Oh, how the mighty have fallen. Netflix (Nasdaq: NFLX), once the darling of over-the-top video services has fallen on hard times; its stock swooned from more than $300 to $137 this morning. It is, as one analyst puts it kindly, losing momentum, and actually looking at flat subscriber growth and even (gulp) possible erosion.
What went wrong?
"In How the Mighty Fall, Jim Collins identifies five stages of decline of mighty corporations:
- Hubris Born out of Success, leadership becomes arrogant, as it considers success an entitlement--stock heads to the moon as investors chase after the stock;
- Undisciplined Pursuit of More, reckless behavior sets the company at great risk-stock continues to climb;
- Denial of Risk and Peril, failure of leadership to recognize and address risks-stock peaks;
- Grasping for Salvation, a sharp decline visible to the public-investors flee in all directions--stock falls sharply; and,
- Capitulation to Irrelevance or Death--growth declines--stock out of favor.
Netflix CEO Reed Hastings this week apologized to the company's subscribers for not doing a better job explaining a recent price increase that had caused subscribers to flee, or at the very least to consider leaving the service. Some 10,000 comments left in response to his apology indicated the general feeling was that his apology was somewhat less than sincere.
And, as soon as Hastings issued the apology, he dropped yet another pebble into subs' shoes... Netflix was separating the DVD service from the streaming service, creating two companies, two websites and two bills.
That might not have been as much of an issue six months ago when Netflix was, essentially, the only game in town.
But, there's pressure from below from Apple's (Nasdaq: AAPL) iTunes, Amazon's (Nasdaq: AMZN) Instant Watch and the soon-to-be-launched Blockbuster streaming service from Dish Network (Nasdaq: DISH), among others.
Dish, looking to make hay while Netflix flounders, said it'll announce pricing and other details about the service on Friday, with an October launch planned.
Suddenly, the $320 million Dish laid out in April to buy Blockbuster in a bankruptcy sale doesn't look like such a bad move.--Jim