastings tooted his own company's horn on Thursday, pointing out in a Facebook status update that the service delivered 4 billion hours of content through the first three months of the year.

Then we have a catalyst that has yet to play out. Hemlock Grove -- the latest show that will be exclusively available on Netflix for the time being -- begins streaming next weekend. After February's wildly successful House of Cards, if Netflix can nab another magnetic property, it will be that much harder for folks to cancel subscriptions between programming lulls. Netflix will have proved itself worthy of scoring magnetic content, and the comparison's with Time Warner's (NYSE: TWX  ) HBO will be even more apropos.

Is Netflix on the same level as HBO? Not exactly. As anyone knows who has seen House of Cards available as a DVD preorder on rival Amazon.com (NASDAQ: AMZN  ) , Netflix is often merely paying for exclusive streaming rights or just the benefit of carrying a particular show first. If it's a hit, it may very well be made available through other outlets down the line.

But what if we don't get that far with these next shows? What if Hemlock Grove isn't scary? What if Arrested Development's fourth season next month isn't funny?

We may not be dealing with hypothetical questions here.

"Weird can be good, but this isn't intentionally weird so much as it is plain bad," reads a scathing Hollywood Reporter review of Hemlock Grove from Tim Goodman.

Let's be fair here. Goodman also panned the similarly creepy American Horror Story, the sleeper gothic horror hit of 2011 where the Harmon family moved into a haunted house -- and paid the price.

"Unlike the Harmons, watching what goes on in that house even once is enough to know better than to go back again," he concluded.

He was wrong then. The show fared well on FX and went on to have a second season. Maybe he's wrong this time, too. Then again, maybe it's better for Netflix if Goodman is right. Netflix will have some duds on its hands. That's inevitable.

Amazon is in the process of greenlighting a bunch of pilots. It will then see which ones are fit to bankroll complete seasons for based on the streaming audience's initial reaction. However, even that hurdle won't guarantee that Amazon won't have some clunkers of its own.

Netflix has more money to spend than anybody else on streaming content, because it can justify the content land grab as it spreads it around its 33.2 million streaming accounts worldwide. However, when a show falls flat -- and that's something that happens even on HBO -- the real test is how a channel or service bounces back.

Nothing but Netflix
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. 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 The Motley Fool has released a 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. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.


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  • Report this Comment On April 14, 2013, at 3:09 PM, 2DayTripper wrote:

    The PC is going to be around for decades to come. Largely because there are still millions of people who don't own them yet just because of the cost for the PC and the cost of Internet rates. Fact. There are even more who don't have the tablets that are getting less expensive too, but you've still got to pay for Internet access unless you intend to sit at outside of Starbucks or McDonalds every time you want to get online.

    Netflix is about to become a part of my past! I do not want a disc sent through the mail, I don't want to wait for it and I don't want to have to mail it back. 2 blocks from my house is a Video rental store and for 10 bucks a month, I can rent as many video's as I want all month long, sure, there's a 2 video check out limit, but that's OK, at 4 hours a day spent on watching video's, 10 bucks is WAY cheaper than NETFLIX and I can get them in minutes.

    What I want to see is NETFLIX to have the SAME titles for stream as they do for home delivery. Keep the same prices to keep ALL the customers happy. That would be the kicker, do something GOOD for a change. Not going through with your last attempt at change for the worst was good, but doing something good for the customer's, now there's something new!

  • Report this Comment On April 15, 2013, at 2:52 AM, winkydude wrote:

    I like netflix, its been a solid service for me. I subscribe for phone and internet only. With netflix and the tons of other free content cable tv is history!

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