We get more customers, we get more money, we can afford more content, we get more customers. - Reed Hastings,Of course, that blew up in his face last year when he unveiled Qwikster and angered subscribers with a poorly executed price increase. I was never really all that hard on Hastings and Netflix for last year's well-publicized errors. In fact, to this day, I consider them a strange positive for Netflix.
Now, as subscriber growth gets set to take another pause, Hastings throws out another vile of smoke and mirrors. This time he calls it "increased seasonality." First, let's look at what the company expects, as per its
Q1 2012 Letter to Shareholders: Netflix attributes this, at worst nearly stagnant and at best tepid, growth to what it is calling "increased seasonality." This fancy phrase should die a harder and faster death than the virtuous cycle. Check the final couple pages of the above-linked shareholder letter for an explanation of increased seasonality. I have read it 116 times and, while I get what they're trying to say, it makes little sense. It's also a bit strange that the company is comparing 2010 to 2012, especially because they're only using hypothetical numbers. Is this just another way to program us into believing that 2011 was little more than a blunder-induced anomaly? In my opinion, what Hastings had hailed as the "return" of subscriber growth at the end of 2011 and during the beginning 2012 was little more than the result of stepped-up advertising and marketing -- some free, some paid. Of course, Netflix spent lots of cash on brand repair. They're running ads all over television, radio and elsewhere. It did not hurt that Amazon.com's ( AMZN) Kindle Fire hit the market in Q4 and lots of boys and girls had tablets sitting under their trees at Christmas. Along with controversy comes free publicity. Netflix was top of mind in America for a while. And while that certainly might have prompted some to shun the service, it introduced others to it. Toss these factors together and you have the makings of a somewhat artificial bounce. Where Hastings uses increased seasonality to prepare Wall Street for soft subscriber numbers in Q2, I think we're witnessing something more than that. I do not expect subscriber growth to return at all. In fact, with Netflix no longer top of mind and with streaming content that's inferior to a whole host of alternatives, including cable and satellite, I expect Q3 and Q4 to trend just as poorly as Q2, if not worse. Again, this is simply my take. Only time will tell. It just seems to me that Hastings and company sat around the boardroom searching for ways to explain away an impossible business model for yet another quarter.