Netflix feels the wrath of consumers, investors - Page 2

Interesting blog on HBR about this:

http://blogs.hbr.org/cs/2011/09/netf...nnovation.html

Of course I probably like it because it agrees with my "innovator's dilemma" perspective.

Regarding not listening to their customers, sometimes they make decisions based on what they know they are going to do in the future that their customers are not privy to. In retrospect, the decision to not allow 3rd party developers to code tools that allow you to manage your queue may have been based on the business changes that were in the pipeline.

Netflix stated its mission at one point as "making it as easy as possible for customers to watch as many movies as possible." That gets to the core of what people want, in an unfiltered way. If you are doing both of those things better than your competitors in terms of price, convenience, customer experience etc. then you are likely enjoying the pole position. If they do things that run counter to these principles, which are pretty self-evident and self-explanatory, then there is almost certainly a business decision driving the process.

ppv's are reaching critical mass now.
http://www.homemediamagazine.com/red...l-kiosks-21413

About the same as Kiosks right now (including netflix subs, I think), and growing fast.

Probably reaching the point where studios will nudge acceptance further. They started this with 1 month delays for Redbox and Netflix. Summit is playing with VOD 3 weeks ahead of physical disc sales even http://www.isuppli.com/media-researc...a-release.aspx

If they stretch these windows out to 3 months, discs will really start dying.

Probably the inevetible model is $5/day ppv window for 3-6 months followed by netflix/amazon/starz/hbo/etc getting streaming rights about the time redbox/quickster gets the dvds. At that point disc rentals lose their cost advantage, and dvd/blu rays become as common as CDs.

My issue with the traditional “innovator’s dilemma” type hipster business books is that they always compare (favorably) “big companies” that make bold moves as akin to new startups. Yet they only really look at successful moves.

Unlike small/innovative startups (that more often than not) flame out and run out of money long before anything meaningful gets done, large companies have a lot of (investor’s) money to burn through while they “nimbly” turn the ship about over the course of a couple of years.

That’s not to say that a company shouldn’t make decisive moves, but there is also something to be said for public companies making positive cash flow/dividends for their investors too.

Small startups using VC funding to get a long shot up and running is fine, VC go into it with a gambler’s mentality. Traditional investors tend to get taken on a roller coaster ride that they never signed up for when they invested. Case in point, how many investors were knowledgeable of where HP’s was going to take them 1 year ago? Further, how many of the “innovator’s dilemma” wonks are currently writing case studies and supporting their arguments based around how badly HP has managed its playing cards the last 6 months?

This isn’t a direct comment on Netflix’s moves, but a general comment that “bold moves” aren’t always “good moves” when talking about large companies with specific responsibilities owed to its public shareholders.

-Suntan

Yea!!!! I like hearing this news. This is a reminder to the business community that the consumers will always have the power. This is a small victory for the consumer. It may not matter in the big picture of life, but this is a big blow to the cor-politicals. This is also a small victory for all of the consumers who have been scammed, cheated, ripped off, lied to, and defrauded. My grandma used to say to me, everybody wants your money. Now that I have grown a little, I now understand what she was talking about.

I think the basic premise of the innovator's dilemma is sound. Is it an airtight, uniform law of business nature? Of course not. But it is a logical dynamic that is highly applicable in times of rapid business transformation in certain industries and sectors.

The the point of the innovator's dilemma is in fact what you describe: large corporations that that make business decisions based on what it will mean for the stock and investors in the next few quarters, despite having the cash and the resources to invest in transformation that would ensure their survival. The point is, it's *not* easy and one of the things that makes it so difficult is accountability to the street for numbers that continually increase the stock price. That is the rock vs. the hard place of disruptive events in their industry.

As for Christianson only focusing on successful big companies that bet on transformation, I'm trying to think of any examples of large companies that have bet big on future of their business, been wrong, and been badly punished for it and I can't think of any. On the other hand the list of large corporations that continued doing what has made them successful and as a result been marginalized even put out of business is quite long.

That's not to say every company is definitely faced with some disruption in its future and should be burning through cash casting about for ways to transform itself. But but in the face of some "clear and present danger" when rationally envisioning the future of one's sector, investing in the future vs. the next quarter or two is a wise if painful move.

