Sounding The Death Knell for Netflix

If the title grabbed you, then I did my job as a blogger, which I think is what a lot of bloggers tend to do, especially when it comes to everyone’s favorite tech piñata, Netflix.  Seems this is one of those weeks for the Los Gatos, California company, mostly because, as usual, shareholders in their wisdom feel the company is overvalued, needs to raise rates for subscribers, or should better position themselves for a merger with (take your pick) Amazon, Hulu, Apple, etc. etc. ad absurdum (Comcast?!? Really?!?).

Never mind that the company just reached 30 million subscribers globally (having completed expansion moves into Nordic countries such as Sweden, Denmark, Norway, Finland and gather more subscribers from Latin American countries), Wall Street gurus sayeth that this is not enough to beat their (ahem) estimates of how the company should be performing.  Instead they compare it to a company on the ropes such as Zynga, the gaming service that’s pinning much of its hopes not so much on Facebook, but rather the possibility of prepping its poker service for real, legal online gambling.  The Street’s prognosticators honestly wouldn’t mind seeing either company fail it seems, they’ll make their money no matter what, but what about the consumer?  You know, the whole point for Netflix’s existence in the first place?

Hey, folks! Remember these?

Netflix, once poised to slay both Blockbuster and the cable industry, now seems like a company of unfulfilled promise, which in turn portrays CEO Reed Hastings as a rather rudderless leader whose vision of a high-def streaming future is being curtailed by those who actually produce and distribute the content, and have come to realize over the past few years that they were leaving a ton of money on the table.  With the cable industry virtually conspiring against it, choking off content they deemed to valuable to just give away based on Netflix’s low (yes, low) subscriber rates, Netflix has struggled… having to fork over more of their ready cash for content at a much higher price, while thinking up ways to circumvent this chokehold by developing (or buying) their own original series content (serial type series are Netflix’s bread and butter, with old TV content like 24, Lost and Mad Men making up the bulk of their most popular offerings).

It remains to be seen if Netflix can pull off this trick of segueing into original content with shows such as Lilyhammer, new episodes of the cult-TV comedy Arrested Development (made exclusively for Netflix, and due to stream in 2013) and the David Fincher/Kevin Spacey produced House of Cards starring Spacey as a ruthless U.S. congressman, but will Wall Street wait and even give them a chance to work through this grand experiment? Will their subscriber base feel that these shows are worth of their attention?

Lilyhammer got off to a good start (I watched every episode and found the black comedy about a goodfella who goes into hiding in Norway pretty damn good, better than most content produced for the web, and better than many big-budget TV shows the networks and cable nets put out), but I don’t hear too many people clamoring for new episodes the way they do AMC’s The Walking Dead or Breaking Bad.  That doesn’t necessarily mean much, since Netflix is really offering a walled-garden approach to content consumption that leaves non-subscribers out in the cold, and the company does not release Nielsen-type ratings of their shows.

Yet, it’s easy to see that Netflix is taking the long view in their corporate strategy, unwilling to be bound by the financial strictures and content wars with cable nets and the big studios.  If they can keep cash flow high via revenues (which at the moment is looking softer with each passing financial quarter and ending with a recent negative cash flow for the company), then they might just be able to pull it off.  It would be a remarkable transition, from a company that started with the now paleolithic concept of mailing DVDs to consumers, to streaming content directly to them, to finally producing actual content in the hopes their subscribers will follow along and even appreciate these shows on their own merits.  I wouldn’t ring the death knell just yet… the patient is still breathing quite well after all, but what do I know, I’m not a Wall Street speculator viewing the life and death of a company as just another way to fatten already excessive earnings.

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