Three hundred bucks per share has to feel like from here to eternity for Netflix after today.
In actuality it was only back in July. In after hours trading on Wall Street, after CEO Reed Hastings announced the departure of more than 800,000 subscribers, shares of its stock plunged to $86.50, their lowest price since a year ago August.
So doth begin the slide. Arrogance, they name is Netflix. Or is it “was Netflix”?
Much like Blockbuster before it – and believe it or not folks other than the noxious late fees I used to accumulate, I still miss ambling through my local Blockbuster store – Netflix is a victim of its own success. With prosperity comes arrogance and in recent months the home of the Scarlet Envelope has been as guilty, if not more so, as its now diminished blue-and-yellow rival.
First it decided it was going to raise prices by as much as 60 percent on some customers and split its streaming and DVD plans. Then weeks later they came up with the inspiring idea of breaking discs-by-mail off into its own service called Qwikster.
Positively brilliant. If you had the audacity to keep both plans, you had to keep track of them on two services, have two bills and log on to two websites. And there you are; two more usernames and passwords to track.
Back in July after making their harmless financial moves Hastings said the moves would hurt the company in the near term and that the future was still bright. Ummm…maybe not so much, after all.
Setbacks have shown up like cockroaches on moldy cheese since then – the main one being negotiations with Starz, the cable TV home that provided them with a significant portion of their streaming movie content, fell through and Hastings, in an admission to investors on Monday, confessed that acquiring movie content will continue to be challenging.
Three letters: H-B-O.
The cable television behemoth – owned by Time Warner – has exclusive online streaming rights to Warner Bros. movies, 20thCentury Fox and Universal. For the record, that’s three of the big boys with Paramount, Walt Disney and Sony Pictures being the other three.
What he refused to understand is that Hollywood will always try to pinch every penny of profit out of its product all while maintaining as much control as possible.
Then there’s that pesky little thing called cost, which has skyrocketed since Netflix first came on the scene. It sounds as if reality has slapped Hastings in the face at this point if statements from his letter to shareholders is any indication.
“Given the existing licensing structure of the cable network industry,” Hastings wrote to shareholders, “the total content available will likely remain carved up between Netflix, Showtime, HBO, Hulu, and others.”
I don’t have the business acumen of someone like Hastings, but for a while there he seemed to have forgotten something I thought he knew all too well – content is king. Hardware to view movies, TV shows and other intellectual properties possess slim profit margins while a classic movie or TV show endures. But the difference in the 21st. century: people want their entertainment at home and on the go and Netflix isn’t the only player in town.
That’s why George Lucas recycles Star Wars on every format he can. It’s why Jerry Seinfeld’s grandchildren will still be counting his residuals when they’re well into adulthood.
Netflix, with few exceptions, is now home to TV reruns and primarily second-tier movies with some notables such as the Miramax catalog from the indie studio’s early days. Expecting customers to pay for TV shows that are free in any number of places is not realistic
Here’s betting that Netflix’s decline continues. What’s ironic is that Hastings didn’t learn from the lesson that he taught Blockbuster – arrogance isn’t an attractive character trait.