Monday, February 22, 2010

What's happening at Netflix?

Netflix, Inc.Image via Wikipedia
You'd expect me to follow Netflix closely - and indeed they have always been a beacon of the on-line revolution. Disrupting the established methods of distributing movies to consumers in a significant way - leading to the inevitable demise of Blockbuster (once the brief on-line battle had been won) their dedication to great customer service has been a constant theme.
Our own founding of Video Island - later to become LoveFilm after a series of mergers - has meant a more intensive tracking than normal of a much admired business. Listening to Reed Hastings, Netflix, outstanding founder and CEO and comparing his metrics with our own every quarter has been an education.
The Netflix stock-price has always suffered the overhang of those who believe that the DVD's days are numbered and that digital streamed delivery would render Netflix's obsolete or at least would open up significant more competition than it has experienced hitherto.
Netflix has consistently come up with the answers - first by explaining that DVDs would be around for a lot longer than people thought - then by offering streamed movies themselves and agreeing that DVDs would indeed die at some point not too far in the future. Mostly however, Netflix has delivered results. Consistently meeting and beating the street's forecasts.
After music, then books, newspapers and magazines, movies are bound to be the next digital 'goods' to be widely distributed over the new platforms.
So, is Netflix in a very vulnerable position? Or is it perfectly placed, with a fiscal relationship with 12m subscribers who pay them each month. Its relationship with the movie studios - who will ultimately decide how and when their product is distributed is clearly another factor.
There are a handful of digital companies (outside of the main utilities) with such a close, regular and continuing  transactional relationship. Netflix is a more than a "DVD by post" business, they are an entertainment distribution platform.

Is this realisation behind the recent exceptional surge in the Netflix share price? It has trebled in the past year despite the continuing stream of news heralding new competitors. Walmart's acquisition of on-line movie service, Vudu is the latest. Hulu, Apple, YouTube, BestBuy the list is long and powerful.
The battle for movies will start soon.

Not even Reed Hastings sale of 10,000 shares last week has dented its apparent strength.

For all Facebook and Google's power, neither of them has a direct financial relationship with consumers. Though clearly they will move in that direction.

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