Netflix's Dismal Earnings Come as No Surprise

Netflix (NFLX) lowered forecasts for the year and said it lost subscribers for the first time ever (down around 55,000 while last year they added around 300,000). This should come as no surprise because Netflix did absolutely nothing to compete with Blockbuster (BBI) Total Access. They just sat and waited for Blockbuster to raise prices. Instead Blockbuster responded by offering the same plan as Netflix (i.e. without Total Access) for a dollar less than Netflix. This has forced Netflix to lower prices too!

In the words of analyst Michael Pachter of Wedbush Morgan, "Blockbuster is kicking their butts, and they're not used to that." Not that Blockbuster is doing great financially, but unless Netflix comes up with something to compete with Total Access, Blockbuster has the upper hand.

What can Netflix do? Netflix could open Kiosks. Or they could buy RedBox or just partner with Redbox to allow Netflix subscribers to return and rent DVDs like Blockbuster does with its stores instead of just waiting it out. On a positive note, at least Netflix makes money - unlike Blockbuster. However if the trend continues, the tides may turn, especially if Blockbuster does something to improve their (IMHO it's a fancy but not extremely useful website).

NFLX 1-yr chart

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