Wednesday, September 28, 2011
Netflix stock was around $300 per share in July of this year, today it is $127.14 per share. How did they work this magic? Reed Hastings has figured out the fine art of annoying his customers on a grand scale. We received our latest copy of the ECONOMIST and there is a very good article on the fine mess Mr. Hastings has created for what was once an excellent company a nightmare for himself, stockholders and customers alike.
Here is the Economist version in a nutshell. DVDs may be old technology but they have all manner of legal protections. Generally, movies are released on DVDs about four months after the original feature opens in your local theater which means Netflix can start renting it via the mail without interference from the original owners. However, if Netflix wants to stream the same item via the internet they must strike a deal with studio or outfit owing the item in question. Netflix has become too big and too scary for a lot of the owners and they have therefore made negotiations difficult for Netflix to get streaming rights and some simply won't even discuss the matter with Netflix. They have to wait 8-9 years to stream various movies and TV programs.
The combination of DVDs by mail and the option of streaming all the older stuff gave customers a level of instant gratification they can not get today unless they opt for 60% more in monthly charges. Add to this customers will get billed two separate charges on their credit cards. QWIKSTER ( formerly Netflix DVD mail service), is the latest oxymoron example right up there with jumbo shrimp.
To date about 4% or 1 million customers have left Netflix. The shorthand math is this is about $100 million in loses unless the unrepentant Mr. Hastings does a mea culpa and lures customers back to Netflix.
Posted by Paul Alldredge at 9:39 PM