If the idea is to sell movie rentals to as many consumers as possible, why does Netflix agree to a 28-day delay before sending out new releases from Time Warner and other major studios? What's keeping Amazon.com
Look who's talking
Netflix CEO Reed Hastings is nothing if not candid, but he doesn't always send out information along the most obvious routes. The hypothetical questions I asked above have been answered in a slide presentation -- on the company's recruiting and job-posting site.
The business opportunity ahead of Netflix today is simple, according to the slide deck: "Lead streaming subscription for TV shows and movies." The road ahead offers "huge opportunity, many threats, daunting challenges," and "big dreams. Innovators needed."
DVD rentals by mail are mentioned every so often, but only in passing. Streaming is the future, and it will eventually muscle out the DVD business altogether. The shipping of discs looks set to peak around 2013, and then go into a slow decline.
But wait -- there's more!
That much was already obvious from as far back as 2006. That was before Coinstar
The more enlightening material in this presentation deals with all of these issues.
Netflix doesn't want to be everything to everyone. Video entertainment is a massive market, and "to have profitable growth in such a huge market, you find a segment in which you can gain and maintain leadership." Never mind new releases, video games, dating services, and kitchen sinks; this company has found its niche and is content to defend it to the death.
The market nook that Netflix occupies is a low-cost, long-tail space. Hastings wants to provide "content so broad, engaging, and affordable that everyone subscribes to Netflix. We are evolving to be more movie-catalog focused and more prior-season TV-show focused, as opposed to new-release focused."
In other words, leave new releases to Redbox and to Comcast
The new-release delay is all right, because that's not where Netflix holds competitive advantages. If the average consumer sticks with cable or satellite service for the bulk of video delivery, and then adds on a cheap Netflix subscription to fill out the back catalog, that's all Hastings really wants.
The Hollywood ending
With that attitude at the top, it's imperative for Netflix to keep growing its subscriber base as swiftly as possible. Amazon and Apple seem unlikely to make any move -- acquisitive or competitive -- into the low-margin market where Netflix makes a living, though Google
Read the slideshow for all the gory details, but this is what it boils down to:
The name of the game for Netflix has been incredible subscriber growth from very early on, so nothing has really changed -- except the tools the company uses. I can't see anybody with much of a reason to buy the company, because low-cost and low-margin services don't attract a whole lot of suitors. Burning the ships to focus on nothing but streaming back-catalog movies will keep potential Netflix-killers at bay. Fanatical efforts to keep customers satisfied won't hurt, either -- and the few who complain about the lack of new releases were barking up the wrong tree to begin with. That expensive service can be found elsewhere, and typically for more money. That's somebody else's market cranny.
And in the end, Netflix gets to keep growing in its chosen market niche, to the delight of shareholders and customers alike. I'm perfectly fine with that.
Fool contributor Anders Bylund owns shares in Google and Netflix, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers selection. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like. The Fool has a disclosure policy.