Watching Netflix's (NASDAQ:NFLX) nadir since its 2011 price hike has been like watching the movie Flatliners. Just when you think Netflix is finished, its final death rattle turns into an impressive turn-around, and you can almost picture CEO Reed Hastings as Kiefer Sutherland saying, "Today wasn't a good day to die." However, how many more times will Netflix survive emergency resuscitation? Not many. The company is in severe need of help. Its subscriptions are still falling to competitors and its selection of films, TV shows and documentaries is poor compared to other streaming services.
In July of 2011, Netflix announced a 60% price hike in tandem with the introduction of a new subscription scheme. The company differentiated its streaming and DVD-by-mail businesses, which were previously bundled together into one package price. As a result, Netflix stock lost 50% of its value within two months. The subscription service shed 800,000 subscribers, and the company cut its customer forecast for 2011 by 1 million. Upon the release of its third quarter earnings in October of 2011, which illustrated a massive decline in revenue, the stock dropped to an all-time low, worth only $75 per share for much of the remainder of 2011. Currently, one share is worth about $114.
Since then, the company has had numerous woes, not the least of which being the Time Warner (NYSE:TWX) initiative to begin an internet pay-for-TV programming system that would mirror Pandora, the website that allows users to create personalized radio stations. Like Pandora, Time Warner's programming would recognize the content a user watches and would then play similar content accordingly. There have been reports that the project is still in the development stage, but in the meantime, Time Warner is prepping its audience. The company has partnered with HBO to create an app that gives HBO subscribers access to programming on mobile internet-enabled devices.
Netflix UK launched in January 2012 as the company's first European venture. Between its launch and mid-April, 1.2 million customers signed up for Netflix. However, shortly after Netflix's UK launch, Disney (NYSE:DIS) entered into a content-sharing agreement with Netflix's UK competitor, Blinkbox. The deal is hot on the heels of Disney's agreement with Google (NASDAQ:GOOG) to provide content on YouTube and the Google Play application. These agreements aggravate Netflix's existing content woes, as Sony (NYSE:SNE), Warner Brothers, Viacom, Universal and 20th Century Fox have all pulled contracts giving Netflix permission to stream its content in lieu of other online competitors such as Blinkbox, Google and Amazon (NASDAQ:AMZN).
Amazon is also getting into the streaming game. The company is set to launch an instant video streaming service in conjunction with PlayStation3. Although the capability already exists to stream video from NetFlix on PS3, Amazon's catalogue of offerings far outweighs that of Netflix. In addition, the quality of offerings is much more substantial, as Amazon has secured content contracts with companies that offer recent and popular movies and TV shows, such as Viacom. The Viacom agreement entitles Amazon customers to view programming from MTV, Comedy Central, Nickelodeon, CMT and BET. Viewers are therefore able to watch newer shows such as Jersey Shore and the Daily Show, which are not currently offered on the Netflix platform.
The Amazon interface is also much more aesthetically pleasing and user friendly than Netflix's overly cumbersome catalog of shows, movies and documentaries. Unlike Netflix's flat monthly subscription rate, Amazon customers can choose from a menu of several subscription options.
Another Amazon innovation comes in the form of its plan to create and sell its own comedy and children's programming. The company has announced that it will take pitches for 11-22 minute shows. Successful authors will receive up to $55,000 as well as bonuses and royalties. Amazon Studios is already developing 15 movies. Netflix has feebly followed suit, producing one original series, "Hemlock Grove", which will premier in 2013.
Netflix has been busy fielding the negative fallout from its decision to differentiate its subscription service and to raise its prices. Almost as soon as the change was announced and reactions started pouring in, the company launched a positive PR campaign, apologizing to clients and sending out multiple emails explaining why the changes were necessary and the ways in which it would ultimately improve service. Netflix has been too preoccupied with PR objectives to focus on its competitors, which are offering higher quality content in easier-to-use ways. The company is now scrambling to retain and allure subscribers to keep revenues growing in the face of this new and innovative competition.
With so much internal turmoil in the past year, some analysts seem fairly certain that Netflix will be bought out and transformed according to the wishes of buyer. Contenders range from companies already mentioned, including Google, Time Warner and Amazon. However, Comcast, Viacom and Apple may be interested in saving the ailing company, too. Although speculations are flying, it is too early to tell who, if anyone, will purchase Netflix.
Netflix's reputation has been severely damaged. The company simply cannot survive another blow to its subscription base, and there are too many competitors crowding the market to guarantee that it can recover fully. In addition to pay-to-view competitors, there are a variety of free-view options such as Showtime Anytime, BBC iPlayer, standard Hulu, YouTube and illegal Internet streaming websites that offer the same or even timelier content. In addition, delivery or brick and mortar rental options such as Redbox and Blockbuster are still viable competitors, especially to a company trying to attain as much business as possible. I believe the end is near for Netflix, and one can only hope that a savior will swoop down and breathe new life into the corpse of what was once a well-performing company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.