But, technology by itself -- no matter how good -- does not a business make. And, in the inimitable words of everyone who works in Hollywood, "content is still king." And, that means that those who own the content are the king-makers. And, those Hollywood owners of content are not willing to anoint Netflix with the crown that most investors believe awaits it.
Instead, this was Netflix's week to be hazed by Hollywood. This was Hell Week.
First, Netflix experienced its first service disruption in years -- the service simply didn't work for anyone for hours. That alone ain't good. But, that is a mere flesh wound as compared with the 1-2 sucker punch that was inflicted by Showtime and Starz this week. Not just on shoe dropped -- both shoes dropped -- and hard.
Earlier this week, Showtime announced that it will no longer make certain ongoing series available to Netflix -- in other words, it is reversing itself and taking back its original content. Why? Because Showtime wants Showtime customers who like those shows to come watch them on Showtime rather than Netflix because basic economics are significantly better. As if that weren't enough, now premium movie channel Starz -- from whom Netflix gets the rights to its most mainstream current movies -- has just announced that it will slow down the availability of those movies. Starz will give itself the first opportunity to make those movies available to the public -- and monetize them via its own service -- and now make them available to Netflix only after 90 or more days when consumers are less rabid about seeing those movies.
This is a powerful -- and disturbing -- 1-2 punch to Netflix. It also may presage a full on Hollywood body-blow to the company.
Much has been written about how Hollywood doesn't want history to repeat itself. Specifically, the media giants ceded the online music business opportunity, in effect, to Apple years ago because they were woo-d by the master "wooer" Steve Jobs. As a result of his charms, they understandably believe that they gave away too much -- waaaaaaaaaaay too much -- and built Apple's business (to the tune of tens of billions of dollars) on their backs. Well, they don't want THAT to happen again in the inevitable mainstreaming of Internet and mobile movie and television distribution (including Internet TV). And, right now, Netflix is the closest thing to the Hollywood bogeyman. A fast growing customer base of millions -- who are being taught the lesson that they can pay $7.99 per month to view unlimited premium video content.
Think about that. Unlimited viewing for $7.99! Of course we love that as consumers, especially when Hollywood built its incredibly lucrative video business on $19-$29 individual DVD sales and $5 one-time video rentals. Netflix's "all you can eat" $7.99/month business model is a very scary monster indeed as compared to the world that was.
So, if the studios can't get that old world back -- which they know they can't -- at least they can keep the new world opportunity away from others. And the #1 "Most Wanted" bad boy in this new world order is Netflix (okay, maybe #2 -- because the pirates always will be #1). So, no more Mr. Nice-Guy. The claws are out. The studios are fighting back.
And, this is just the beginning. This is just the first of many painful weeks to come to Netflix. (Trust me, I wish this weren't the case, because I AM a Netflix user and I WANT a compelling pool of content).
Right now, from everything I read (click on this link to read a particularly compelling financial analysis of Netflix), Netflix's stock price reflects a future reality in which the company must do everything right to meet those lofty expectations. The problem and new reality is this -- THE single most important thing that Netflix must do right in order to grow its subscriber base is to offer a compelling slate of content. But, that "thing" is completely out of its control and in the hands of others. And those "others" are the studios. And, let's face it, playing Mr. or Ms. Nice is not exactly in Hollywood's DNA.
As much as I still want to watch watch watch -- and even though investors continued to buy buy buy during this Hell Week -- I, for one, would sell sell sell ...
