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.
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.
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 . . . .
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.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 Amazon.com (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.
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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV