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Is Netflix Pulling a Blockbuster?

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September 15, 2011 – Comments (29) | RELATED TICKERS: NFLX , OUTR

Holy cow, that subscriber guidance... I ended my thumbs up on Netflix here in CAPS right after the price hike news. I did wonder if maybe I was being too reactionary, since most of the outrage I saw was purely anecdotal (people ranting on social media), but man. I have to wonder if Netflix somehow missed one of the very simple lessons Blockbuster learned (the hard way): when you make your customers mad, nothing good happens.

It seems Netflix management is still standing by the decision, that it's the right thing to do, but wow. Is Netflix's loss RedBox's gain?!

29 Comments – Post Your Own

#1) On September 15, 2011 at 10:12 AM, IsleGirl2010 (97.47) wrote:

It depends on whether or not the consumers have a better place to go.  I didn't think so until the report that NFLX is losing their liscense deal to get the Disney movies.  As a mom for a toddler, the Disney movies are high in demand in my house ...

Does Dave still love NFLX?

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#2) On September 15, 2011 at 10:23 AM, TMFLomax (53.54) wrote:

As far as I'm aware, Dave does, and he's an amazing big-picture, long-term stock picker, and I'd also venture to say he's not one to panic, ha. I haven't checked up there for a while though. And when I think of really smart CEOs, Reed Hastings is on the list.

But man, this news just made me shudder, and seriously made me wonder if Hastings/Netflix has seriously misjudged how this move would go down (and be perceived).

 

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#3) On September 15, 2011 at 10:39 AM, CrankyTexan (97.47) wrote:

Of course subscriber count will take a hit after a huge price increase.  But the price increase will more than make up for the lost revenue.  In fact, I think revenue will increase a lot this quarter.

Netflix is still cheaper than cable.  It is about the same price as Blockbuster online or Amazon Prime, but has a much larger selection of titles. 

 

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#4) On September 15, 2011 at 10:49 AM, CrankyTexan (97.47) wrote:

Also, you are comparing Netflix to Redbox?  Netflix streaming is $8 for access to 12,000 movies.  Redbox is $8 for access to 8 movies.  Redbox requires you to drive twice to the machine every time you want to watch movies. 

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#5) On September 15, 2011 at 11:07 AM, ThreeIsEnough (97.93) wrote:

Didn't Netflix warn about subscriber count lowering after they made their pricing change?  Or is it just that the guidance is more than they expected?

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#6) On September 15, 2011 at 11:07 AM, TMFLomax (53.54) wrote:

Well, it's definitely true that Redbox has serious limitations, CrankyTexan... 

But for people who are really into new releases more than older/more obscure films, it's a formidable contender. 

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#7) On September 15, 2011 at 11:12 AM, CrankyTexan (97.47) wrote:

Redbox has maybe 100 titles per machine.  Most of those 100 titles are offered by Netflix.  Only a few titles are not available at Netflix.

And Redbox does not have streaming.  So comparing Netflix to Redbox is kinda like comparing apples to oranges.

 I'm going to the Redbox website right now to see how many movies are not offered by Netflix.

 

 

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#8) On September 15, 2011 at 12:09 PM, TMFLomax (53.54) wrote:

SeamusDad

Much worse than expected; cutting current quarterly subscriber forecast by 1 million. Wowie zowie, ha. (I think you're right that it acknowledged there would be some defection at the time, but this is worse than expected.)

Here's an interesting piece by Travis Hoium from when the price increase news first broke in July: http://www.fool.com/investing/general/2011/07/14/time-to-unplug-netflix.aspx

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#9) On September 15, 2011 at 12:16 PM, CrankyTexan (97.47) wrote:

Okay, I just went to the Redbox website.  All 20 of their top-20 rentals are available on Netlix.

So far, these are the only movies I found that are not on Netflix...The Devil's Teardrop.It's You It's Me.The Shunning.

Another thing to consider is that rental DVD's are INTENDED to be old movies.  New movies are meant to be seen at the movie theater.  In other words, if a customer is willing to skip seeing a movie at a theater in order to wait several months for the DVD, I don't think that person is going to mind waiting 30 more days for it to show up on Netflix compared to Redbox.

Today, Netflix announced it lost 1 million out of its 24 million customers.  That means it retained 23 million customers despite a huge price increase.  That sounds like good news to me.  It retained 96% of its customers.  Cha-ching!

Another note: I recently tried to return a Redbox DVD but couldn't because the Redbox machine was full.  This is not a problem with Netflix.

