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Netflix Supporters Rise Above the Din

26 Oct, 2011 By: Erik Gruenwedel

Dumping on Netflix has almost become sport; now its supporters are making themselves heard

Lost in the hullabaloo surrounding Netflix’s corporate missteps and freefalling stock valuation is the reality that the subscription video-on-demand remains (currently, anyway) quite profitable. Indeed, Netflix revenue and earnings per share beat Wall Street estimates.

Following days of Netflix bashing when the Los Gatos, Calif.-based service revealed that it lost even more subscribers than previously expected and that it would post quarterly losses beginning next year, Wall Street and media supporters released reports praising the service and CEO Reed Hastings.

Writing in The Wall Street Journal, Holman Jenkins contends Netflix has made mistakes but is “not doomed,” and instead should be rewarded for molding a business model for the future (streaming) not the past (DVDs).

“Netflix's great innovation was not the discovery that there's a market for streamed content (which surprised nobody). … [Its] great innovation was a price point — a bunch of [rental] choices for less than the price of a movie ticket,” Jenkins wrote.

Eric Wold, analyst with B. Riley & Co. in Santa Monica, Calif., and longtime Netflix advocate, reiterated support for the service while also lowering future estimates. The analyst believes most of Netflix subscriber cancelations already have occurred. Wold cited the prolonged losses in Canada and internationally for the revised projections.

“While we are disappointed by the projected level of losses, we continue to believe that expanding internationally is necessary to the long-term growth of Netflix,” Wold wrote in an Oct. 25 note. “Therefore, we are going to remain positive on the long-term international outlook even with this news and believe that the additional spend (made possible by Netflix’s domestic positioning) will drive consumer awareness and market share at the expense of its competitors.”

Finally, David Hamilton, assistant managing editor with CNET News, likened Hastings to a modern-day visionary overseeing a “disruptive technology” that recognized the “stagnation” of DVD and potential of streaming. Hamilton said Netflix’s failure to renew its Starz license deal was more about Hollywood’s greed, and underscored his (questionable) belief that the studios need Netflix more than vice-versa, due to cord-cutting and piracy.

He said Netflix’s business model is well-positioned to capitalize on a basic economic tenet, namely that in a perfectly competitive market, a product or service’s retail price will fall toward the marginal cost of distribution.

“Netflix is still in the right place at the right time, [and] with a very competitively priced service,” Hamilton wrote.



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