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A Tale of Two Companies: Apple and Netflix

October 25, 2011 Leave a comment


You could write a textbook on this topic but I’ll try to do it in 600 words or less.

Netflix, once a phenomenally successful company has seen its stock price tumble 35% this week on news that it managed to lose 800,000 subscribers over the past six months and that four different analysts downgraded them because no one can make sense of their business plan. Apple just lost its CEO and resident genius but is riding an I-Phone computer voice and plans for a new TV that just might revolutionize how you watch the medium- all the way to the bank.

Earlier this year, Netflix hiked prices 60% when they decided that’s what you’d have to pay to get both DVD’s sent to your home and get streaming. And they did it rather arrogantly without much of an explanation or even, an “I’m sorry, it’s the cost of bringing you all this great quality.”

Then when they finally did apologize, they announced they were splitting into two companies, Qwikster, which would be the old DVD-sent-to-your-home business and Netflix, which would now be the streaming part. The two companies would keep separate data bases and be basically disconnected from one another- which confused their customers and made them mad all over again, because you’d no longer be able to go to one place to figure out if they had the programming you wanted to watch.

Then they changed their minds and dropped the Qwixter idea and said, nah, we’re going back to what we originally intended.

Meantime, they seem intent on cutting really expensive content deals with companies like Dreamworks in order to be able to provide decent streaming services- except with their current business model charging what amounts to about $10 a month, there’s no way they bring in enough revenues to pay for these content deals. Seems to me you either collect good (and expensive) content, suck it up, and tell your customers it’s going to cost more but its worth it- or you keep being a real cheap monthly service wih average to below-average offerings of old movies and TV shows. But you can’t have both.

It’s all stated best by a guy named Tony Wible with Janney Capital Markets who gave this analysis to his customers, as quoted by Marketwatch.com:

We believe the [Netflix business] model is unsustainable, as the company faces rising costs that it hoped it could pass on to its [subscribers],” who appear unwilling to accept them, Wible wrote to clients. “The company has paid exorbitant prices for content while painting itself as a cheap rental service. Simply put, the company’s brand does not fit with its large/growing content obligations.

Meantime, Apple sold about 4 million of it’s new I-Phones a week after launch, mostly because of one added feature- Siri. This is the friendly computer voice you can interact with that looks stuff up for you and offers suggestions, tips, reminders, etc., etc. You can even talk dirty to Siri, though her sense of humor is such that all you’ll get back is words like “dirt and compost.” For the record, I have not tried this but so I’ve read.

And I see today that the “next big thing” Apple is up to is the launch of Apple TV. This would be a smart television that with a few easy, typically Apple-like steps, would allow you to see what’s available to watch without having to wade through category after category of Cable TV, Netflix and Hulu menus. And, of course it would incorporate a Siri-like application so you could ask your TV what’s on or have it find you the program you want to watch.

With their on-again, off-again, customer-belligerent and confusing business strategies, one of these two companies is coming off like New Coke on steroids. The other seems to be confidently pursuing its climb toward global domination. I’m going with the ghost of Steve Jobs over the seemingly aimless and perplexing strategies of Netflix CEO, Reed Hastings.

Netflix: The Streaming Gamble

September 20, 2011 Leave a comment


I’m getting dizzy reading all the contrasting views from business analysts trying to make heads or tails of what Netflix is up to. My conclusion: unless they figure out the content piece of their streaming services, they’re cooked.

First, they angered their customers by unapologetically raising their rates 60%. Their stock price tumbled and they managed to lose a million subscribers. Then this week, Netflix CEO and co-founder, Reed Hastings, sent a belated e-mail apologizing for all the arrogance and announcing the company would be split in two. Setting the PR debacle aside, the strategy is quite the riverboat gamble.

Netflix will now be streaming the TV Shows and horrible movies you’d never see in theatres that you can access on everything from your lap top to your Xbox 360. Qwixter is the new name for the DVD-delivery service that was the initial business model that put the company on the map and helped bury Blockbuster and similar companies that charged the outrageous late fees for movie rentals that Netflix didn’t.

The services will be completely separate, from billing to menus to websites. You’ll no longer be able to go to one place to figure out whether the video you want to see is streamed or available by mail delivery. Terribly inconvenient and done so on purpose. They apparently see their future in streaming not the resource-intensive mailing and processing of DVD deliveries. They seem to think Netflix, the streaming model, will survive and thrive and the DVD business will sink of its own weight and eventually go away.

I think they’re right about the DVD’s. Not so sure they’re right about the streaming. If you think for one second you can give up cable TV, FIOS or dish services and still watch streaming movies you’ve actually heard of for 7 bucks a month, you’d be sadly mistaken. Netflix and Starz failed to renew the deal that provides about 20% of the streaming content and the few movies they have that are worth watching. That content will be gone as of early next year.

And Hollywood cheered. The folks who make our motion pictures would prefer to make money from a public that will pay anywhere from 5 to 8 dollars through their cable systems for a single movie. They are not so keen on having their product made available to an outfit that allows unlimited monthly viewing for the price you’d pay for one on-demand cable TV movie.

So who is going to work with Netflix to provide any decent content? Where in the world are they going to get it? Streaming would work if you had the same variety you have with the DVD deliveries. But it doesn’t have that variety and it never will.

Netflix was about the DVD’s delivered to your home that you could keep as long as you wanted. It was genius. But it’s hard to see any scenario in which the streaming portion of Netflix will ever be more than garbage in and garbage out. And that’s too bad because I’m rooting for these guys and their ability to make movie-viewing an affordable proposition. Unfortunately, I’m afraid the old axiom is applicable here. You get what you pay for.