A controversial move by CEO Reed Hastings of Netflix has sent the company stock into a free fall. Netflix (NFLX) seemed to be owning the entertainment content world with streaming movies, TV episodes, and shipping disks straight to your house for around 8 dollars a month. It seemed like almost too good to be true. Obviously it was, with recent price hikes.
What Netflix did to gain its immediate success was implement an amazing business model, shipping DVD's through mail. They cut out the cost of retail stores, excessive employees, and gave the benefit of convenience by shipping to folks straight at home.
The thing that Netflix got right was to utilize the web as an effective means of selling. However like all too many companies these days they got a little bit too comfortable and could not transition along with the highly adaptive internet. Their business model was becoming weaker as they dove into the world of streaming content along with their DVD service still in tact.
Streaming costs are extremely costly, especially for unlimited use per month. For example STARZ, was using Netflix as an outlet to broadcast some of their content, and was a big part of Netflix's online library. However, with Netflix charging 8 bucks, and a subscription to STARZ on cable is 15 bucks a month, it is easy to see why Netflix could not renew their contract. The rising costs of streaming content was cutting into their profits in a big way, and the improvised skewed business model of streaming and mail order content, was simply not holding up.
Then Netflix made an even bigger mistake. Without a warning, Netflix raised prices 60% in order to cover costs and maintain profits. Sounds pretty stupid. Regardless, someone at the top made the decision, and I understand the underlying reason why. It simply isn't profitable to have both services mixed into one, especially when streaming seems like it will be the wave of the future. Now they have branched off the new company coined Qwikster, to handle their DVD mail orders.
This seems reasonable. Except now customers have to deal with two different websites, and do not get the total access of streaming content and unlimited DVD's sent by mail.
Now the marketplace is seemingly wide-open for someone to attract a magnitude of new customers, including the disgruntled customers of Netflix. The replacement, if there is to be one, is up for grabs. Someone like Apple, Google, Dish Network, or Time Warner could be likely candidates.
One that stands out for me is Dish Network. If you are familiar with the company is Dish Network, then you know they offer a premium cable service that includes DVR's, On Demand, HDTV, and all for a pretty good price. The other interesting concept of Dish Network, is they own Blockbuster. Yes, remember Blockbuster? Not too long ago Blockbuster was the powerhouse of the video and gaming rentals. That is all before Netflix blew them out of the water.
If anyone wants revenge on Netflix it is Blockbuster. Now Blockbuster themselves could not seemingly do this by themselves, but now that they are backed by cable provider Dish Network (DISH) that boasts a healthy stock, they could really attract some new customers.
This Friday, Blockbuster (BLOAQ) and Dish Network plan to unveil there new package that they are calling "the most comprehensive entertainment package ever." Now what exactly this will entail, has been kept under the rug thus far. However, insiders are saying that the Blockbuster subscription could even be a part of the Dish Network cable plan. Of course this probably won't have customers rushing to have a a satellite dish installed on their homes, but is a nice additional feature.
So what does this mean for Netflix and Blockbuster? Netflix has everything to lose, Blockbuster has everything to gain. Class A stock for Blockbuster stock is trading around 8-9 cents per share, as opposed to $125 for Netflix. I know one thing, Blockbuster has an opening, a powerful company backing them, and a competitor who is making huge mistakes. When all that comes into play, I think I may just buy some shares of Blockbuster while they are still cheap. In many eyes, this is the perfect situation in which some penny stocks could really see some substantial growth. This Friday Blockbuster's new plan will shed a little more light on the overall risk of investment. For the number of shares you are getting, and for the price, I say buy!
This article was written by Ben Anderson. Ben is a marketing and sales professional. He has immersed himself onto the internet providing many different White Hat SEO tactics to help your site rank. One of the ways he can help is through comprehensive link building services.