Wednesday, October 24, 2012

Netflix Not Growing Fast Enough

Netflix continues to face challenging times.  Unable to successfully transition from DVD to streaming, it faces a battle of watching its DVD subscriber rental base declining, but its streaming base not rising fast enough.  Add to that mix the higher costs associated with streaming verse DVD, and the profit margins are dropping faster then desired.  Still the streaming base is growing, just not as fast as expected, and certainly not fast enough for Wall Street.

Netflix has tried to recapture a higher revenue by raising prices on its streaming business, but consumer uproar nixed it.  "Netflix also needs more subscribers because it is sticking to its price of $8-a-month for unlimited video streaming. The company faced a huge backlash last year when it raised prices as much as 60 percent for people who subscribed for both DVD service and streaming. The company says its reputation has yet to recover."  Still, Netflix may have to keep trying to raise its prices.

It also faces a hurdle from competition.  Cable operators continue to push their on demand line-up as comparable to Netflix and as an added value to cable subscribers.  Amazon, Apple, and others are there to offer similar content as well.  The launch of new tablets and mobile customers may enlarge the marketplace and further grow the subscriber base.  Content feeds these devices and video is a perfect fit.

Can Netflix contain its costs and grow its streaming business?  Can it stop the excessive bleeding of DVD subscribers as it continues to transition to a digital business? Its CEO Reed Hastings sees great opportunities, both domestically and internationally.  That is certainly what investors are hoping for.

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