But Wall Street doesn't care about this. It didn't in 2011. And it won't in 2013.
Netflix didn't crash in 2011 and waddle through 2012 because of the problems inherent in its business model. It went through these problems because of what became known as "Reed Hastings' missteps."
Don't let Hastings fool you. If the house of cards had to collapse, he welcomed the "missteps" as a built-in excuse. They allowed him to largely sidestep what's really wrong with Netflix (the stuff I wrote about throughout 2011 at Seeking Beta).
Instead of shining the spotlight on the bad stuff, Hastings was able to position the situation as an unfortunate one. He screwed up and just needed to apologize. Sure, people were pissed. They made jokes, but, at the end of the day, there's no need to hold a grudge. Everybody make mistakes. But they come back from them. They live to fight another day. It really was all quite brilliant, even if unplanned.Expect Wall Street to buy what Hastings sells in 2013 just as it did for most of 2011. The stock will soar this year. At some point, however, we'll hit a make it or break it point where three primary issues hit around the same time:
- What do you do with the DVD division? Hastings should have sold it a long time ago. As fewer people use DVDs -- and all that's left are the heavy users -- it becomes an expensive business to run.
- Will original programming at Netflix be even a quarter as successful as it is at HBO and Showtime? That's the wild card, but producing one wildly popular original series is tough enough, let alone doing it once or twice a season.
- Whether No. 1 or No. 2 turn out all right or not, Netflix will ultimately have to revisit raising prices or changing its pricing structure. You're not duplicating the Disney deal when you give away all of your content for $8 a month. However, if you don't add premium content like mad, you put subscriber growth at risk. To buy this content, you need a war chest of cash. Netflix doesn't have one. Hastings used to call it a "virtuous cycle." Close, but Reed, it's vicious. Damn vicious.
- BONUS!! Don't be shocked to see Netflix hit Wall Street up for some cash this year like it did in late 2011.