Is anyone really surprised by Netflix’s sudden fall from grace? The company’s shares have fallen 45 percent since mid-July, down 136 points from an all-time high of 305. Nearly 40 of those points came yesterday alone, when the movie-rental company acknowledged that its customers have been canceling their subscriptions in droves, apparently because of a horrendous new pricing scheme announced earlier this summer. It’s not often that a bell rings on Wall Street to tell investors it’s time to get out. In this case, however, the ominous “clang!” came via an avalanche of complaints when Netflix aired plans in July to separate its DVD-by-mail service from its faster-growing Internet streaming service. In the days that followed, the high-flying stock, a favorite of investors manifestly as brainless as they were giddy, shed 15 percent of its value. NFLX never even bounced until mid-August, after it had lost a third of its value and was trading for around $200.
The firm’s new business model probably would have had little impact on revenues if they had retained their original pricing scheme. Instead, Netflix jacked fees substantially for both services, forcing many of its 25 million customers to choose one or the other. Each service now costs $8, but the price of DVDs delivered by mail has risen sharply for those who want to keep two or three DVDs in the pipeline at all times. Your editor has been a Netflix subscriber for years but was never crazy about the streaming service because the selection of titles stinks. It’ll do for teenagers who missed a movie at the suburban multiplex, but for buffs who enjoy good films, especially offbeat ones, Netflix’s streaming video catalogue was the pits.
The company was so aggressive in trying to push customers onto streaming that one might have thought they had a fabulous library of great titles. In reality, although Netflix claimed to offer scores of thousands of streaming titles, it always seemed as though most of them were TV shows produced on shoestring budgets in the U.S. and Europe. To be sure, even very bad television shows are better than most of the movies shown at mall theaters these days. But if you’re in the mood for cinema noir, or an Italian comedy, or even a horror classic, and you want to have those films in hand whenever you please, then you’ll have to pay Netflix $15 to $20 a month for multi-DVD delivery. Your kids will howl when you cancel streaming Netflix, which is what they all seem to prefer, but let the little buggers bus tables or mow lawns if they want to keep the service.
We Were Mystified
Regarding the $305 price that Netflix shares ultimately achieved, we never really understood it. There are few entry barriers to competition; moreover, a few Internet biggies, including the already-competing Amazon, could jump into the business any time they want. Even Netflix’s prized algorithms – the ones that supposedly help customers select titles they are likely to enjoy – are not worth much as far as we’re concerned. After you’ve rated hundreds of films – or thousands, as we have – the algorithms seem to grow increasingly desperate to find something good that you haven’t already seen.
Meanwhile, are the morons who have been salivating over the prospect of a $100 billion Facebook IPO watching? We doubt it. But if and when that company goes public, we’ll be $50 million bid — and even then, only if Google appears to be stumbling badly with its own social network-in-the-cloud. (Want to see how you could have called the top in Netflix shares? Click here for a free trial to Rick’s Picks, including access to a 24/7 chat room that draws astute traders from all over the world.)
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I don’t watch many movies, the new ones are mostly mindless and trite. How many more physics defying super hero explodathons can we stomach? Porn is more edifying than the crap coming out of Hollywood.