First it moved to hike prices when its customers were struggling to make ends meet just to pay for basic household necessities. Then it turned around and announced plans to split its popular DVD delivery service from its streaming business -- a decision it later nixed.
Today, very little has changed with the company, but how it is perceived and its competitive landscape have taken a turn for the worse.
There was some good news in the company's most recent earnings report as Netflix met its targets and reported profit of 11 cents a share, topping the average analyst estimate of 4 cents. Revenue was $889 million, up from $788.6 million a year earlier.
The bad news is that the good news will be short-lived. That's because subscriber growth is slowing. In addition, Netflix forecast a fourth-quarter loss due to international expansion.
Following the earnings release, the stock dropped as much as 13%, although it has since recovered moderately.
The question is: How did things get so bad for a company that at one point could do no wrong?
It dates back to July 2011, when Netflix announced the price increase, which went into effect for existing subscribers on Sept. 1, 2011. Loyal customers who once bragged about being Netflix subscribers were not pleased.
Under the new plan, it cost $7.99 a month for either a DVD-only subscription or a streaming-only subscription. If customers opted to receive two DVDs at a time, the price went up to $11.99. On top of that, if DVD-only customers wanted to add streaming, that required paying an additional $7.99.
Prior to the change, subscribers enjoyed one DVD at a time as well as unlimited streaming for only $9.99 a month. After the change, the price of the same services jumped to $15.98 a month.
In response, one million subscribers cancelled the service, prompting Netflix's CEO Reed Hastings to issue a personal apology to each subscriber via email. But many of those subscribers still haven't returned.
I can't help but wonder whether it's not too late for Netflix because the competition from
and cable operators such as
has increased, and in some cases, these rivals have surpassed Netflix.
Meanwhile, content owners have gotten savvy, and many of them are using the increased competition to charge more for their movies. And companies such as Apple, Google and Amazon.com are better equipped financially to pay for the best -- and most highly priced -- content.
The company to watch here will be Google, because it could make a bid for Netflix should the latter's shares continue to fall. After all, one of the benefits of its
acquisition was Motorola's successful cable-box business. So in addition to Apple's TV plans, there is the potential for Google TV to become a standard in streaming and home entertainment.
Let's not forget the progress that Amazon's Prime continues to make in addition to Comcast's own streaming service.
Competitors such as these can afford to pay for increasingly expensive content and gain control of the market, further weakening Netflix.
Can Netflix overcome this? Can it win a battle against Google, Apple and Amazon? It is hard to imagine that a year ago the stock was more than $300 per share. What investors are learning today is that as great as the service may have been, that did not justify an outrageous stock price or valuation.
At the time of publication, the author was long AAPL.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.