Users and industry analysts have had some less than flattering things to say about Netflix since the streaming service announced its price hike and subsequent announcement of Qwikster. The company has been painted as possibly having jumped the proverbial shark, and its plummeting market value doesn’t exactly argue otherwise.
Bloomberg reports that Netflix has lost some $9 billion in market value since this past July, as well as more than a half-million subscribers. And this is making it a very attractive takeover target. It’s a company that still has obvious inherent value and provides a service that more customers than many distributors have are willing to pay for. That, coupled with its decreasing value, means that there are potentially some interested buyers out there considering acquiring Netflix.
Even still, Netflix co-founder Marc Randolph doesn’t think so. Public opinion may say Netflix has shot itself in the foot, but he understands the decision. In a blog post, Randolph explains: “Not only am I completely in support of what Netflix is doing, but I think it is one of the smartest, most disciplined and bravest moves I’ve ever seen.”
The entrepreneur goes on to say that the complications of running the DVD rental and streaming sales through one platform were incredibly divisive — and something the company experienced back when it also sold DVDs. This was profitable and good business, but executives knew everyone was about to begin selling DVDs, giving them more competition. That and “trying to run a business that did two things well” meant making unsavory comprises. So they walked away from that money and stopped selling DVDs.
And it wasn’t easy. “But wow – for a young CEO like myself – turning away from the source of 95-percent of our revenue was just about the hardest thing I had ever done. Needless to say, it worked.” The rest is history and Netflix went on to see big money from its rental service, and then streaming.
Randolph says history is repeating itself now, and Netflix has been stuck managing physical rentals and streaming business models. Some of the problems he believes were impetus for splitting the two are: Managing pricing for multiple use cases, determining language that “embraces two different ways to receive movies,” managing content availability differences, down to landing page complications. In short, there were technical difficulties in combining such different distribution schemes.
Whether or not Randolph’s right and Netflix’s recent troubles can be blamed on growing pains as it attempts to keep up with technology and consumer demands, the fact remains that its actions have contributed to its falling market value. Maybe Netflix has the foresight to know it must plummet in order to rise, but digital media trends are anything but predictable.
One thing is sure to come of Netflix shedding physical DVD rentals, and that’s Facebook integration. By getting rid of discs, the company won’t be burdened by the Video Protection Privacy Act and will be able to work with Facebook on a streaming application.
Pair this with new partnerships that are making Netflix a force to be reckoned with – user outrage or no user outrage – and the company is looking like a phoenix ready to rise from the ashes of its much-mocked recent corporate decisions.
We’re uncertain how long it will take for Netflix to reclaim its prestige, but the potential routes it’s setting up for its future means it’s anything but dead in the water.
Competition is always good which is why I’m glad that DISH Network stepped up to the plate with the Blockbuster Movie Pass. It’s not exactly like Netflix or their DVD service, but it’s a way to get streaming to TV/PC, DVD/Blu-ray and video game rentals by mail and in-store exchanges. This is certainly a new hybrid player as they’re offering DISH subscribers all of this content for only $10 a month. New subscribers who sign up for qualifying programming are getting this pass free for a year, and since I work at a DISH call center I know that on today’s launch alone they’ve been very successful.
Netflix used to be the Only show in town…. guess what? Options are on the horizon.
I still find plenty of good foreign and obscure stuff on their streaming service and overall it’s a great service both streaming and DVD. This is a move they had to make. DVD is fading out. This makes it easier to kill in the near future. Nice job on bagging Dreamworks as well IMO.
Gonna be very interested to see how much of an exodus they have on the horizon. Myself and many of my friends have cancelled over the last couple of weeks, I imagine quite a lot of people are leaving. Not out of protest but because the value proposition is broken now, you either want a crappy catalog of streaming content or another vendor for DVDs, together it made sense, split I prefer RedBox, Hulu and other outlets
I received a very, very apologetic letter from the CEO of Netflix, but it did not change my opinion.
You might call the following post “White Knighting” Netflix it’s turly more of understanding what they did and showing that they won’t make it.
First off, stop crying about the rate hike. It was announced months ago and yes, while it’s annoying you’re paying more for the same service, that’s life. I used to be able to go to the movies for $3.25 but I can’t do that anymore; I got over it, as did everyone else. Besides, if you seriously can not afford the extra few dollars a month, perhaps you should get offline and go take a financial management class.
Second: Netflix is a public trading company and thus, have to answer to their shareholders and shareholders demand a maximum ROI, despite the economic client or what hardships the company is going through. Netflix didn’t decide to raise prices because they were greedy, they did it because they were forced to spend a hell of a lot more to keep the production companies signed – did you except them to shell out that much more and do nothing? If you can’t understand this I suggest you get offline and take a business 101 course.
Third: I imagine that Nexflix, especially as time went on, was hemorrhaging money. Between people stealing DVDs, having to ship multiple copies of the same DVD because people scratch the hell out of them (which I don’t get, it’s 2011 – hold the DVD by the edges), thus rendering them useless is going to add up. I’d be really curious to see a P&L statement from them to see what their balance sheet looks like.
Netflix’s problem is that not was their business model too broad (you ship a wrong DVD, get a credit, can hold onto DVDs as long as you want) is starting to catch up to them. I think Netflix thought they’d have no one to compete with in the world of physical media and then Red Box came out of no where and is giving them a run for their money. This is going to really hold true if the USPS stops delivering on Saturday because now if you ship your DVD on Friday, you won’t get a new DVD until Tuesday.
With all that said, Netflix is probably going to unload their DVD rental service to someone else (assuming someone buys them) because while people will buy Blue-Ray DVDs to watch their favorite movies, renting a physical copy that never works because it’s damaged is the way of the past; online streaming is the future. Of course, with Netflix having to compete with other companies who are going to stream media (Apple, Amazon) they can’t compete; they don’t have the capital and they don’t have other revenue sources. Unless a major change happens soon, Netflix won’t last another five years.
I think while netflix has been a trail blazer for streaming content it won’t be long before a new champion enters the arena and does it better learning from netflix’s mistakes.
Nothing like a netflix apologist..
THEY don’t have much of a choice it’s what they can get licencing for… now shut up
And they misspelled “compromise.”
The worst part of Netflix streaming is that THEY choose which movies they wish to post for streaming customers and all I saw were B grade or lower, movies I would never have chosen in the first place.