NFLX Netflix: In case you were wondering, the Netflix party is over

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	Alex O'Reilly
	Philadelphia User since Nov 2010	71
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In case you were wondering, the Netflix party is over

I've never been on one side or the other of the Netflix debate, but I have to admit, if I were long on NFLX right now, I'd be pretty nervous. Forget that you can buy a PS3 for the price of one share, forget that the selection is so-so. They have bigger problems.

Speaking of SNE, you may have heard that Sony content was mysteriously and abruptly removed from the NFLX catalog. It has been speculated that Sony, along with other movie production houses and copyright holders, will begin to put the screws to NFLX on licensing costs because, well, why wouldn't they? Especially with the PS3 attempting to compete in the increasingly crowded market that NFLX depends on, Sony has no reason to continue to give NFLX a free (or cheap) lunch, regardless of whether they partner with them for the Netflix PS3 app.

Then they reduced guidance and promptly followed that up with the announcement that they would expect lower subscription numbers due to a price increase.

Yeah, I missed the top. But this has the hallmarks of a party that is only interesting any longer because you don't have anywhere else to go. NFLX is the drunk guy having the excessively loud one-way conversation with the ugly chick in the corner about how fascinating his life is, and by now, everyone in the room has noticed. Some probably think this is a a prime buying opportunity (hey, they guy has a chance, right?) but the odds seem to be against NFLX, at least in the near term. If past price-to-earnings ratios of NFLX are any indication, then it would appear to be a buying opportunity, if you ignore the fact that their growth is being threatened from nearly every angle.

I believe that the people who stood to rake in the real cash from NFLX stock have gotten what they came for, and there is not much left to prop it up. Countless articles have been questioning its valuation for long enough that it's time to give it a serious look.

Sorry there was not more comedy in this article. I am in a bad mood because I was just looking for something interesting to watch on Netflix and the best thing it had was reruns of T.J. Hooker season 3.

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What People Are Saying...

Wesley To agreed at 8/2/11 12:42 PM Price action was $263.79 0.41 (+0.2%)

I agree! However, by November? That is a steep hill.

Wesley To said at 8/4/11 7:03 PM Price action was $245.77 -14.23 (-5.5%)

I hope you followed through with PUTS on this. Good timing so far.

Josh Warner-Burke said at 8/10/11 11:50 PM Price action was $232.42 -5.38 (-2.3%)

If NFLX gets to 200, I would be a buyer at that level.

Josh Warner-Burke said at 8/10/11 11:53 PM Price action was $232.42 -5.38 (-2.3%)

Most memorable line: NFLX is the drunk guy having the excessively loud one-way conversation with the ugly chick in the corner about how fascinating his life is, and by now, everyone in the room has noticed.

Mike Barkett said at 8/20/11 5:37 PM Price action was $205.21 -12.27 (-5.6%)

By November doesn't seem quite so steep anymore. Amazing...

Mike Barkett said at 9/2/11 12:07 PM Price action was $212.43 -20.84 (-8.9%)

This coverage keeps flirting with success. I wonder if there is money to be made on the violent churn of NFLX. The trend definitely seems to be downward.

Larry Leviton said at 9/12/11 10:34 PM Price action was $210.05 6.08 (+3.0%)

Alex: Good call on NFLX. Briefly dropped below $200 (your target price).

Mike Barkett said at 9/15/11 9:57 PM Price action was $169.25 -39.46 (-18.9%)

holy crap... I can't believe I missed out on this.

Alex O'Reilly said at 9/16/11 9:57 AM Price action was $162.20 -7.05 (-4.2%)

Uh, yeah, I think I'll close this now. For the record (or I guess not for the record since I'm closing it) I'll say I could see this going even lower, to 120.

Wesley To said at 9/16/11 4:35 PM Price action was $155.19 -14.06 (-8.3%)

Great pick. I wish I cashed in on this one.

Josh Warner-Burke said at 9/19/11 9:31 AM Price action was $155.19 0.00 (0.0%)

Email today:

Dear Josh,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something ? like AOL dialup or Borders bookstores ? do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn?t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It?s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to ?Qwikster?. We chose the name Qwikster because it refers to quick delivery. We will keep the name ?Netflix? for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we?re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.