Netflix: Riding a Death Spiral to Insolvency
One of Hastings' latest memes gobbled up and passed along to clients, CNBC anchors and the general public by Wall Street analysts: Netflix uses the treasure trove of viewing data it collects from its subscribers to make better-informed decisions on what type of content to license and produce. As per usual, Hastings' public perspective only tells part of the story.
There's no doubt Netflix can analyze the Netflix content Netflix subscribers watch and use it to guide future buys. Of course. But these data aren't nearly as valuable as Hastings would have you believe. That's primarily because the hours of viewing statistics Netflix looks at represents a relatively small portion of the overall content Netflix subs view. I feel comfortable making this assumption. Much more comfortable than I do simply accepting Hastings' contention that he has some sort of edge because he can analyze Netflix usage habits.
In some cases, I argue that the analysis of these numbers exposes one of Netflix's inherent weaknesses: it cannot secure premium content if it continues to effectively give it away -- unlimited -- at its $7.99 per month price point.
I'll relay two pieces of information to support this contention.
First, the one that practically every analyst chose to ignore and somehow managed to spin positive. You have to go back to mid-2011 for this.
On its company blog, Netflix referred to the Sony thing as a "temporary removal." Not true. At the time, over on Seeking Alpha, I defended Netflix against the notion that it did not properly warn investors that something like the Sony move could take place. It did, quite clearly, in the risks section of its annual reports.