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

Netflix: Riding a Death Spiral to Insolvency

NEW YORK ( TheStreet) -- Reed Hastings uses plenty of smoke and mirrors to spin the Netflix (NFLX - Get Report) story positive. Hastings has a way about him which creates the false perception that Netflix sits in the driver's seat in a space populated by loads of new players and a still wildly successful old guard.

One of Hastings' latest memes gobbled up and passed along to clients, CNBC anchors and the general public by Wall Street analysts: Netflix uses the treasure trove of viewing data it collects from its subscribers to make better-informed decisions on what type of content to license and produce. As per usual, Hastings' public perspective only tells part of the story.

There's no doubt Netflix can analyze the Netflix content Netflix subscribers watch and use it to guide future buys. Of course. But these data aren't nearly as valuable as Hastings would have you believe. That's primarily because the hours of viewing statistics Netflix looks at represents a relatively small portion of the overall content Netflix subs view. I feel comfortable making this assumption. Much more comfortable than I do simply accepting Hastings' contention that he has some sort of edge because he can analyze Netflix usage habits.

In some cases, I argue that the analysis of these numbers exposes one of Netflix's inherent weaknesses: it cannot secure premium content if it continues to effectively give it away -- unlimited -- at its $7.99 per month price point.

I'll relay two pieces of information to support this contention.

First, the one that practically every analyst chose to ignore and somehow managed to spin positive. You have to go back to mid-2011 for this.

Sony (SNE - Get Report) pulling its content from Netflix as part of the latter's deal with Starz. And Starz's subsequent move to not negotiate a new contract with Netflix.

On its company blog, Netflix referred to the Sony thing as a "temporary removal." Not true. At the time, over on Seeking Alpha, I defended Netflix against the notion that it did not properly warn investors that something like the Sony move could take place. It did, quite clearly, in the risks section of its annual reports.

1 of 2

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
AMZN $534.75 -1.60%
NFLX $107.92 -3.00%
NWSA $13.49 0.60%
SNE $26.32 -0.64%
WMT $65.72 -0.23%


Chart of I:DJI
DOW 16,795.20 +18.77 0.11%
S&P 500 1,980.79 -6.26 -0.32%
NASDAQ 4,744.9890 -36.2750 -0.76%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs