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Nov 7

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11/7/2011 7:20 PM  RssIcon


Tom Butts is the Editor in Chief of TV Technology.

As recently as last summer, if you had predicted that Netflix would have lost almost a million subscribers in one quarter and seen more than half of its stock price decline within several months, you probably would have been laughed off Wall Street. But in this era of rapid rises and falls, Netflix represents a special place in the annals of potential Harvard Business School case studies.

By now we're all familiar with the Netflix saga. Its recent missteps, first by raising prices on its disc rental business by 60 percent (without a clearly communicated rationale), then its moves to separate its DVD business from its streaming service, awkward apologies, followed by an attempt to rescue its reputation by abandoning its Quikster spinoff plans, were leaving some calling for the head of CEO Reed Hastings. The moves were met with disdain and derision, both from the financial community and subscribers alike. For many, it wasn't simply the price increases that alienated its customers but the way Netflix went about it that was even more damaging.

(A note of disclosure: I've been an on-off customer of Netflix for years and currently subscribe to their streaming service only.)

Netflix's stumbles are leaving many to wonder whether the company will weather the most recent storm of controversies and open the way for competitors, like Amazon and Dish Network—which have launched their own streaming services—to take advantage of its tarnished image. And MSOs have watched the carnage from the sidelines, perhaps with a "give 'em enough rope and they'll hang themselves" mentality.

In the end, it still boils down to content. Netflix's DVD service is still the largest and most diverse source of content available (its streaming service comprises just a fraction of its entire library). Customers who initially may have felt slighted by Netflix's moves could return when they realize how much the company has changed the video rental landscape, both literally and figuratively. Tried renting a last minute DVD on the weekends lately? With the demise of brick and mortar outlets such as Blockbuster and Hollywood Video, the choices have become fewer. Your options are limited to a Redbox kiosk or (more expensive) video-on-demand from your local pay TV provider.

What makes this slightly ironic is the fact that for all the heartburn that Netflix has given to cable/satellite/telco companies over competition, bandwidth consumption, etc., the company's hand in putting the local video rental store out of business is leading consumers right back to the MSOs' video-on-demand services. And of course, Netflix is a vital ingredient in the recipe to "cut the cord," (i.e., mix one Netflix subscription with free, over-the-air TV and voilà—one super-cheap home entertainment service).

It's still too early to determine where this will all end up. IP streaming of video content is still in its infancy and despite Netflix' recent missteps, Hollywood and the MSOs are still debating about the extent of how much the company threatens their business model.

The only sure thing is that Netflix has had a considerable impact on the growth of home video streaming, and that the diversity of options will only grow in the future.

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