Sign in
Become a MarketWatch member today
Portfolio Insights by Brett Arends Archives | Email alerts
Sept. 19, 2011, 8:50 a.m. EDT
By Brett Arends, MarketWatch
BOSTON (MarketWatch) "” I suspect we're like a lot of Netflix subscribers in our household.
We were on the "Oh, yeah, I forgot I was subscribing to that" plan. With the "Honey, we've had this National Geographic documentary DVD for two months "” are we really going to watch it, or should we just send it back?" option.
Then, in July, Netflix /quotes/zigman/87598/quotes/nls/nflx NFLX -3.12% tried to jack up the price of our subscription. Bad move. Why? Because it meant we noticed our subscription.
There were more woes for Netflix on Friday, as its shares fell another 5% and analysts continued to hammer on the drop management forecast in its U.S. subscriber base. Has Netflix lost critical momentum? Rex Crum reports.
And so we cut it. It was only a few bucks. But there gets to be a point where you just get fed up leaking money at every pore.
We already have two set-top boxes "” from Apple and Roku "” that allow us to stream videos on demand from a variety of different sources, including Amazon /quotes/zigman/63011/quotes/nls/amzn AMZN +0.68% , Apple /quotes/zigman/68270/quotes/nls/aapl AAPL +2.40% and Hulu, as well as Netflix. If I wanted to pay extra, I could get more of the same from Comcast /quotes/zigman/89307/quotes/nls/cmcsa CMCSA -0.96% as well.
Apparently we weren't alone in cutting our Netflix sub. The DVD rental and streaming company warned that the move was going to cost it a million subscribers.
As recently as July 25, the company was expecting to have 25 million customers by the end of this month. Now it expects 24 million. That will actually be about 600,000 fewer than it had in June.
Netflix stock crashed last week to just $155. As recently as July it had hit $299.
Late Sunday, CEO Reed Hastings, while unveiling a more formal separation of streaming from DVD-by-mail subscriptions, issued an apology and explanation to Netflix's disgruntled clientele. Full story: Netflix to split off DVD business; CEO apologizes.
But Netflix's biggest problem isn't a simple management error. It's the marketplace.
Netflix prospered in a pre-streaming world. It bought DVDs and then rented them out, over and over again. It was a genius at fulfillment "” getting the films back, and sending out new ones, quickly and easily. And it was, after its earliest days, the only player in town.
No longer.
The future lies in streaming. In this era, Netflix's core strengths "” the DVD library and its logistics "” are irrelevant. And it's up against massive companies, including the likes of Apple and Amazon and the TV and movie studios. Every home finds itself in the same situation as ours. You have tons of options for getting movies and TV over the Internet or on TV.
Where is the competitive advantage? Where is the moat around the business?
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co. Collapse
Wall Street Irregulars
Gold battles back, as bugs cheer
Vital Signs
Tylenol in short supply as flu season looms
Consumer Confidential
TSA's bid to speed up airport security checks
Mutual Funds
No more dancing with fund manager stars
Portfolio Insights by Brett Arends
Is Netflix doomed?
Marsh on Monday
Lordly Geithner castigates Europeans
This Week in China
More warnings on China's debt
Digital Dvorak
End of the road for Research In Motion
Commodities Corner
Gold-platinum ratio shifts "” a new order?
No-Nonsense Investing
Read Full Article »