Can Netflix recover from its DVD price-hike fiasco?

The company with the famous red envelopes enraged subscribers last year with a big price bump. But now, Netflix is adding millions of new streaming customers

Best Opinion:  Motley Fool, New Yorker, Reuters

Netflix had a rough 2011. First, the business that killed your local video store upped its subscription fees for DVDs in the mail, infuriating customers. Netflix then tried to spin its DVD-by-mail business into another company, the oddly-named Qwikster, which hardly went down any better. The stumbles were part of Netflix's attempt to pivot to internet streaming, which it predicts is how most people will watch television shows and movies in the future. But investors aren't cottoning to its new business model, and Netflix's share price fell by nearly 15 percent after its latest financial report. To put Netflix's woes another way, in August 2011 "a share of Netflix costs $60 less than a share of Apple," says Nicholas Thompson at The New Yorker. "Now it costs $460 less." Can Netflix recover from its missteps?

Yes. Its internet streaming business is growing: Don't buy the market's supposed negativity, says Andres Cardenal at The Motley Fool. "Netflix seems to be making progress on the dramatically important subject of customer growth," adding three million new streaming customers in the past quarter alone. And the company is undoubtedly right that "the future of the business is going to depend on streaming," and it is doing precisely what it needs to do to move beyond its price-hike debacle: "Regaining customers and growing again."
 "Big risks and opportunities in Netflix"

But any company can stream movies over the internet: The streaming business isn't hard for competitors to break into, says Thompson at The New Yorker. Just look at Amazon, which is rapidly expanding its own streaming service. Netflix's great advantage was customer loyalty and the "high barriers to entry" that its DVD-by-mail model posed. "It's not easy for a start-up to build massive warehouses and systems for mailing discs." Netflix once offered a $1 million prize to anyone who could improve its algorithm for movie recommendations — perhaps it should offer a similar prize "to someone who can figure out a new business model."
"Is Netflix doomed?"

And streaming will only get more expensive for Netflix: Movie and television studios have learned that Netflix, eager to outdo its competitors, "will pay astonishing sums for streaming rights," says Felix Salmon at Reuters. "This is why I'm fundamentally pessimistic when it comes to Netflix's prospects: Any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears." Netflix's model is unsustainable. Its customers are "paying for the content, not for the pipe," and they will eventually begin just directly paying the studios and others who actually produce the content.
"The problem with Netflix"

 

Can Netflix be the next HBO?

The online streaming company reportedly wants to make its content library available on your cable box

Reuters reports that Netflix has approached several cable providers about bringing its "Watch Instantly" service to your cable box. That would make Netflix a premium service, much like Showtime or HBO, that cable customers could access for an additional monthly... More

Can Verizon and Redbox conquer Netflix?

The telecom powerhouse and DVD rental kiosk giant are teaming up to offer a movie-streaming and DVD subscription service. Sound familiar?

Verizon and Coinstar's Redbox DVD kiosk unit are teaming up for a subscription video service that offers both physical DVD rentals and digital video streaming for a monthly fee. "Isn't there some company that already does both of those things?" says Brad Tuttle... More

Hulu's original programming push: A threat to Netflix?

The rivalry between the two web streaming sites escalates with Hulu's announcement that it too will begin producing original scripted shows in early 2012

After announcing 60 percent revenue growth in 2011, web streaming service Hulu is taking its expansion to the next level in 2012 with a push into original programming. Battleground, the site's first ever original scripted series, will launch Feb. 14. The mockumentary... More

Should Verizon buy Netflix?

Rumors swirl that the telecom giant could acquire the red envelope. But arguably, the deal would be bad for both companies — and worse for customers

On Tuesday, an investment banker told Bloomberg that Verizon was "very serious" about buying Netflix, sending a flurry of rumors flying across the tech world. Just last week, it was reported that Verizon was considering launching its own streaming service to compete... More

Verizon: The latest threat to Netflix?

Verizon is planning its own streaming video service to challenge Reed Hastings and Co. Should Netflix be worried?

The battle for online eyes is about to intensify. Verizon Communications is planning to challenge CEO Reed Hastings' Netflix head-on with a standalone service allowing customers to stream movies and television shows onto their computers, according to a report from... More