Thursday, January 26, 2012

Netflix Rebounds

Excuse that third quarter bump in the road; despite some bad timing moves, Netflix seems to have recovered and grown. Strategically, it makes sense for Netflix to move off the DVD mailing business and embrace the world of streaming media, but how they tried to do it, will be noted as bad management decisions. Separating the businesses was not wise and some may argue that the massive price increase didn't help either. Netflix reversed its splitting decision but kept its higher pricing. Initially, customers dropped the service to express their anger; but now it seems they are returning. From a third quarter loss of 800,000 subs comes word of a fourth quarter gain of 610,000 customers. "U.S. online subscribers increased to 21.7 million, while mail-order DVD customers shrank to 11.2 million. The figures for each include people who get both services." Netflix will continue to move away from the mailing DVD business, but not with the same abruptness that they tried last year.

And as content remains king, Netflix is adding more streaming and exclusive content to its mix to keep its customers watching. But customers can be a fickle bunch and the increase in competition may also move customers to try and compare. Amazon, Hulu, and even Redbox are putting on more pressure. Additional viewing options are coming from Facebook and YouTube. And cable companies continue to build out their TV Everywhere model, giving customers on demand and live access on other platforms.

The costs for acquiring content will only increase. Movie studios will seek more to offset the loss of their DVD business. TV producers will also seek more to offset possible loss in the syndication market. But streaming subscription services might find new revenue opportunities as well. Increases in advertising may offset those costs.

Netflix may have recovered from its strategic blunder but it faces strong competition, rising costs, and a customer base that can just as easily turn away for a better deal. How Netflix competes and markets to a streaming savvy world will demonstrate that they ultimately made the right choice in pushing away from the mail order business.

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