Netflix's worst nightmare comes true

Amazon has signed a content deal significant enough to challenge Netflix for subscribers. And that's not even the worst of it.

By TheStreet Staff Sep 11, 2012 9:32AM

image100 CorbisBy Richard Saintvilus 

 

I'm now midway through watching the second season of "The Office." In two days, I've been able to watch almost two years of shows.TheStreet.com

 

This would not have been possible had it not been for streaming movie giant Netflix (NFLX). The ease with which the service makes television shows that were old new again is certainly Netflix's best quality to the consumer.

 

For investors, however, the question is how much worse things can get.

 

Retail and tech giant Amazon (AMZN) has just signed a content deal significant enough to challenge Netflix for subscribers. Yet that's not even the worst of it.

 

The deal, announced last week, is with premium TV joint venture Epix, bringing content to Amazon's Prime Instant Video streaming service. Though the terms of the deal were not disclosed, it is said the partnership will bring popular hit movie titles such as "Hunger Games," "Thor" and "Iron Man 2" to Amazon's streaming offerings.

 

What this means is exactly what many Netflix investors had feared would have occurred -- no more exclusivity.

 

What was once originally a five-year deal, of which two were exclusive, has lapsed. Now enters Amazon.

 

But what is Netflix thinking? This continues the streak of yet another misstep for the struggling movie giant, which has seen its stock price erode during the course of the year. Several weeks ago, as the stock traded just above $80 per share, I asked whether the company can stay afloat and survive the unrelenting assaults from Amazon, cable giant Time Warner (TWX) and Coinstar (CSTR) (Redbox).

 

While it may have been able to avoid death by those three, the story changes when one considers Apple (AAPL) and Google (GOOG) have TV and potentially movie plans of their own. What are the odds that Netflix will survive a living room revolution unlike anything the market as ever seen?

 

I still maintain that a takeover is its best option. Outside of that, there is no chance Netflix will survive.

 

By having allowed Amazon to forge a deal with Epix, does Netflix truly appreciate the dire situation it's in? It is as if it no longer values its streaming content -- the same reason it opted to ignore its once-popular DVD model. Now it does not appear to want to protect that decision.

 

Even worse, during its second-quarter earnings report, Netflix said that although it expects to remain profitable in the third quarter, it is forecasting a loss for the fourth quarter due to international market expansion.

 

So essentially, the company has, for all intents and purposes, killed off its DVD business, allowing Amazon to chip away at its streaming division by losing exclusivity, but somehow thinks international expansion in Latin America and continental Europe is worth a fourth-quarter loss.

 

It would stand to reason that a change in focus would be the wise decision until Europe gets its act together. At least that would be the option for a smart management team. However, no one has ever accused Netflix of having one.

 

I would stay away from the shares until things get more clear in terms of the company's strategic direction. Until then, there is only one direction the stock will go and that is down -- affirming that things can indeed get worse.

 

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266Comments
Sep 11, 2012 2:47PM
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The problem is availability of movies and some have started to complain about delays in DVD's for popular titles from Netflix. For me Netflix business model is broken. Unless all you care about is watching reruns what else does Netflix streaming provide? I would have much rather have Netflix raise streaming only service to a higher level by increasing rates a bit and offering more recent titles. Yet Netflix raised DVD rates which everyone knows is a dying service anyway.

I think Netflix also lost a lot of people when Starz dropped Netflix too. Red box for me is certainly not the answer but it is for some and their are people who simply cannot afford broadband cable. When you consider streaming you have to include that cost. Amazon is doing what Wal Mart did to retail. Offer several services and products all in one place and give discounts. The Amazon Prime program is something that works for people. Eventually Netflix will get bought out but probably by a satellite or cable provider. Oh the irony of that.

Sep 11, 2012 2:47PM
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Netflix should allow streaming on Linux/Unix systems.  It would boost their bottom line by several percent--and help their ability to compete.
Sep 11, 2012 2:46PM
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Golly, is it MSN's Netflix bashing time again?  That month sure went by quickly.  Yet MSN keeps taking Netfix's advertisig dollars.  By the way, troubletomb, the phrase is "dog eat dog world."

Sep 11, 2012 2:44PM
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I don't get  Amazon, why be another big baby that has to have everything to fit in? Netflix could be even greater had it not been for all the big company babies that can not leave well enough alone. As far as I am concerned Amazon and the the other socalled competition have not helped the streaming services but have ruined it. Because they have only watered it down for greed
Sep 11, 2012 2:42PM
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writer of this article is dumb, simple.
Sep 11, 2012 2:40PM
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I don't even watch cable anymore due to the lack of quality programming. If I want to watch something, it's usually going to be on Netflix. I imagine there are quite a few people who do the same, so I think Netflix will continue to survive for many years and will probably outlive their competitor's attemps to steal their customers.

Now if you'll excuse me, I'm going to go rewatch season 3 of Buffy the Vampire Slayer.

Sep 11, 2012 2:39PM
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Part of the appeal of Netflix was reasonable cost--and not having to have multiple streaming services at multiple costs.  When you add them all up, you might as well get a service like Dish or DirectTV.   You also have to factor in the cost of the streaming device--ROKU or Xbox or other.  You do get a choice of what to watch and when with all of the streaming services--a major plus.
Sep 11, 2012 2:38PM
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Doggy dog world now you either keep up or get ate up
Sep 11, 2012 2:32PM
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Once you figure in the 'fuel cost' of driving to the Redbox kiosk....then adding the 'return' fuel cost (if that is you make it the following day, thus not incurring 'late fees')...kinda makes the overall costs for Redbox movies quite a bit more than walking out to your mailbox and getting your Netflix disc...  Duh!  Not to mention, a few times when I did drive to a Redbox Kiosk....they didn't have the movie I wanted.

 

I agree with 'anthony s' on this one...whoever wrote this column....probably has stock in one of Netflix's competitors...or even more likely, Amazon. 

Sep 11, 2012 2:32PM
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Used to like Netflix...but their streaming library SUCKS....and I mean SUCKS.  Hardly any good new releases and older good movies you can find in any corner video store or in the $5 bin at Wal Mart aren't even offered.  90% of the time if I search for a movie I want to see, even a movie that's very popular that's 20 or 30 years old it won't be offered.   My son is a sci-fi fan...they don't even have any of the Star Trek movies and only one of the ones with the TNG cast.  Horror movies...if you like B grade crap, they've got plenty of that, but not any of the good ones from recently or in the past.  
Sep 11, 2012 2:29PM
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I've been with Netflix from the beginning and love it.  What I don't quite understand is the hate - why does most of America love to see people/companies fail?

 

Even with T-Useless, Verizon, Sprint, and AT&T seemingly having a strangle hold on the cellphone market I see competetors starting up all over my city, such as BoostMobile. 

 

There's room for everyone.  IT'S called Capitalism. 

 

Hell, if AOL is still around and Facebook can show it's face with its current stock price - there's hope for any company.

Sep 11, 2012 2:24PM
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Who cares, They buried themselves with bad business plans in the name of greed!
Sep 11, 2012 2:23PM
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Honestly? I don't see Netflix having a problem. Unless Amazon also goes into the dvd delivery arena, then it's really not a competition. While the dvd format seems to be going the way of the dodo, there is still a huge market for it. Many films aren't streaming and some people (including myself) like having physical movies to sit down and watch and not needing to rely on an internet connection.
Sep 11, 2012 2:22PM
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Are you really this stupid? I personally have three premium streaming services. Netflix has movies that Amazon doesn't have. Amazon has movies that Hulu doesnt have. All three of my streaming services cost less than a cable or satelite bill multiplied by two. Did Showtime put HBO out of Business? How Stupid is this fool anyway?

Sep 11, 2012 2:20PM
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Until Amazon is a single charge like Netflix it will never "kill" Netflix.  This crap of paying for a service and then paying to watch movies or tv shows will not fly with the majority of subscribers.   I dumped Huluplus because of the stupid and yet constant commercials.  That's what free (via antenna) tv is is for. I dumped cable because of their outrageous fees, w/ Netflix I may be a season or two behind what is currently on, but I only pay $8 a month to watch WHAT I WANT not what someone else thinks I should at a certain time.  
Sep 11, 2012 2:20PM
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I think the writer of this column doesnt know his a** from a hole in the ground. I was just overseas and guess what? no netflix. I think it is a good idea. As for Amazon, their prices are very high now and I would never try them again unless it was so cheap i couldn't refuse. Here is my prediction. Netflix will continue to grow and Amazon will suck. :P
Sep 11, 2012 2:12PM
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I love my Netflix...and have NO plans to give it up. Their selection of foreign movies cannot be found ANYWHERE else. Until Netflix...I had no idea their were sooo many high quality foreign movies out there...which I personally find much more entertaining and substantial than American "car crash/blastem" types. Redbox cannot hold a candle to Netflix's selection of high quality foreign movies....frankly I don't believe they even offer any. 
Sep 11, 2012 2:07PM
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I have still yet to understand how so many people view the actions of Netflix last year as 'screwing their customers. Do a little bit of research, people. If you do, you will discover that film companies were the ones doing the 'screwing'. Netflix created a business model that worked and grew beyond belief. It grew to a level that movie studios did not forsee. When the time came, the movie studios wanted a larger and very unreasonable cut. In the end, Netflix had its hands tied and had no choice but to raise prices in order to afford the licensing and contracts. Sadly, Netflix customers spoke out of ignorance and outrage. Since this happened the selection has been less than satisfactory and many studios have pulled their properties. The fault lies in both the hands of Netflix subscribers and the Studios, not Netflix.

I suppose this is just a sign of the ignorance of people in general. Most actually believe that when a company has an operating cost increase, they simply cut their bottom line and obsorb the cost. This is not and has never been the case. Take a basic economics course and you will find that increased operational costs are almost always passed along to the consumer.
Sep 11, 2012 1:53PM
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Just as long as Netflix keeps offering its selection of Anime, I will keep my subscription...
Sep 11, 2012 1:52PM
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Amazon prime isn't the same as Netflix. Clearly I chose to have both and I see the differences.

1. Amazon charges for shows that are free on Netflix in some cases.

2  Amazon does offer a variety of show that netflix doesn't have, but Netflix has stuff Amazon doesn't have too for free viewing.

3.Amazon is $80 and Netflix is $96 yearly, which to me is a close price match.

I use Hulu, Amazon Prime, and Netflix. I like Amazon Prime because free two shipping and free Kindle books. The video is just a benefit add to me because I use Hulu thru my computer for free and Netflix on the computer and TV. I can simply plug my laptop into my TV and watch hulu for free on there as well.

There is also Crackle and many other options out on the web, so I don't miss the cable. I'll stay with Netflix for now it beats having a 70+ dollar a month cable bill for TV. Tme Warner isn't a threat yet, but they could be a good challenger if they decided to come on in the TV streaming business.

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