Full disclosure: I own NFLX stock, and have a Netflix customer since 2001.

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#10) On September 15, 2011 at 12:33 PM, NeuroProf (< 20) wrote:

Today, Netflix announced it lost 1 million out of its 24 million customers.  That means it retained 23 million customers despite a huge price increase.  That sounds like good news to me.  It retained 96% of its customers.  Cha-ching!

I'm with you and Netflix is on sale today ! Cha-ching again !

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#11) On September 15, 2011 at 4:02 PM, puccini3005 (29.79) wrote:

#9 and #10 - do check out the article referenced in comment 8.  Of the 24 million remaining subscribers, I'm guessing a small percentage are ones who had the "unlimited streaming and 1 DVD by mail" option, and elected to accept the 60% price increase.  Many (like me) opted for one or the other, and thus a price decrease!  In addition to 1 million subscribers totally gone - that can't be good news at all.

My family only watched 1 - 2 mail DVD's in a typical month, so its not like we  were eroding NFLX's profit margins much with postage.  So for us, it makes way more sense to go to redbox  if there's a new release we want to see ($2/month instead of 8), and redbox is only a bike ride away...  Of the 20 of redboxes top-20 rentals, how many are available on Netflix streaming? Anyway, its that kind of thinking that makes coinstar a threat to take away a portion of Netflix's revs.

Furthermore, with better TVs, sound systems, and decreased disposable income, plenty of people are willing to skip the theatre and wait a few months for the DVD.  We'd just prefer to not wait several YEARS for it to be available streaming.

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#12) On September 15, 2011 at 4:08 PM, CrankyTexan (97.47) wrote:

puccini, you can rent 2 DVD's from netflix for $5 shipped.  No need to drive 4 times to redbox.

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#13) On September 15, 2011 at 4:11 PM, CrankyTexan (97.47) wrote:

I'd rather pay $3 extra than drive 4 times to redbox.

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#14) On September 15, 2011 at 4:16 PM, CrankyTexan (97.47) wrote:

Redbox is actually very similar to the old Blockbuster model, except that Blockbuster had a much larger selection.

Redbox is regression, not progression. 

 

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#15) On September 15, 2011 at 4:23 PM, CrankyTexan (97.47) wrote:

Puccini wrote, " In addition to 1 million subscribers totally gone - that can't be good news at all."

Who says they're totally gone?  They are likely to return when they realize that Netflix is still the best deal in town.

Sorry for the numerous posts, but this blog has no edit option.

 

 

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#16) On September 16, 2011 at 12:56 AM, FleaBagger (28.89) wrote:

CrankyTexan - don't get involved with your investments like that. You need to know when to fold 'em, and your posts have the tone of one who is in it till chapter 11 do us part. I'm not saying Netflix is on the verge of bankruptcy, but I am saying, I used to fall in love with stocks the way you have with NFLX, and no good can come of it.

As for "Of course subscriber count will take a hit after a huge price increase.  But the price increase will more than make up for the lost revenue.  In fact, I think revenue will increase a lot this quarter." I used to think I was smarter than the folks that sold my stocks down 20%, and it cost me a lot of money to learn that I wasn't. If you're in this trade with hard-earned real money, I think it's time to take a long, hard look at finding another investment idea that you don't have an emotional attachment to. 

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#17) On September 16, 2011 at 1:21 AM, awallejr (81.44) wrote:

The problem with high PE stocks is the minute growth projections stall or fall so does the stock, and hard.  Kind of saw the writing on the wall the day they had to wait 30 days before showing newly released dvd movies.  And the problem with streaming now is many things they don't offer on it.  

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#18) On September 16, 2011 at 1:49 AM, CrankyTexan (97.47) wrote:

Fleabagger, I have been crushing the market since 1999.  NFLX is only 5% of my portfolio, so I won't lose sleep if Netflix goes bankrupt.....which it won't.  I am a long-term investor.  I care about the stock price of NFLX five years from now.

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#19) On September 16, 2011 at 1:50 AM, CrankyTexan (97.47) wrote:

awallejr, Netflix has over 12,000 streaming titles.  No one else comes close.

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#20) On September 16, 2011 at 9:44 AM, TMFLomax (53.54) wrote:

Good thread. I really like "till chapter 11 do us part" -- very good points, FleaBagger!

There really does come a time when, as much as you might "love" a stock you have to challenge yourself to ask the hard questions -- has something really fundamentally changed? I'm long-term buy and hold by nature, but I really do try to ask difficult questions about my favorite stocks...

