Explaining Southern California's economy

Hollywood needs Netflix, but Netflix is struggling

Netflix Reports Third Quarter Earnings

Justin Sullivan/Getty Images

Netflix disappointed Wall Street with its second-quarter earnings. It's trying to get out of the business of delivering DVDs by mail while it grows in online streaming.

In a world where people watching movies and TV shows online is a trend that's absolutely taking off, you'd expect that the biggest name in the streaming space, Netflix, would be doing quite well. And you'd be justified — but also quite wrong.

First, the streaming part. This is from The Wrap, referencing a recent report from the Digital Entertainment Group and looping in Netflix's major business-model change:

The five-fold spike in subscription streaming is largely due to Netflix’s shift away from CDs. Spending on subscription streaming hit $548.6 million in the first half of 2012, up from $85 million in the first six months of 2011. [my emphasis]

How could Netflix lose with increases of that magnitude being posted? Easy: All that demand for streaming means Netflix is going to have to spend and spend hugely to feed the demand. Wall Street is concerned about this — as well it should be given that the former darling of the Silicon Valley tech world just saw second quarter earnings call by a whopping 91 percent. USAToday does the numbers:

Read More...