|Netflix CEO Reed Hastings|
Netflix's Suddenly Quiet TransitionFirst, Hastings killed DVD too quickly. He took a high-margin business that generated cash and, for all intents and purposes, snuffed it out. Without that source of revenue to fund digital content acquisition, international expansion and marketing expenses, Netflix put itself into a precarious enough financial situation that it had to go to market to raise $400 million towards the end of 2011.
I mean there'll be a lot of competitors out there, but HBO and Netflix both spend between $1 billion and $2 billion a year on content. And if you want to compete with HBO or Netflix, you better commit to multi-year spending of between $1 billion and $2 billion and then your competitor with us. And at this point, none of those guys have chosen to do that.That's cringe-worthy stuff, particularly if you're long Netflix. The days of misguided bravado might be over. If they are, I am not about to bet against a smarter and more refined Reed Hastings. As I noted Thursday on TheStreet when I called NFLX a turnaround play to consider, the company appears to be setting out on what should be a relatively more conservative, sustainable and ultimately profitable strategy. I see that strategy splitting into three soon-to-be distinct parts. Original programming. This is the most obvious and widely publicized direction. Hastings has not hidden his desire to be the next HBO. On its own, this strategy would not end well. As part of a larger plan, however, Netflix can be a serviceable original programmer. Specialty programming. Documentaries. Kids TV. UFC fighting. Live events that it can afford. Find several niches and work to superserve those niches. Netflix has had success in these types of areas. And it's one of the places where the company should be able to strike deals with content providers that work well for both sides. Select other, more opportunistic, licensed content. Herein lies the key to unlock any meaningful potential Netflix might have.