This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Expect Netflix to Sell DVD Division

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) -- In case you have had trouble keeping up with the on-again, off-again love-hate relationship Netflix (NFLX - Get Report) CEO Reed Hastings has with the DVD, let me recap it for you.

  • Netflix Q2 Letter to Shareholders, July 2011:
  • In addition to separating the plans, we are setting up a dedicated DVD division, led by 12-year Netflix veteran Andy Rendich, to focus on running a successful DVD by mail service in the U.S. for a long time. Andy and his team will be located nearby in San Jose, and are already planning some great improvements for the DVD service. Because we believe we can best generate profits and satisfaction by keeping DVD by mail as a division, we have no intention of selling it. In Q4, we'll also return to marketing our DVD by mail service, something we haven't done for many quarters. Our goal is to keep DVD as healthy as possible for as many years as possible.
  • UBS Global Media and Telecommunications Conference, December 2011:
  • DVD will do whatever it's going to do. We're not -- we're going to try to not hurt it, but we're not putting a lot of time and energy into doing anything particular around it . . . .

    Follow TheStreet on Twitter and become a fan on Facebook.
  • Hastings and CFO David Wells, NFLX Q4 2011 Conference Call, January 2012:
  • Hastings: There are no specific retention efforts, and we don't plan on marketing the DVD service. Our primary goal is to keep it stable, very high functioning to keep our operational metrics in terms of top-of-queue fulfillment; in terms of one-day turnaround, very, very high, and not to otherwise to start -- keep it running very well.
    David Wells: And when we've tested DVD plans and putting more emphasis on DVD plans, there hasn't been a great take rate. So I think we get that question a lot and we have looked at it through AV testing. And there's not a large consumer adoption of those plans.

    Fair enough. I have to give these guys the benefit of the doubt. I love visionaries and, without doubt, Hastings qualifies as one. I never tire of the story Hastings tells: He had an overdue movie. He was heading to the gym. Then it hit him. A company should offer a video rental membership in the same way a gym sets one price for you to work out as much as you want. That's nothing short of brilliant. And that's why Reed Hastings is rich and spends time in his backyard Jacuzzi and I do not.

    Hastings and Wells run tests and the public says no, we've had enough of your high-margin, profitable DVD business, please focus on low-margin, unprofitable areas such as streaming and international expansion. I get what Hastings is trying to do. And, given my penchant for accepting near-term weakness for the promise of long-term growth and strength, I should probably step back and direct some praise Hastings way. He's doing things the (AMZN) way. He's doing thing the Pandora (P) way.

    As I have made clear over the last year or so, companies like Amazon and Pandora have something Netflix lacks -- workable business models. It might not seem like it now as Amazon deals with razor-thin margins and Pandora doles out more than half of its revenue to acquire content, but both companies are investing heavily to take advantage of massive growth opportunities that will pay off.

    Amazon is building a pervasive media and e-commerce ecosystem that will touch all of our lives if it does not already. Pandora is increasing the share of local, regional and national advertising it takes from terrestrial radio as it gobbles up more and more of the multiplatform ad-revenue pie.

    Netflix invests heavily -- and Hastings brags about it -- but what is his company actually investing in? While you can pinpoint and then dig into an answer to that question for Amazon and Pandora (I just did in the last paragraph), you really cannot for Netflix.
    1 of 3

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Real Money

    More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

    Product Features:
    • Access to Jim Cramer's daily blog
    • Intraday commentary and news
    • Real-time trading forums
    Only $49.95
    14-Days Free
    14-Days Free
    NFLX $90.03 0.00%
    AAPL $93.74 0.00%
    FB $117.58 0.00%
    GOOG $693.01 0.00%
    TSLA $240.76 0.00%


    Chart of I:DJI
    DOW 17,773.64 -57.12 -0.32%
    S&P 500 2,065.30 -10.51 -0.51%
    NASDAQ 4,775.3580 -29.9330 -0.62%

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs