Netflix Stock at $81.18; Will Fight Class Action Lawsuit

Netflix’s brand has taken another very public beating this week with the announcement that Wal-Mart is ready to settle their portion of the current Class Action lawsuit against both of them; costing Wal-Mart approximately $27.5 million.

At issue?  Allegations that Netflix and Wal-Mart may have conspired to inflate DVD rental and purchase prices, which ultimately could have boosted revenue (at customers’ expense) and stock prices between 2005 and 2011.

Netflix has decided to rigorously defend its position, citing that the suit has no merit.

You can read the actual complaints here and here.  A copy of the e-mail that went out to all customers notifying them of the action can be found here.

I am not a lawyer, but I wonder where in the heck Netflix’s collective head is located these days.  Can they possibly think that going to trial in front of a jury (of their customers?) with all of the negative press related to price increases (to their customers?) is going to benefit them in some way?

Per Yahoo Finance/Michael Liedtke, AP Technology Writer,

“Putting the case before a jury poses a risk to Netflix at a particularly vulnerable time. Some of the evidence in the trial will likely expose the factors that Netflix considers in setting its prices. That’s become a prickly subject since Netflix a September change that raised its rates by as much as 60 percent for customers who want to rent DVDs through the mail and view video over high-speed Internet connections.

Netflix attorneys believe the company’s recent price increase shouldn’t be mentioned during the proceedings because it might (create) prejudice the jury, according to court documents filed Tuesday.

In an overview filed in preparation for the trail, the lawyers suing Netflix allege the company overcharged its subscribers by $494 million to $654 million after the Wal-Mart agreement. If a court agreed with those amounts and decided Netflix broke federal antitrust laws in the process, the damages owed by the company could be tripled.”

Wonder how Netflix’s attorneys are going to wash their customers’ brains of the most recent 60% price increase.

In other news…

Netflix filed a 10 Q/A on November 7, 2011.  In it, they say…

“In July 2011, we introduced DVD only plans and separated the unlimited DVDs by mail and unlimited streaming into separate plans. This resulted in a price increase for our members who were taking a combination of both our unlimited DVDs by mail and unlimited streaming services. We made a subsequent announcement during the quarter concerning the rebranding of our DVD by mail service as Qwikster and the separation of the Qwikster and Netflix websites.

The consumer reaction to the price change, and to a lesser degree, the branding announcement, was very negative, leading to significant customer cancellations and a decline in gross subscriber additions. We subsequently retracted our plans to rebrand our DVD by mail service and separate the DVD by mail and streaming websites. If we do not reverse the negative consumer sentiment toward our brand and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted.

Following the announcement of changes to our plan offerings, pricing, and branding in the third quarter of 2011, domestic churn increased to 6.3% for the third quarter of 2011 as compared to 4.2% in the second quarter of 2011 and 3.8% in the third quarter of 2010. This coupled with a decline in domestic gross subscriber additions of 11.3% from June 30, 2011 to September 30, 2011 resulted in negative domestic net subscriber additions of 0.8 million.

Despite the loss in domestic subscribers in the third quarter of 2011, our consolidated revenues were up 4.2% for the three months ended September 30, 2011 as compared to the three months ended June 30, 2011, as most cancellations occurred late in the quarter. Domestic gross subscriber additions were up 18.9% for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010, contributing to the increase in total subscribers of 49.2% as of September 30, 2011 as compared to September 30, 2010. This was the primary driver in the 48.6% increase in consolidated revenues for the three months ended September 30, 2011 as compared to September 30, 2010.

We expect that as a result of the increase in subscriber cancellations and migration of our subscribers towards streaming only and lower priced DVD plans, offset by increases in international revenues, consolidated revenue will be relatively flat until we can achieve positive net subscriber additions.

In the third quarter, our International segment reported a contribution loss of $23.3 million and we expect that our planned expansion to the UK and Ireland in the first quarter of 2012 will result in further losses as our investments in content in particular will exceed revenues while we grow our subscriber base. As a result of the flat consolidated revenues and the increasing investment in our International segment, we expect to incur consolidated net losses in 2012.”

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Chart courtesy Yahoo Finance

Netflix Share Price and Trading Volume Chart

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If you would like to review the past couple of months’ of insider stock transactions, please go here.

Today, Netflix’s close of day stock price was down to $81.18.

Yesterday, Redbox received the annual Voice of the Customer Award at Customer Response Summit III.

Just sayin’…

The stock prices tied to customer experiences case study continues.

Disclaimer – I have no financial interests in Netflix, Wal-Mart, or Redbox.

© 2011 Mary Ann Markowicz

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32 thoughts on “Netflix Stock at $81.18; Will Fight Class Action Lawsuit

  1. MSN Money analyzes Netflix business model and determines that “There’s no predicting the future, but there’s also no reason to believe that Netflix will ever be more than what it currently is: a place to watch things a second time. In all likelihood, the streaming giant will continue to charge $7.99/month. It will continue to pay $6/month for content, little of it original. And Netflix won’t be taking over the world.”

    http://money.msn.com/top-stocks/article.aspx?post=a49a61f7-c6bf-4ac0-b157-ac7208754496

  2. Reed Hastings pens and publishes manifesto on past and future performance.

    For SEC filings, go to http://ir.netflix.com/sec.cfm

    Long-Term View
    (from the Netflix website http://ir.netflix.com/long-term-view.cfm)

    The following webcasts contain forward-looking statements relating to future events or future financial performance of the Company that involve risks and uncertainties. Actual results may differ materially from those anticipated in these statements based on a number of factors, including those identified in the company’s annual report on Form 10-K filed with the SEC on February 1, 2013. These presentations may also contain references to non-GAAP financial measures. A presentation of and reconciliation to the most directly comparable GAAP financial measure, where such can be done without unreasonable effort, can be found on our Web site at http://ir.netflix.com. The forward looking statements are made as of the date of broadcast and the Company undertakes no obligation to update such forward-looking statements.

    “Look at the bigger picture” – Francis Underwood, House of Cards.

    Summary
    Over the coming decades and across the world, Internet TV will replace linear TV.

    Apps will replace channels, remote controls will disappear, and screens will proliferate.

    As Internet TV grows from millions to billions, Netflix, HBO, and ESPN are leading the way.

    Linear TV is popular and ripe for replacement

    People love TV content, and we watch over a billion hours a day of linear TV.

    But people don’t love the linear TV experience where channels1 present programs at particular times on non-portable screens with complicated remote controls. Consumers click through a grid to choose something to watch. DVRs and VOD add an on-demand layer at the cost of storage and increased complexity. Finding good things to watch isn’t easy or enjoyable. While hugely popular, the linear TV channel model is ripe for replacement.

    The evolution to Internet TV apps is already starting

    In addition to Netflix, most of the world’s leading linear TV networks are moving into Internet TV. The WatchESPN app runs on many Internet platforms and is specifically designed to showcase sports. ESPN will keep improving their app to try to stay ahead of MLB.tv, which is another terrific Internet TV sports app. The HBO GO app makes HBO’s films and series much more accessible than on HBO’s linear channel. The BBC iPlayer app in the UK provides a rich and popular on-demand interface for a wide range of BBC programming. The other major linear networks are not far behind.

    While Internet TV is only a very small percent of video viewing today, we think it will grow every year because:
    1.The Internet will get faster, more reliable and more available;
    2.Smart TV sales will increase and eventually every TV will have Wifi and apps;
    3.Smart TV adapters (Roku, AppleTV, etc.) will get less expensive and better;
    4.Tablet and smartphone viewing will increase;
    5.Tablets and smartphones will be used as touch interfaces for Internet TV;
    6.Internet TV apps will rapidly improve through competition and frequent updates;
    7.Streaming 4k video will happen long before linear TV supports 4k video;
    8.Internet video advertising will be personalized and relevant;
    9.TV Everywhere will provide a smooth economic transition for existing networks;
    10.New entrants like Netflix are innovating rapidly.

    Eventually, as linear TV is viewed less, the spectrum it now uses on cable and fiber will be reallocated to expanding data transmission. Satellite TV subscribers will be fewer, and mostly be in places where high-speed Internet (cable or fiber) is not available. The importance of high-speed Internet will increase.

    This transformation is occurring at different speeds in different nations. In the UK, for example, the BBC is already starting to program more for its iPlayer app than for its linear channels, given the large and growing viewing on the iPlayer.

    For most existing networks, this economic transition will occur through TV Everywhere. If a consumer continues to subscribe to linear TV from a multi-channel video program distributor (MVPD), they get a password to use the Internet apps for the networks they subscribe to on linear. The more networks successfully keep their prime-time programming behind this authentication wall, the less “cord cutting” will occur. The same consumer who today finds it worthwhile to pay for a linear TV package will likely pay for a “linear plus apps” package.

    Existing networks, such as ESPN and HBO, that offer amazing apps will get more viewing than in the past, and be more valuable. Existing networks that fail to develop first-class apps will lose viewing and revenue.

    In addition to the linear networks building apps, some large MVPDs will do their own multi-channel app for viewing all of the networks they carry. Examples are Xfinity, Sky Go, and Horizon. These will win viewing also, by offering a great Internet on-demand experience on multiple screens. So far, the individual network apps (HBO GO, etc) are ahead of the MVPD apps because consumers relate to the network brands, and the apps are tailored to the specific content type. The competition for Internet TV viewing, however, is just beginning.

    Internet TV apps will improve just like the mobile phone

    Twenty years ago, the mobile phone was quite large, expensive, limited to voice communication, suffered static and was trivial to eavesdrop on. It was hard then to imagine that by now, there would be 6 billion active mobile phones in the world, central to so many of our lives. We see a parallel in the rise and intertwined improvement of Internet TV apps, broadband, and devices over the next 20 years.

    Internet-native new entrants

    In addition to creating opportunity for linear networks, the emergence of Internet TV also enables new apps like Netflix, YouTube, MLB.tv, and iTunes to build large-scale direct-to-consumer services that are independent of the traditional MVPD bundle.

    Netflix competes for entertainment time with traditional networks, but the scope of such time is quite large. Consumer time devoted to web browsing and video games, for instance, has expanded hugely over the last two decades without a corresponding diminution of TV viewing. Another example is that when AMC produces great shows, it does not noticeably shrink the audience for HBO. As our service has become very popular, there has been no discernible decline in domestic MVPD viewing, according to Nielsen.

    Netflix singular focus

    Simplicity is at our core.

    We are commercial-free unlimited-viewing subscription TV. We don’t have pay-per-view and we don’t have advertisements. Those are fine business models that other brands do well. We choose to be the best at our model, and to have our brand stand for commercial-free, unlimited viewing, low flat monthly fee.

    We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.

    We are not a generic “video” company that streams all types of video such as news, user-generated, sports, music video, or reality. We are movies and TV shows2.

    We are counter-positioned against the hassles, complexity, and frustration that embodies most MVPD relationships with their customers. We strive to be extremely straightforward and simple. There is no better embodiment of this than our no-hassle online cancellation. Members can leave when they want and come back when they want.

    We are about the freedom of on-demand and the fun of indulgent viewing. We are about the flexibility of any screen anywhere any time. We are about fantastic content that is increasingly only available on Netflix.

    We spend over $450M per year on global marketing to attract people to try Netflix, and to reinforce with our members why Netflix is worthy. Our extensive content is key, as is the ability for members to have control over their viewing experience.

    Winning more moments of truth

    Our North Star is to win more of our members’ “moments of truth”. Those decision moments are, say, on Thursday 7:15 pm or Monday 2:40 am when our member wants to relax, enjoy a shared experience with friends and family, or is just bored. They could play a video game, surf the web, read a magazine, channel surf their MVPD/DVR system, buy a pay-per-view movie, put on a DVD, turn on Hulu or Amazon Prime, or they could tap on Netflix. We want our members to choose Netflix in these moments of truth.

    We win those moments of truth when members expect, based on their prior experience with us, that Netflix will be pleasurable, compared to all those other options. The pleasure comes from our simple experience for choosing, control over when to start/pause/resume the video, and from content that suits their taste and their mood.

    When we deliver enjoyment, members watch more Netflix, continue their membership, and evangelize Netflix to their friends.

    Improving our service

    We are currently spending about $350M per year on a wide range of efforts to improve our service and app, and we are constantly getting better.

    One area is our core services: our streaming delivery, sign-up, billing and customer service, across more than 1000 devices being used in more than 40 countries. Here we strive for operational excellence to avoid any problems. Members want Netflix to just work — flawlessly. On this front, we’re well ahead, but we have plenty of room to improve. We continue to invest heavily to ensure that our service is always available, our streaming has a minimum of buffering, and has great audio-video quality.

    Another area of focus is personalized merchandising, which drives what content we feature on a given member’s initial screen. Google search is an example of a ranking system, where results are automatically computed to show Google’s estimate of the most relevant answer to the query. For Netflix, the user’s home page is the personalized ranking of what we think will be most relevant for that specific user at any given time. By analyzing terabytes of data from every recent click, view, re-view, early abandon, page views and other data, we are able to generate a personalized homepage filled with the content most likely to please. Our aim is to keep inventing and tuning algorithms to generate higher satisfaction, viewing, and retention, for whatever the level of content we can afford in that territory.

    All of our algorithm work, like with Google search ranking, is proven or disproven by A/B testing. Only algorithms that lead to an improved experience get rolled out to everyone.

    There are a hundred other areas we also are improving, like how smoothly our scrolling works on an iPad, or how well our kids area works on a PS3. Most of this work is guided by A/B testing as well.

    The core metrics we use to evaluate A/B testing are signups rates, viewing, and retention. While our app is much better than it was 5 years ago, it is nothing compared to what it will be 5 years from now.

    Content people love

    We’re now investing over $2b per year in content licensing and the creation of original shows.

    People’s tastes are very broad, even in a single market. The Internet allows us to offer a wide selection, and to have our user-interface quickly learn each individual’s tastes. Those members who love action blockbusters, Korean soaps, anime, sci-fi, Sundance films, zombie shows, or kid’s cartoons will find that Netflix fills their homepage with relevant and interesting similar titles.

    This allows us to provide most members an incredible array of content to enjoy. When we have a new big film or a new season of a great and popular show, those titles will only account for a very small percentage of viewing. There is so much to watch that even the highest-demand titles don’t materially swing viewing.

    As we’ve gained experience, 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.

    Our licensing is all time-based, so that we might pay, for example, $200,000 for a 4 year exclusive subscription video-on-demand (SVOD) license for a given title. At the time of renewal, we evaluate how much the title has been viewed as well as member rating feedback to determine how much we are willing to pay. How many similar titles we have is also a consideration.

    In each market, we license content from multiple suppliers, mirroring the fragmentation of the content industry. Movie content owners appreciate that we’re a new bidder at the table. Typically our bids are for exclusive access to the SVOD rights, and are against various cable and broadcast networks, as well on online competitors. For serialized TV shows the effect is even more pronounced because it wasn’t easy for cable and broadcast networks to syndicate serialized storytelling to others, and we’ve pushed the price up considerably. As a rule, content owners always want another bidder, and never want one bidder to become too strong.

    The vast majority of our spending is on movies and prior-season TV shows from other networks. Recently, however, we’ve been expanding into Original content, which premieres exclusively on Netflix.

    Original content beginnings

    Over the years, we’ve successfully developed the art of estimating how much our members will watch a given show or movie based upon how it has performed to date in other, earlier channels (theatrical for movie; broadcast and cable first-run for TV) and on how comparable titles have performed on Netflix. This generally enables us to avoid overpaying for content, relative to member enjoyment.

    With Originals, we are now extending that concept to estimate the attractiveness of projects that are brought to us by professional producers. There is more judgment required in this process, and more variability due to the art in the production process, but because of the data we have on our members’ viewing habits and our experience in licensing a broad range of content, we think we can do as good or better job than our linear TV peers in choosing projects and setting budgets.

    Once we’ve decided to do a project, production is typically done by one of our partners, like Lionsgate or 21st Century Fox, with our oversight. We believe we are managing this aspect as well as our industry peers do through operational excellence and good hiring.

    We believe we have a strong advantage over our linear competitors when it comes to launching a show. They have to attract an audience for Sunday at 8pm, say. We can be much more flexible. Because we are not allocating scarce prime-time slots like linear TV does, a show that is taking a long time to find its audience is one we can keep nurturing. This allows us to prudently commit to a whole season, rather than just a pilot episode. In addition, we are able to provide a platform for more creative storytelling (varying run times per episode based on storyline, no need for week to week recaps, no fixed notion of what constitutes a “season”). We believe this makes it easier to attract talent.

    By personalizing promotion of the right content to the right member, we have a large opportunity to promote our Originals and one that’s effectively unlimited in duration. Several months after the premiere of House of Cards, huge numbers of members are just starting the series each week. The improved economics from whole-season, and improved storytelling that comes from giving creators more scope, are big advantages.

    We will learn as we go, and expand our Original content slate as we get more insight and confidence. For 2013 and the next few years, we expect it to be less than 10% of our content spending.

    The one material difference worth noting is Originals production is cash-intensive and, depending upon the terms, that means for us that cash is front loaded relative to the P&L. As we expand Originals, they will consume cash. Since we are otherwise using domestic profits to fund international markets, we will raise capital as needed to fund the growth of Originals.

    International

    The market for movies and TV series is national or, in some cases, regional. We work within that distribution architecture, licensing our content for each market at prevailing prices.

    Our advantage internationally is our global tech spending for an improving app and service, our process knowledge, our data from related markets, and our globally-known brand. Our disadvantages are not knowing each specific culture as well as a local competitor. In any given market, once we have achieved the scale to pay for a big content library, we are likely to have a very long term profit stream.

    Each market has a mix of local and global content tastes. We assess them from a variety of information sources before we enter a market, and then after launch we learn more about what is most popular and what is not. As we renew deals, the content mix gets better and better.

    When we enter a market, we have to win the bidding for a big set of content, and then market ourselves effectively to start the membership growth. It is a daunting and expensive process, but we believe any future competitor will have the same or larger challenges.

    Our strategy is to expand as quickly as possible while staying profitable on a global basis, as long as there are compelling markets to expand into, and we are continuing to see growth in our current markets.

    We launched Canada in September 2010, and it is already profitable for us, and still growing nicely. We launched Latin America in September 2011, UK and Ireland in January 2012, and four Nordic nations in October 2012. We are growing membership in all of these markets, and we will launch our next market in the 2nd half of 2013.

    Economic power comes from market-specific scale. We would be stronger being the leader in a few markets than one of the herd in many markets. Of course, our ambition is to be the leader in many markets, but that will take us some time.

    Competition

    We compete very broadly for a share of members’ time and spending. Over the coming years, most other forms of entertainment will improve. Consumers will choose and consume from multiple options. Generally, cable and Internet networks have mostly exclusive content against each other. Piracy and pay-per-view are the only two competitors that can have a nearly full set of content.

    We call competitors for entertainment time and spending that do not bid against us for content (such as video game providers, sports networks and piracy) “competitors-for-time”. We call the narrower set of firms that do bid against us for content “competitors-for-content”.

    The network that we think likely to be our biggest long-term competitor-for-content is HBO. They recently won, for example, long-term exclusive domestic movie output deals with Universal and Fox. They bid against us on many Original projects. They are not currently a bidder against us for prior-season television from other networks. They have global reach and strengthening technology capacity.

    Behind HBO would come Amazon/Lovefilm/Prime, Hulu, Now TV, and many cable and broadcast networks in various territories. Amazon in particular is spending heavily and commissioning its own original programming, presumably because they see the same exciting big picture for Internet TV that we do. Many consumers will subscribe to multiple services if they each have unique compelling content3. Success relative to these competitors-for-content would be us having substantially larger revenue and therefore sustainable increasing content, tech and marketing spending, leading to further growth, and a virtuous cycle.

    While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of Original programming, Emmy awards, and international members. It wouldn’t be surprising to us if HBO does their best work and achieves their highest growth over the next decade, spurred on by the Netflix competition and the Internet TV opportunity.

    ISP relationships

    We have productive relationships with most Internet Service Providers, or ISPs, given our joint interest in making broadband important and useful to people. Broadband is hugely profitable for ISPs, partially because unlike MVPDs, they don’t pay content costs, and because there are fewer competitors for high-speed Internet (just telco and cable) than MVPD (which has cable, free over-the-air, two satellite firms, and some telco).

    The more successful Netflix is, the more important we are to the ISPs’ subscribers, and the more important it is for Netflix and the ISPs to work closely together on the network interconnection points so the ISP subscribers actually experience the benefits of their high-speed Internet. To this end, Netflix’s Open Connect network allows ISPs to directly interconnect with Netflix.

    At times we have worried about the strategic motivations of ISPs that are also MVPDs, but the absence of cord-cutting has mitigated this concern. In the USA, MVPDs have remained stable at 100 million subscribers while Netflix has grown to about 30 million members. The stability of the MVPD subscriber base, despite Netflix large membership, suggests that most members consider Netflix complementary to, rather than a substitute for, MVPD video. MVPDs are keeping their subscribers through TV Everywhere authentication. Internet video services like Netflix, MLB.tv, iTunes and YouTube are not currently a material strategic problem for companies that are both an ISP and an MVPD.

    Netflix margin structure and growth

    Our domestic margin structure is mostly set top down. For any given future period, we estimate the revenue, and decide what we want to spend, and how much margin we want in that period. Competitive pressures in bidding for content would tend to make us have slightly less content than we would otherwise, rather than overspending. The same is true for paid media and our marketing budget. The output variable, if you will, is membership growth that those spending choices influence. Obviously, we have some limits to our spending flexibility and our true discretionary top-down process is only practical when the revenue is reasonably predictable.

    The margin structure we have chosen is to grow content plus marketing slightly slower than we grow revenue, and we’ve been targeting in the USA about 100 basis points of contribution margin improvement per quarter. While we continue to grow rapidly, we are likely to be able to continue this margin expansion.

    The primary forces propelling our growth are our own service, content and marketing improvements, and the improvement of Internet networks and devices. The primary forces impeding our growth are saturation and the broad set of competitors-for-time all improving their offerings.

    We are pleased that our domestic net adds are currently tracking to about last year’s level, indicating that the growth forces are still strong. We introduced our pure streaming plan at $7.99 in 2010, we’ve been adding more content to it ever since, and we are very happy with the membership growth at this $7.99 price point.

    From a high-level, HBO-linear is our closest comparison, and they have about 30 million domestic members. We have more content, more viewing, a broader brand proposition, are on-demand, on all devices, and are less expensive, so we estimate that we can be 2 to 3 times larger than current linear-HBO, or 60-90 million domestic members. This factors in that as we grow, our content and service can continue to get better.

    Our international segment is just beginning and is in investment mode, although our first expansion market, Canada, is already generating contribution profits.

    Longevity & defensibility of profit stream

    One of the reasons we are investing in international expansion so heavily is we believe that once a subscription video service has achieved profitability and scale in a market (20% to 30% of households), it is very likely to be able to sustain that profit stream for many decades. At that percentage of households, our advantages in content acquisition and member acquisition are considerable.

    Broadcast networks were huge and growing franchises for decades, until cable viewing started to replace over-the-air viewing. It will likely take something “beyond streaming” for a scale player in subscription streaming like Netflix to see its profits choked off. So our view is our profit streams will likely grow for multi-decades, since whatever is eventually “beyond streaming” is very far away.

    Conclusion

    If we could look decades into the future at the ways that people access entertainment, we would no doubt see a very different image than we see today – mind-blowing video quality, a proliferation of screens, yet-unimagined natural user interface, and an unbelievable range of choice.

    But if we were to turn instead and look at the person watching that screen, we believe we would observe a number of similarities across generations. We’d see someone who is getting a moment to escape into a story – to simply relax and enjoy one of life’s real pleasures with their friends and family.

    People love TV shows & movies. We love being the best possible place to enjoy them. Ours is an amazing opportunity to grow, innovate and lead for several decades. We know we will have great competition along the way, and we embrace the challenge.

    “We have clearance, Clarence.”
    “Roger, Roger.”

    – Airplane, 1980
    1 From a business terminology standpoint, HBO and ESPN are cable TV networks, and Netflix is an Internet TV network. From a consumer terminology standpoint, however, we are a service and an app, while ESPN and HBO are channels, and WatchESPN and HBO GO are apps.

    2 Within TV shows, we are primarily long-lived TV shows that are enjoyable 5 years after they are produced (in contrast to great topical real-time shows like Jon Stewart or competitive reality shows like the Voice).

    3 This is quite different from the XM versus Sirius battle where any one car is only going to have one of these options, or the competition between, say, Dish and Directv and cable. Our competition is like that between Showtime and HBO.

    This document contains certain forward-looking statements within the meaning of the federal securities laws, including statements regarding our outlook concerning the development of Internet TV and the decline of linear TV; the scope, timing and players involved in this transformation to Internet TV; our approach to being an Internet TV network or “app�, including improvements to our service features and content licensing, development and financing; our international expansion, the impact of competition; our relationship with ISPs; our margin structure; and, sustainability of profits. The forward-looking statements in this document are subject to risks and uncertainties that could cause actual results and events to differ, including, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively; maintenance and expansion of device platforms for instant streaming; fluctuations in consumer usage of our service; competition; and, widespread consumer adoption of different modes of viewing in-home filmed entertainment. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 1, 2013. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this document.

    [Last updated 25 April 2013]

  3. “Barring a buyout of epic proportion or another desperate cash infusion or three, Netflix will raise prices. It’s not a matter of if or even when. In some fashion, it will happen. It’s simply a question of how.
    Why?
    The economics of licensing content and producing original programs, coupled with Netflix’s unworkable pricing structure, make it impossible for the company to survive without more revenue.” ~ NEW YORK (TheStreet) By Rocco Pendola

    Me – I’m wondering how will customers react to a price increase. I suspect not well.

    http://finance.yahoo.com/news/netflix-raise-prices-171500052.html

  4. From Forbes today,

    “The SEC will allow companies to announce news through social media, provided investors know to expect it, regulators said this afternoon.

    The clarification updates existing wording, Regulation Fair Disclosure, that sanctioned corporate websites as an appropriate means to distribute information.”

    The problem? Facebook and most social media platforms are moving towards targeted delivery of content, which means that even if a person “Likes” or “Follows” a company, their announcements may not be delivered to their newsfeeds. Which means that shareholder information will not be delivered consistently to shareholders.

    Looks like Zuck is going to have to find some way to allow Facebook users the ability to unequivocally control what content they wish to see or not without his interference.

    http://www.forbes.com/sites/abrambrown/2013/04/02/sec-enters-21st-century-approves-twitter-and-facebook-for-official-disclosures/

  5. Netflix adopts Poison Pill strategy as the sharks start circling. First shark? Predictably, Carl Icahn who now owns 9.98% of Netflix’s stock.

    http://news.cnet.com/8301-1023_3-57544991-93/netflix-preps-poison-pill-to-fend-off-icahn/

    Initial news of Icahn’s investment sent NFLX shares up to approx. $79/share but have since come down to approx. $76/share again.

    On the heels of this news, Amazon launches a competitive $7.99.mo video service for Prime Members. If you can’t buy ’em, kill ’em with competition, right?!?!

    http://money.msn.com/top-stocks/post.aspx?post=382888ec-b8f6-42ce-9db0-ea455fb4df08

  6. Stock at $60.12.

    The predictable Netflix tell-all book is published. Portrays Reed Hastings as lacking certain people skills.
    http://news.cnet.com/8301-1023_3-57530609-93/new-book-reminds-us-why-we-loved-netflix/

    Reed to analysts, tired of “Making Excuses” for Netflix’ performance.
    http://news.cnet.com/8301-1023_3-57538927-93/netflix-ceo-says-hes-tired-of-making-excuses/

    Netflix misses new subscriber targets.
    http://news.cnet.com/8301-1023_3-57538520-93/netflix-misses-subscriber-target-for-third-quarter/

  7. Although Netflix reported a return to profitability, shares are now down to $57.01.

    Investors not seeing subscriber growth at fast enough rates, customer satisfaction indices not favorable, and HBO reporting that they are not interested in doing business with Netflix has caused a lack of confidence in this stock/company/leadership.

    “We have enormous challenges ahead,” Hastings wrote, “and no doubt will have further ups and downs as we pioneer Internet television. We are making progress in every market we serve, and see a once-in-a-generation opportunity ahead to build the world’s most popular TV show and movie service.” – Reed Hastings

    Netflix is ‘pioneering’ internet television? hmmm… How did a DVD shipper become an internet television pioneer? Interesting…

    ***

    http://www.webpronews.com/netflix-stock-continues-downward-spiral-2012-07
    http://finance.yahoo.com/blogs/the-exchange/netflix-plunges-disappointing-subscriber-growth-170911257.html
    http://www.webpronews.com/hbo-netflix-partnership-probably-isnt-coming-anytime-soon-2012-07
    http://www.webpronews.com/netflix-users-arent-really-that-keen-on-netflix-2012-07
    http://www.webpronews.com/netflix-earnings-report-includes-return-to-profitability-2012-07

  8. Forbes reports today that Netflix’ stock is up considerably at $77.09 close of business. No one knows why this jump has happened today, but some attribute Reed Hastings’ announcement that they surpassed 1 billion streaming video hours in June. hmmm…

    Some financial reporters are now indicating that Netflix stock is a strong buy. Let’s see what happens once competitors start offering their new partnered services.

    http://www.forbes.com/sites/ericsavitz/2012/07/05/whats-up-with-netflix/

  9. Is Netflix practicing discriminatory hiring practices now? Posted on Craig’s List today, clearly asking for “Recent College Graduates”…

    Does anyone at Netflix actually THINK!?!? I hope that a lot of unemployed 50 year old ‘recent college graduates’ apply for these jobs. Wonder what the definition of ‘recent’ is…

    ***

    “SF bay area craigslist > south bay > jobs > human resource jobs

    Netflix – Recruiting Researcher (los gatos)

    ——————————————————————————–
    Date: 2012-05-14, 9:20AM PDT
    Reply to: see below [Errors when replying to ads?]
    ——————————————————————————–

    Netflix is looking for recent college graduates to join our unique and talented Recruiting team as Recruiting Researchers. We have set up an in-house head-hunting team that drives all corporate staffing needs. For us, talent acquisition is a priority, so we need someone who understands the importance of our challenges as well as the desire to make an impact as we achieve our goals. Help us build the future of Netflix!

    We’ve found that recent college grads have been most successful in this position because we need some who is:
    – Self-motivated and directed; hungry to get started with a great, well-known company.
    – Proactive; taking initiative and follow-through is a must
    – Accustomed to multi-tasking and meeting multiple, tight deadlines
    – A leader and will offer innovative and constructive ideas to continue our team’s success

    In this role you will:
    – Partner directly with Senior Recruiters to form a consultative relationship with Hiring Mangers to understand their specific needs to attract and bring in top talent.
    – Strategically utilize job boards, networks, cold-calling, and research methods to source passive candidates.
    – Initiate phone screens with direct applicants, referrals, internal networks, and other interested candidates.
    – Evaluate and make judicious decisions on a candidate’s skill set for a requisition and fit within our unique “freedom and responsibility” culture.
    – Own and juggle multiple requisitions and maintain high quality/maximum traction for Hiring Managers at all times.
    – Provide and receive necessary feedback to fine-tune talent searches.
    – Prioritize, organize, and manage work load efficiently.

    Why join the Netflix Team?
    – You will make a make a huge impact at an established company. You are not an intern or a paper pusher. Your opinion matters and your work adds value to the company. We are a small and nimble team solely responsible for finding the most capable candidates so that Netflix can continue to innovate and be successful.
    – We don’t have rules. You are given the resources and freedom you need to do your work, excepting that we will get high performance in return. We treat you like an adult and expect you to act like one.
    – This is a cross-functional role where you get to interact with multiple departments, allowing you to get full breadth and depth knowledge about the business, while networking with the experts in their field.

    http://jobs.netflix.com/jobsListing.html?id=oKbxVfw7&source=craigslist
    •Principals only. Recruiters, please don’t contact this job poster.
    •Please, no phone calls about this job!
    •Please do not contact job poster about other services, products or commercial interests.
    PostingID: 3014692919″

  10. NFLX at $101.84 after Q1 2012 earnings call.

    http://seekingalpha.com/article/520071-netflix-s-ceo-discusses-q1-2012-results-earnings-call-transcript?source=yahoo Netflix Q1 2012 Earnings Call

    “Well, we had a fantastic Q1, adding nearly 3 million members to our global subscriber base. We had strong results in all of our territories, including the U.S. Our gross adds are consistent with our historic patterns. Our churn is consistent with our historic patterns, and we’re feeling very good about the year.” – Reed Hastings

    http://techcrunch.com/2012/04/23/netflix-content-plans/

    “Even though Netflix’s first-quarter earnings came in ahead of analyst expectations, CEO Reed Hastings still had to answer plenty of (usually skeptical) questions during this afternoon’s earnings conference call about how he plans to expand the company’s streaming content library.” – TechCrunch

    http://online.wsj.com/article/SB20001424052702303592404577361840624116180.html?ru=yahoo?mod=yahoo_itp

    “Netflix Inc. appears to be recovering from mistakes that caused a tailspin in the company’s stock last year, but at a pace that failed to impress investors, who sent shares plummeting after-hours.” – Wall Street Journal

    http://www.reuters.com/article/2012/04/24/us-netflix-idUSBRE83J1HK20120424?feedType=RSS&feedName=globalMarketsNews&rpc=43

    “Video rental company Netflix Inc projected slower subscriber growth this quarter for its key U.S. video-streaming service, disappointing investors and sending its shares down 17 percent after hours.” – Reuters

    The story continues…

  11. Need help figuring out how to leave Netflix and go to another service? MSN Money, today published an article helping angry Netflix customers understand their purchasing alternatives. Listed are SEVEN different established services that any customer could use.

    I keep remembering that Mr. Hastings publicly declared early on that no heroic efforts would be used to ‘save’ deflecting Netflix customers.

    http://money.msn.com/shopping-deals/article.aspx?post=de772d0d-f34c-4213-a471-6d1a3551787f&GT1=33006

    More brand pain. Not good.

  12. Last night, Conan O’Brien offered his version of Reed Hastings’ most recent apology to customers. You know when you’ve messed up when comedians spoof you and your actions on national television – and not just once!

    Because I wasn’t aware of any previous video apologies by Mr. Hastings, I checked out YouTube. Was astonished to see several videos on this topic. Check them out for yourself. Clearly, this is a branding nightmare.

    http://www.youtube.com/results?search_query=apology+reed+hastings+netflix&oq=apology+reed+hastings+netflix&aq=f&aqi=&aql=&gs_sm=3&gs_upl=2078l7268l0l7718l26l26l0l18l1l1l237l1156l4.0.4l8l0

    In other news:
    – NFLX closed at $113.32 today

    – Reed Hastings announces that Netflix will ‘one-day’ be bundled with cable http://paidcontent.org/article/419-reed-hastings-netflix-will-one-day-be-part-of-your-cable-bundle/

    – Netflix announces they are in talks to stream Spanish language television programming in order to boost subscription numbers (Remember that stock fell due to defecting subscribers, so the logic is get more subscribers and stock will go back up. I doubt this logic, but let’s watch and see what happens.) Seems streaming TV programs and not just movies is an expansion tactic.
    http://finance.yahoo.com/news/The-Zacks-Analyst-Blog-zacks-2501102796.html?x=0

    – Forbes predicts that Netflix’s competition will keep NFLX’s stock prices under $134.
    http://www.forbes.com/sites/greatspeculations/2012/02/28/competition-should-drive-netflix-stock-back-below-134/?partner=yahootix

    It’s been a busy day for Netflix!

  13. http://money.msn.com/top-stocks/post.aspx?post=1852e69e-b124-402e-a8b2-ada5c6ec853d

    Verizon and Comcast announce streaming services. News impacts Netflix’s stock downward.

    “Shares of Netflix have reacted strongly to the news of increasing competition, with the stock down 11% since Comcast’s announcement. Shares closed Friday down more than 1% to $111.67. The question is whether traders are overreacting or if the new competition actually poses a serious threat to Netflix.” per MSN Money.

