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The Netflix Shell Game Continues

Stocks in this article: NFLX TWX

NEW YORK ( TheStreet) -- Just scattershooting some of the very latest Netflix (NFLX) dish.

ICYMI: TheStreet bought an excellent organization -- The Deal -- a few months ago. Here's the story from September. The most recent example of TheDeal's greatness: A story by Richard Morgan on Netflix.

Netflix CEO's Bet On Content Depends On Who Controls It

Reading Morgan's piece was a breath of fresh air, particularly after being subjected to a Friday New York Times article on Netflix that reads like a company press release.

Meantime, Morgan chronicles some of Hastings' latest bravado, including this beauty of a comment:

We've realized that the 20th documentary about the financial crisis will mostly just take away viewing from the other 19 such docs, and instead of trying to have everything, we should strive to have the best in each category. As such, we are actively curating our service rather than carrying as many titles as we can.

From his latest note on the company, here's what Richard Tullo of Albert Fried says about Hastings' claim that quality over quantity now guides Netflix's third-party content acquisition strategy:

To be clear we think the Company line is NFLX is passing on content but we won't drink the Cool aid (sic); our view is incremental streaming revenue risks destroying multibillion dollar advertising and affiliate fee streams and the industry will seek to regain control over its own IP.

Translation: Content owners do not like seeing their premium programs given away to tens of millions of users for the all-you-can-eat price of $8/month. They'll stop selling it to NFLX, say goodbye to the easy money and deliver that content via their own digital channels which they can effectively monetize.

I dig deeper into an explanation of this on Page Two of Time Warner Punkslaps Netflix.

But, hey, let's be fair and give Reed Hastings the benefit of the doubt. Maybe he really is all about curation and quality over quantity.

In fact, last summer as I urged investors to Prepare to Buy Netflix Before It Rises From the Dead (that was about $150 ago!), I turned slightly bullish in part because I noticed a shift in the company's content acquisition strategy.

Because I like to do my homework, I had one of Netflix's IR people, Ellie Mertz, ask Hastings a question about that on the July 24, 2012 Q2 conference call (transcript courtesy of Seeking Alpha:

Mertz: Moving to questions about content. Has there been a shift in content acquisition away from large-scale buys to a more focused, cost-effective approach that targets lucrative niche areas such as kids TV, past seasons of original series such as Mad Men, not to mention your original programming. It appears that a more streamlined focus strategy can help rein in content costs while quite possibly, improving the streaming selection. In other words, is this a focus on quality over quantity?
Hastings: Well one, we're not trying to rein in content costs. We're continuing to invest more and more each year in content. Two, there's no shift. We're always focused on what does a piece of content cost versus how much we think it's going to get viewed. And so, where you see us get small or interesting films or TV shows, it's because we think the economics work in the amount we pay versus how much we think it's going to get viewed. And that's been consistent for several years.

So, according to Hastings, there was no "shift" in content strategy just nine months ago. Now, as Hastings noted in his long-term view manifesto (that's what The Deal quoted from -- see above), there is. Things change like the wind at Netflix.

Pursuant to all of that, Netflix just lost nearly 2,000 streaming titles from its catalog. They're apparently not going to Time Warner's (TWX) streaming service after all; however, do not ignore the significance of this move.

Hastings spins the quality-over-quantity line. That's the type of shell game he plays. This is the case of old guard media entities exercising control of their content, leaving Netflix with little, if any, room for error -- every title in its third-party and original programming library can't miss.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

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