This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Netflix Should Raise Prices Again

Stocks in this article: NFLX AMCX SIRI

NEW YORK ( TheStreet) -- Netflix (NFLX) has a problem.

After a disastrous 2011 and expected sour start to 2012, the company appears to have found a content strategy that can deliver value not only to consumers, but media programmers.

In late July, with the stock priced around where it is now, I made my moderately bullish case in Prepare to Buy Netflix Before It Rises From the Dead.

The keyword there: Prepare.

Headwinds still exist. Monday's 6% decline on reports that Netflix might lose programming from A&E and History Channel proves that point. Short-term noise tends to get in the way of the more important long-term story.

Inversely, in early-to-mid-2011, Netflix touted its growing subscriber count. This bullish noise smokescreened what really mattered -- the underlying bearish themes of out-of-control content costs and old guard media entities calling the shots.

While things do look better at Netflix now, both problems still provide pressure. Reed Hastings must further address them.

First, he needs to do something about the $5 billion in off-balance sheet obligations (just call it "debt"), Netflix owes over the next five years. I understand how Netflix books these costs over time, however, as a show of fiscal sense, the company should make adjustments to ensure investors and make that big number look less ominous.

Structure your content deals differently. Set aside a pot of money to match some of the due dates for those obligations. If Netflix operated from a position of strength, cash-wise, the debt would be less of a concern.

Second, increase spending to secure reruns of shows such as Mad Men, Breaking Bad and Louie C.K.. Push the angle that Netflix can be a partner with cable. As I explain in the above-cited article, it has already accomplished that with AMC Networks (AMCX).

There's another problem here, though. It's theme number three, but it's been around as long as and is equally as important as themes one and two.

As long as Netflix charges consumers $8 a month, it will have a difficult time collecting premium content. Starz ended its relationship with Netflix for this reason. Simply put, at $8 a month, Starz felt like Netflix devalued its content.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs