Our priority is to make sure we're thoughtful and do not allow a quick buck to jeopardize the longer-term value of our product.
--Chase Carey, COO, News Corp.
From what I understand, Netflix (NFLX) CEO Reed Hastings is one of these guys who commands attention and respect when walks into a room. As such, he has done a wonderful job portraying Netflix as a partner with movie studios and television programmers. Reality, however, tells a much different story.
Consider the quote from Carey of News Corp. (NWS). It's really no different from the sentiment of the other companies, such as CBS (CBS), who are using Netflix to pad their bottom lines. I view Netflix's relationship with studios and programmers as more of a torrid fling than a long-term partnership. There's no doubt the content creators feel a bit dirty. Once they've made a few more quick bucks, they'll cast Netflix to the curb like a cheap ... glorified bootlegger of old movies and rerun television shows.
The Wall Street Journal article from which Carey's quote comes contains some good information:
But [Disney (DIS) CEO Robert Iger] and his counterparts also say they are being careful to protect their core businesses by selling mostly older shows to Netflix and other online distributors, not the new ones that the networks count on to bring in ad revenue. CBS, for instance, says it has licensed only 7% of the content in its library, and no current shows.
And herein lies the rub for Netflix. Its spat with Starz (LSTZA) and Sony (SNE) only reinforces Iger's point. The "temporary removal" of Sony content from Netflix streaming has everything to do with dilution of content. Even after its price hike, Netflix effectively gives away the programmers' legacies -- and blood, sweat and tears -- in exchange for a quick buck.
The programmers clearly recognize that they must balance the potential long-term damage of dilution with the need for near-term revenue boosts. And that's exactly why the programmers are only willing to part with the leftovers that no longer command big bucks from advertisers.
To make matters worse, this is Netflix's core business. It has nothing else. It's in the business of bringing old, stale television programs and movies to people willing to ignore the relatively insignificant recurring charge on their credit cards.
Netflix's emerging competition -- though we should probably not refer to it as competition -- uses streaming as a side business to help grow and evolve the actual sustainable core businesses that made them the powerhouses they are today.
Amazon.com (AMZN) wants no part of competing in the online streaming space; it just wants to do enough to increase e-commerce sales. Google (GOOG) does not intend to make money by allowing people to "YouTube" Top Gun; instead, streaming video just helps it grow advertising revenues, which make up nearly all its business. And, of course, Apple (AAPL) only uses content to get you to buy an iPod, iPhone, iPad or Mac.
What's worse, even though all three are relatively frugal, these last three companies have no need for a sense of frugality like Netflix does. If one of the big three gets Hulu, great -- they'll throw a party at a restaurant down the street from corporate. If not, life goes on. It just does not matter as much to them as it does to Netflix, no matter what Netflix says. Video content (and audio, for that matter), with or without Hulu, is a mere value-add to actual multibillion-dollar business lines for Amazon, Google and Apple.
Additional Disclosure: I may initiate a short position in NFLX via put options over the next 72 hours.