News so important it interrupts our normally scheduled Friday Fast Four. So important that we’ve upped our word count by 100.
First, we shall break our arm patting our back. Our prediction for this year’s July back in December 2010:
“The financial press is awash in headlines like ‘Netflix: The Best Short Ever?’…”
On July 13th (!!!) Netflix hit its all-time high, just short of $300. Since then it has slid, tripped and finally tumbled to $170. For those that shorted Netflix on the right day, you just made a return of 43%. You can thank us later.
Now to a bit of analysis about Netflix that you will not read anywhere else.
The blogo-rhea is flooded with knee-jerk “examination” of yesterday’s terse but honest guidance from Netflix management. Even Wall Street followed suit (!!!), cutting the share price by nearly 20%. All of this driven by a 2.7% reduction in forecasted subscriber count (and not an “actual” loss as some dopes are reporting).
Because almost all of Netflix’s reduced guidance is from DVD-only subs, here is the typical reaction by bloggers, many who should know better: “Netflix raised its prices too much.”
Here is what you should really think about. Someone in the corporate strategy department at Netflix fuxed up the forecast. Here are two inputs he or she messed up, and you can also take these as learnings based on the revised guidance.
1) The 800,000 subscriber overestimate in DVD-only means this (and sorry for the caps, but we don’t want skimmers to miss it):
NOT AS MANY HOUSEHOLDS ARE PREPARED TO GO OVER-THE-TOP AS EVERY PUNDIT WITH SIX “CONNECTED” DEVICES BELIEVES.
There are simply too many households without the wherewithal – money, equipment, or knowledge – to watch “TV” on a laptop and/or hook a laptop to the crappy old TV set they own.
Now, as a set-up to the Netflix forecasting mistake/learning #2. Where did those 800,000 go? Notice the Netflix streaming number was also reduced, by 200,000. WHERE DID THE 800,000 GO?
2) The drop in Netflix’s streaming-subscriber guidance means this:
NETFLIX IS MAINLY A SUPPLEMENT TO PAY TV. NOT A REPLACEMENT.
The 800,000 will simply rely on their CURRENT cable or satellite provider for video entertainment. The new, much higher price from Netflix adds 20% or more to the monthly household “TV” outlay.
These households just don’t have the funds for it. Now, and for a long time (see long-term unemployed; and U.S. poverty rate).
Only loyal Lairig Marketing readers will see this Netflix analysis of course. The same ones who could have told their neighbors to get out of NFLX stock in late June or early July.