  14. Reuters announces that Netflix will change its senior marketing team as follows:

    Leslie Kilgore, currently Netflix’s CMO, will step down from her position in February and join its board as a non-executive director.
    http://www.reuters.com/article/2012/01/20/idUS404576189420120120

    Jessie Becker who is currently their VP, Marketing will become interim CMO until a new CMO can be found.

    An external search is now being conducted for that external CMO.
    http://www.reuters.com/article/2012/01/20/us-netflix-idUSTRE80J23120120120

    Jonathan Friedland has been promoted to Chief Communications Officer and now reports directly to CEO Hastings, moving PR outside of marketing’s pervue.

    Netflix (NFLX) closed Friday, January 20, 2012 on the Nasdaq at $100.24.

    Analysts are expecting that Netflix’s losses will continue for awhile and that a lack of profitability will result for a period of time.
    http://seekingalpha.com/article/321125-netflix-earnings-preview-expect-more-pain-ahead?source=yahoo

    So the proverbial buck at Netflix stops with the CMO, not the CEO, and when stocks drop precipitously due to decision making, the CMO elegantly resigns and is moved to a Board position.

  15. In a press release today, former SEC attorney Willie Briscoe and the securities litigation firm of Powers Taylor, LLP announced that they are investigating potential securities violations against Netflix and its Directors.

    From the press release, “In a recently filed federal class action complaint, Netflix and certain of its officers and directors were charged with violating provisions of the Securities Exchange Act of 1934. Specifically, the complaint alleges that defendants knew but concealed the following facts from the investing public during the Class Period: (a) Netflix had short-term contracts with content providers and defendants were aware that the company faced the choice of renegotiating the contracts in 2011 at much higher rates or not renewing them at all; (b) content providers were already demanding much higher license fees, which would dramatically alter Netflix’s business; (c) defendants recognized that Netflix’s pricing would have to dramatically increase to maintain profit margins given the streaming content costs they knew the Company would soon be incurring; and (d) Netflix was not on track to achieve the earnings forecasts made by and for the company for 2011.”

    Essentially, Mr. Briscoe is saying that Netflix’s Directors did not disclose a known material change in their business when filing their annual or quarterly reports and/or knew that said changes would negatively impact earnings but hid that information from investors.

    For the entire press release and article, please go to Yahoo Finance at http://finance.yahoo.com/news/netflix-investor-alert-briscoe-law-203600453.html

    To read summaries of Netflix’s SEC filings and see if you agree or disagree with Mr. Briscoe… http://finance.yahoo.com/q/sec?s=NFLX+SEC+Filings

    Perhaps Mr Hastings did know about these material changes but brushed them off with the brilliant ‘strategy’ of a significant price increase during a global recession?

  16. Reuters announces today that “Netflix, Gap lag in customer satisfaction online”.

    http://www.reuters.com/article/2011/12/28/us-netflix-onlinesurvey-idUSTRE7BR05I20111228

    Interesting that the ONLY thing that actually changed at Netflix – after all of the very public communication missteps – was a price increase. Processes remained the same, products/services remained the same, and leadership remained the same.

    So what are customers rating when they participate in the ForSee Retailer Survey? One word – PERCEPTION! It’s all about brand, delivering brand-aligned touchpoints, and in this, Reed and all of his executive team failed.

    Moral of the story? Customers DON’T have short memories and PERCEPTION is reality. Emotions are EVERYTHING and ensuring that processes + touchpoints + communications + people are all ALIGNED with the brand promise is critical. Without one, the ship goes down.

  17. Zacks Equity Research | Zacks – Fri, Nov 25, 2011 9:15 AM EST writes on Yahoo Finance that…

    “The Netflix Inc. (NasdaqGS:NFLX – News) camp will be heaving a sigh of relief, as the company has been acquitted in a class action law suit by a U.S District Judge, Phyllis Hamilton, in Oakland, California. The law suit dates back to 2009, when Netflix allied with retail giant Wal-Mart Stores Inc. (NYSE:WMT – News) to monopolize the DVD rental market, thus compelling customers to pay inflated prices for subscriptions for the period between 2005-2010.

    The District Judge ruled that the agreement between Netflix and Wal-Mart (already exited the online DVD market) did not have any impact on the pricing strategy of the rentals and the two companies had not indulged in any kind of antitrust violation. Moreover, the court also suggested that Wal-Mart’s market share being insignificant, could not have had any effect on Netflix’s pricing strategy.”

    For this entire article, go to… http://finance.yahoo.com/news/Netflix-Survives-Lawsuit-zacks-4214407982.html?x=0

    Netflix’s stock price today? $63.86.

  18. Defecting customers continue to negatively impact Netflix…

    “Nov. 22 (Bloomberg) — Netflix Inc., the video-streaming and DVD subscription service, agreed to sell $400 million in stock and convertible notes to bolster cash as it increases spending for online rights to films and TV shows.

    Technology Crossover Ventures will purchase $200 million in zero-coupon senior convertible notes due 2018, and T. Rowe Price Associates Inc. funds will buy $200 million in stock, Los Gatos, California-based Netflix said yesterday in a statement.

    The transactions suggest Netflix’s cash squeeze may last longer than it had anticipated, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. The company needs to spend more to make its streaming content stand out against a growing list of competitors, he said.”

    For the entire article, go to… http://www.businessweek.com/news/2011-11-23/netflix-raises-400-million-to-boost-cash-as-film-costs-rise.html

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