I'm kind of wondering how much of this has to do with the postal service's problems. That's a real mess, we all remember one of the things that was on the table for a while was no Saturday delivery (wouldn't that hurt DVDs by mail? I think so), and I just saw a WSJ article about its (NECESSARY) cost cuts will slow first class mail service. When I was still getting Netflix DVDs by mail (I'm now streaming only, and in an aside, there's usually a lot of stuff I CAN'T get, which is frustrating, but I used to be one of Netflix's most profitable customers because I'd sit on discs too long before watching, can't do that anymore), it was nice to know that usually, you'd get your new disc the next day without fail.

Reed Hastings is no dummy (like I said in a previous post), so I am wondering if he's trying to address some major shift in how his company is going to have to operate in a very different future. (?)

As for Redbox, well it is a bit like Blockbuster's sub-optimal driving back-and-forth model, which is pretty yuck. BUT, its kiosks are located in places you're usually going anyway (the grocery store, drug store, probably close to home on your usual routes). 

Thanks for all the thoughts in this thread!

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#21) On September 16, 2011 at 9:50 AM, TMFLomax (53.54) wrote:

And PS... had dinner with a friend last night. She's not a stock watcher at all, and she mentioned the Netflix news. She said the price hike made her mad, definitely led to a downgrade of service, and that tons of people she knew were also none-too-impressed. There may be a method to the madness in Netflix hiking the prices, but lots of consumers won't care what the strategy/reasoning is -- it's just going to come across to them as abusive, or that they simply can't afford it right now, etc. Again, ultimately how consumers felt about Blockbuster.

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#22) On September 16, 2011 at 9:57 AM, catoismymotor (< 20) wrote:

Netflix will truely be Blockbuster when they start charging rewind fees for returned DVDs.

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#23) On September 16, 2011 at 11:27 AM, CrankyTexan (97.47) wrote:

 "Reed Hastings is no dummy (like I said in a previous post), so I am wondering if he's trying to address some major shift in how his company is going to have to operate in a very different future."

 He announced several months ago that the goal of Netflix is streaming only.

"As for Redbox, well it is a bit like Blockbuster's sub-optimal driving back-and-forth model, which is pretty yuck. BUT, its kiosks are located in places you're usually going anyway (the grocery store, drug store, probably close to home on your usual routes)."

So was Blockbuster. 

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#24) On September 16, 2011 at 11:35 AM, CrankyTexan (97.47) wrote:

"lots of consumers won't care what the strategy/reasoning is -- it's just going to come across to them as abusive, or that they simply can't afford it right now"

Netflix is still the best deal around.  Consider this analogy.  There are two hot dog stands.  Bob's hot dog stand charges $3 per hot dog.  Tom's hot dog stand charges $1 per hot dog.  So you become a loyal customer of Tom's for many years.  Suddenly, Tom doubles his prices.  His hot dogs now cost $2.  Would you be infuriated at Tom?  This is how some Netflix customers are behaving.  Netflix is still the best deal, but some customers are acting as if Netflix is now the most expensive option, which it isn't.

I will stop using Netflix when someone else has a better deal.  That has not happened yet. 

 

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#25) On September 16, 2011 at 2:38 PM, TMFLomax (53.54) wrote:

catoismymotor

Ha! Yes, this is most definitely true. Rewind fees for DVDs would most certainly be a Blockbuster move.

I just remembered the time when you joked in a comment on a Blockbuster article that Ayn Rand was your manager at Blockbuster. :)

 

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#26) On September 16, 2011 at 7:01 PM, awallejr (81.44) wrote:

awallejr, Netflix has over 12,000 streaming titles.  No one else comes close.

Except not the things I wanted such as many classic TV comedies.  I am forced to get the DVDs instead. 

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#27) On September 16, 2011 at 7:19 PM, CrankyTexan (97.47) wrote:

awaller, does Redbox have classic TV comedies?

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#28) On September 16, 2011 at 7:33 PM, awallejr (81.44) wrote:

I don't use them since they can't rent new movies for a month either.  I wind up paying for it through cable since I can be impatient sometimes.  And as for those mailed discs I am like TMFLomax too, they tend to lie around awhile before I watch them.

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#29) On September 22, 2011 at 8:21 AM, truthisntstupid (85.24) wrote:

I'm glad I hardly watch TV, movies or otherwise.

You ALL spend a lot of money that I'd rather buy a book with.

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