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Netflix's Woes Go Deeper Than Headlines

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- As Coinstar (CSTR) prepares to blow the doors off of the most recent quarter and the rest of the year, investors' intuition might lead you to think Netflix's (NFLX - Get Report) April 23 earnings report will stink more than the last several.

Even though I have covered Netflix for some time now, I have no idea what they'll report. I expect a loss, more bad news and the obligatory dose of smoke and mirrors, but, at the end of the day, it's difficult to predict what CEO Reed Hastings and CFO David Wells have in store on their dog-and-pony show of a conference call. And, more importantly, what they report really does not matter unless, of course, it includes meaningful and logical wholesale change to the business model.
Netflix CEO Reed Hastings

Any impact from Coinstar's success -- meaningless. Last year's Qwikster debacle -- meaningless. Last year's price increase -- meaningless. This year's under-the-radar split of DVD and streaming -- same thing. Nothing Netflix has done over the last year -- immediately dubbed as embarrassing blunders by wide swaths of the media -- surprised me.

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For example, I had a feeling the DVD/streaming split was coming again before Netflix announced it, quietly, on its blog in February. Earlier in the year, an anonymous emailer sent me a copy of a memo that I believe, based on conversations with a Netflix spokesman, is authentic. The memo was sent to staff by Netflix's VP of IT Operations. It discussed a bunch of technical things involving DVD fulfillment and streaming, before referencing "Split 2.0."

I immediately figured that Split 2.0 was just a not-so-fancy name for Qwikster 2.0. The Netflix spokesman, Steve Swasey, told me that the contents of the memo were insignificant to customers and only mattered to internal IT staff.

Technically, that's true, however, if Split 2.0 relates to the February blog post announcing what amounts to another split, the memo, at the very least, indirectly mattered to customers. But, again, as I said at the outset, in the grand scheme of things, Split 2.0 or or the purchase of the domain - none of it means a darn thing. All of these Reed Hastings' "blunders" Saturday Night Live had a ball poking fun at mean nothing. Each error was little more than another symptom that emerges as the result of a core disease eating away at a dying patient.
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