As far as HP goes, I think they did the right thing, although five years later than they should have. Look at IBM which divested itself of its PC business eight years ago. It's stock has more than double and it's enjoying a market cap 4x that of HP. I think that the street's response to HP is actually more to do with how inept the board is and finally tiring of the revolving door at the CEO position.

That's because a lot of companies in that situation just re-adjust course and go back to what they were doing long before they run out of money (GE with its broadcast division and Capitol division.) Or in more dire straights, what remains of their market capitol usually gets eaten up by a bigger company that didn't make bad choices and that company just gets looked at as a continuing of progress within the new company. Or they simply fade out of relevance in a manor that looks just like a company dying from lack of reinvention.

In any case, look at Palm, NCR, AOL-Time Warner, and of course HP right now (to early to tell how they come out of it though.) Those are just some off the top of my head that have taken a beating in market value (or gone completely out of business) due to new strategies that didn't pan out.

-Suntan

Well the assumption is that you're *right* about the transformation that is taking place. If you're wrong then yes, you're very possibly worse off than if you had stuck with your bread and butter. I would posit that all of those companies are ones that did not do what they needed to adapt to a changing landscape perhaps with the exception of NCR.

AOL is a company that just made some bad decisions based on some bad premises and a huge helping of hubris. I did some consulting work for them after they acquired Netscape. The plan was that they were going to integrate an electronic wallet into the browser and use that to become the B2C e-commerce center on the internet. It was a gross misreading of where things were headed and was symptomatic of the company simply not understanding that the net was headed towards a different paradigm. They could have been Google or Yahoo but instead they stayed with what their growth had been built on...and of course the Time Warner merger was a doubling down on an incorrect reading of the tea leaves.

Palm was just a poorly managed company that did not invest in their core asset. They could have been the iPhone but they did not have the vision or the human resources to make it happen. Particularly ironic given that the Palm Pilot was the conceptual and commercially successful offspring of the Newton.

Unless those consumers are buying or selling stocks these they have NO power. Consumers have a lot less effect on the markets then they think.
Investors and stockholders have the power for they actually causing markets to move be it up or down. If you don't buy a stake in the game you're not in it.

Good try, but wrong. If people stop buying the product, what "idiot" investor is going to buy the stock? Consumers have almost total control under capitalism (system obviously is distorted by something like Solyndra when the government invests in what they think should win).

Investment decisions are made on projected value of the stock versus other investment options. Nothing affects projected stock values more than projected earnings. You would have a hard time finding something that correlates to earnings more than demand (i.e., demand/consumer is the key).

Not entirely true. Consumers have a lot of power. It is just that as a whole, they don't use it. There are usually *a lot* more consumers than there are shareholders. What's more, consumers tend to be less bothered about the happenings of any given company they patron, whereas stockholders (at least the ones with enough shares to make ripples in the stock) take a very interested look at what the company is doing. Finally, consumers really only care about the end result, which often happens weeks to months after a company implements a new strategy. Stockholders are on top of it as soon as it is released in a 10-Q.

So you need to really make substantial moves that reach all the way down to the end user to get a large enough group of consumers to take notice. You only need to *forecast* bad news to get shareholder's attention.

-Suntan

I agree that their streaming model is under seige. The studios would love to see the "all you can eat" model go away. I'll also agree that I wasn't too upset about the price hike.

However, I am pretty mad about the separation of the two offerings. I really liked the ability to find movies I liked and either add them to my instant queue or my delivery queue right from the same place.

Not true. Look at Blockbuster, or Borders. Both of these companies lost customers and lost sales. Forecasts slipped, the stock price followed, and then the squeeze for capitol finished them off. Consumers are actually the catalyst at the head of this chain of events.

The issue is that consumers do not generally have proactive control. When a company loses customers it usually happens over a period of time and as a result of increased competition, decreased quality or product fit, or some other deficiency of the company.

Companies that do exceptionally well on the stock market are those that consistently provide their customers with what they want in terms of product performance and quality and do it at a profit. The street trusts them as well managed companies that can execute. If a company loses touch with their customers then their numbers will show it and the street will punish them for it.

In textbooks, many times the street acts like a badly run casino where no one knows the odds.

I don't think textbooks are a good place to look for information on how the street acts.