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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:
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DGA President Taylor Hackford and host Kelsey Grammer speak onstage during the 64th Annual Directors Guild Of America Awards held at the Grand Ballroom at Hollywood & Highland on January 28, 2012 in Hollywood, California.
Directors Guild of America President Taylor Hackford went on "The Patt Morrison Show" on Wednesday to offer withering opposition to the opponents of SOPA and PIPA, the two pieces of federal legislation that are intended to halt the scourge of online copyright piracy and, if you believe Hackford, to preserve the gainful employment of many thousands of entertainment industry workers who make far less money than he does ($50,000 a year, on average).
You certainly can't begrudge Hackford his defense of the "artists" against the Internet ruffians. He's made some fine films, including "An Officer and a Gentleman" and "Ray" (we'll forgive him "Against All Odds" and the improbable ballet-tap Cold War mashup "White Nights"). He's on his second go-round as the DGA prez. That said, he could have done a better job of dealing with Patt's question during the segment about the Hollywood business model.
Netflix CEO Reed Hastings has stuck a fork in Qwikster, the briefly lived spinoff of the company's DVD rental business.
Netflix has backtracked on plans to spinoff its DVD-rental business into a separate company, Qwikster — a bad move that has been resoundingly ridiculed everywhere bad moves can be resoundingly ridiculed. The cost is that CEO Reed Hastings now looks like a nincompoop, whereas before the Qwikster debacle he looked like a man who knew the future.
That's part of the problem, of course. Hastings grasped that the DVD business wasn't sustainable over the long haul. The future lay with online streaming. But to build that business, Netflix needs to license more content from TV and movie studios. The game plan was to raise subscriptions to generate the needed revenue and begin to phase out the old DVD business.
Hastings has been speaking directly to customers via Netflix's blog. His message is small miracle of concision in the ongoing hell that has been the needless messing-up of once-beloved, now-embattled Netflix:
The grocery workers union comes to tentative terms on a new contract with the Big 3 chain stores in Southern California. No details, but early indications are that the stores made concessions on health-care funding. But this would be a take-back from the 2007 negotiations, when the union and the chains agreed to underfund the healthcare surplus. (KPCC.org)
Netflix (NFLX) is getting hammered again today, after the decision to spin-off the DVD-by-mail business into something called "Qwikster," which is now dangerously close to to becoming a word that people use to characterize the destruction of market value. "Remember those guys?" "Yep, they were riding high and then they pulled a Qwikster." Sort of reminds me of Research in Motion (RIMM) introducing a tablet with no native email. #Fail (Google Finance)