It's no secret that the media and entertainment industry is worth billions of dollars. Whether it's TV shows or the latest blockbuster releases, the demand for entertainment is on a scale unlike anything we've ever seen before, and reaches right across the globe.
As a result, you'd think that companies such as Netflix (NFLX) would be riding the wave of this worldwide interest in entertainment, and becoming very profitable indeed. After all, the crucial aspect of Netflix and its competitors is the distribution of media - whether you want DVDs delivered to your door or 24-hour access to your favorite TV program, Netflix has it covered. Or does it?
Recent figures suggest that Netflix's popularity and relevance to today's consumer may have peaked - and that it's now on a downhill slope.
Currently, Netflix's stock is trading at around $114. This is a pretty impressive amount, and seems reasonable when you compare it to its price this time last month (March 2012) which was $113. However, when we look back at Netflix's stock history, we see that these figures are pretty dismal. In fact, this time last year, Netflix's stock was trading at $242 - over double its current price.
The price of Netflix's stock hasn't been as low as $114 since 2008. With such a catastrophic fall in price, surely Netflix isn't alone in its suffering. However, you'd be wrong. Companies such as Time Warner (TWX) has seen an increase from $36 to around $38 in the past year; TiVo (TIVO) has seen an increase over the same period from $9 to around $12.
One of the market leaders, Coinstar (CSTR) has seen a considerable increase since this time last year, from $45 to around $64. In fact, one of the only competitors that has seen stock price fall on the same scale as Netflix has been the British Sky Broadcasting Group PLC (BSY.L), which fell from $830 to around $678. So, why does Netflix seem to be suffering when the majority of its competitors are on the increase?
After all, recent acts by the US government to cut down the amount of illegal content on the internet should, theoretically, have pushed the millions of people who watched movies and TV illegally online to legal platforms such as Netflix.
The acts, known as the Stop Online Piracy Act (or SOPA) and the Protect Intellectual Property Act (PIPA,) effectively prevented people from accessing the majority of illegal content on the internet, including TV shows and movies. As a result, it is now incredibly difficult to find these types of media on the internet without having to pay for them.
As a result, surely membership to Netflix should have gone through the roof. So: why these recent losses?
One reason is, undoubtedly, Netflix's recent decision to drastically change its services. The company's changes affected its customers in two ways. Firstly, Netflix separated its DVD loaning service from its online streaming service. This means that users have to use two separate websites to access services from the same company - one for DVDs, one for online streaming. This alone would have been frustrating enough for customers, who knew that the two services could be provided easily and effectively from one platform.
The second change was that Netflix charged for each of these two services separately - and this costs the customer more. When the services were offered together, Netflix membership in the US cost $11.99 per month: however, after the services were split, it cost the customer $17.98 for the same service. Needless to say, Netflix members were devastated. For many customers, Netflix was a cheaper alternative to cable, but after the services were split and the cost was increased, the benefits of Netflix seemed minimal. Tellingly, around this time, Netflix's stock price began a nose dive from heights of $299 to a mere $79.
In addition to the company's questionable decision to split its services is the questionable behavior of the company's CEO, Reed Hasting. He has recently posted on his personal Facebook account about how much he "wants" to watch HBO Go in his private life - despite the fact that HBO Go has been named as Netflix's biggest competitor. Surely Netflix's CEO shouldn't be giving free publicity to his major rival?
As well as these more recent factors, there is a significant and long-standing reason why Netflix may be on a slippery slope, as HBO Go and Amazon's media distribution service are ranked among its toughest competitors. With world-famous and long-established names such as Amazon competing against Netflix, it's really no surprise that Netflix is starting to crumble under the pressure. All of those members who were disappointed after Netflix's decision to split its services may well have turned to better-known providers in order to avoid this kind of disappointment again.
Netflix has recently launched in the UK, and is seeking to broaden its reach even further. Will this be enough to save the media provider from a sticky end? Who knows - especially seeing as the UK already has an almost identical service in the form of LOVEFiLM. Unless Netflix really starts to listen to its customers, and provide them with a service they want (rather than the expensive services Netflix wants to give), it will continue to lose out to its competitors.
Additionally, someone needs to give Hastings a good lecture. As the CEO, he should be acting in a way that's beneficial to his company, regardless of whether that's in his working life or his personal life. However, as far as I'm concerned, the future looks bleak for Netflix. All I'm saying is that even the CEO of Netflix would rather use a different service.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.