In Praise of Netflix
Netflix had yet another bad day yesterday as Wall Street, in after-hours trading, knocked an estimated 25 percent off the value of their stock, bringing it to below $90. This in response to Netflix revealing that it has lost 810,000 subscribers in the third quarter.
This was just the latest in a string of setbacks for the company. The bad news, of course, started when Netflix announced a significant price hike last July (as a worst case, some subscribers' rates rose 60 percent). Next came the announcement that the company would be spinning off the DVD rental service into its own company, called Qwikster. When customers reacted poorly to that idea, Netflix scrapped it, and Wall Street beat them up again for being indecisive.
So last night's announcement that the company had 'only' 23.8 million subscribers (200,000 less than Netflix had suggested it would have) is apparently causing the stock to free-fall even more (in July just before the price hike it was flirting with the $300 mark). And yet earnings per share was $1.16 (up 63 percent year over year); more than the $0.96 analysts were predicting.
Earlier in the day, Netflix announced that it will be expanding to the U.K. and Ireland in 2012. Because of the costs associated with setting up content deals for that expansion, the company predicted that it will be in the red in the first quarter of next year and 'for a few quarters' thereafter.
You can get all the gritty details from the horse's mouth but I have to admit I'm growing concerned.
Because believe it or not, I like Netflix. I know that's not a fashionable stance to take these days, but I've looked into replacements for the service and have come up mostly empty-handed. Sure Amazon is building out its "Prime" video service but it's not even close to Netflix in terms of the amount of content or the number of devices it's available on. Hulu Plus? I'm not going to pay a monthly fee and still have to sit through (non-skippable) ads. Everything else, at least that I'm aware of, is pay per view (or pay to own), or very niche.
In our household we had the old Streaming plus 1 Disk plan, plus a $2/month surcharge for Blu-ray disks. I want to say that package was $15 or $16. The disks often sat next to the TV for weeks or even months, so when the price increase rolled around, we dropped the DVD portion of our plan. Now we pay $7.99/month for unlimited streaming. For our purposes (we're a TV show family more than a movie family) it suits us well, but recently we've watched a few movies via On Demand. HD versions cost $6 each that way. So two movies cost us more than we'd pay Netflix for a month-long disk subscription. Of course we could also go to RedBox and get SD movies for $1 each. Or catch something on HBO.
My point is, there are a lot of options when you're in the mood for a movie, but for us TV-o-philes Netflix is far and away the best deal out there. I hate seeing the stock take such a beating because I want the service to remain strong. I want to see them continue to have the capital to put into content acquisitions (TechCrunch says Netflix will double content spending in 2012, but it isn't clear if they're factoring in the U.K. and Ireland content in that figure).
Netflix CEO Reed Hastings says that the $7.99 price point for streaming is the right price, but he admits that they should have softened the blow by gradually moving the price to that point. So yeah, between that and the Qwikster debacle the company really screwed up. But I think it's time we forgave Netflix and let them get back to their work of building out a robust library of streaming content for us to enjoy. I mean...it's $8/month. I know people who spend more than that for coffee and a pastry at Starbucks every morning. Let's stop acting as if these price hikes are going to be sending us all to the poor house, shall we?
Read more of Peter Smith's TechnoFile blog and follow the latest IT news at ITworld. Follow Peter on Twitter at @pasmith. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.