There was once a nationwide chain of video rental stores that dominated the industry so completely that they couldn’t see time passing them by. They couldn’t believe that someone was smarter than them. They couldn’t adapt to the changes in their business and didn’t know what their customers wanted. I’m talking about Blockbuster, of course. Netflix (NFLX: NASDAQ) reinvented dvd rental with their direct mail service. People were more than happy to select their movies online in a queue and then wait for them to arrive. Blockbuster’s response to the threat of Netflix was to try and reinvent their stores to make it more of an experience. They started selling movie size candy, popcorn and even played with the idea of selling big screen tv’s. This failed, of course. That’s why Blockbuster went away. That’s why the stock went to zero.
A few years ago, the powers that be at Netflix decided to jack up the price of the service and spin off the mail order dvd business. The result? The stock went from about 180 to 60. The response to that from Netflix? They decided not to change. A loss of a few million subscribers will clarify things for you a bit, ay? The CEO was about to go down as one of the worst decision makers in corporate history. But they listened to their customers and have endured.
I would suggest that Netflix now finds itself at a similar crossroads. Last week, Disney (DIS: NYSE) announced that they will be removing their content from Netflix after 2018. Disney will be starting their own streaming service. It would be reasonable to think that others will follow suit. What does Netflix look like five years from now? Good question. Maybe they will be acquired or maybe they will acquire someone else. Seems like they would be more likely to be acquired given their recent financial results.
Netflix has been a major beneficiary of and a strong catalyst for, cord cutting. I don’t think old style cable of “three hundred channels of nothing on” for $150 per month will be back in vogue anytime soon. The set top box makers like Apple (AAPL:NASDAQ) and Roku could benefit as the aggregator of content providers as opposed to the aggregator of content, which Netflix now is. Maybe Netflix will become a channel in an of itself, if they can produce the original programming and/or make the right acquisition. When you think of that, it looks an awful lot like the cable television packages which are now on death row. The more things change, the more they remain the same.