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) -- On Wednesday, I wrote
an article for TheStreet
(NFLX - Get Report)
needs to -- and will -- sell its DVD division in a bid to not only fund its streaming operation, but for survival. Hastings will likely spin it as part of his vision for the future, but the truth is the company will need the cash to fund that vision. As I wrote in that article:
One way or the other the DVD will help keep Netflix alive. The company will either need to flip-flop again and place a renewed focus on the service or sell it for what will amount to another bailout.
If Netflix wants to unload the DVD business -- and at least one source familiar with the company's operations told me that I am not crazy for thinking they will -- it needs to find a buyer. On the surface, this seems like an impossible task.
Even as a NFLX bear, I have loads of respect for Reed Hastings. He's a big-picture thinker. A visionary. I love people like that. He is correct when he classifies streaming as the future; however, he's too quick to give up on the DVD.
DVD has lots of life left in it, plus, as noted, it can provide much-needed revenue to fuel streaming and international expansion. It can also make movie studios, who do not want to see the DVD die just yet, happy -- possibly prompting them to give Netflix better deals for digital licensing rights.
But, for one reason or another, Hastings is in the process of spurning the girl that brought his company to the dance. Ironically, the DVD business he neglects could save his company, at least for the time being.
Tony Wible of Janney Montgomery told me via email, and in a note released Thursday morning, he estimates Netflix's DVD segment could fetch somewhere between 8 to 10 times earnings, however he said those numbers "could be a bit generous if [DVD] is rolling off faster." With all of this in mind, who could step to the table, take DVD off of Netflix's hands and provide what I think is a much-needed lifeline to Hastings and his crew?
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You have to consider the movie studios. Of course, they do not need the actual DVDs, but the customer base and fulfillment infrastructure would come in handy. If I am a company like
, I could keep the DVD alive by properly marketing and positioning the service, but with value-added features such as an HBO GO subscription or multi-platform access to ESPN thrown in to sweeten the pot.