Netflix confuses subscribers with a canny idea...

Price hikes. They are riding on the ECON 101 rule of growth and competitiveness in an industry. From my perspective, I was ok with paying half dozen bucks more a month after I heard the news couple of months ago. I think the money I pay for the service and access to the huge library I get is worth. But I am not on the same page with many of the 23 million domestic subscribers. We all do not need to be...

Reed Hastings, CEO of Netflix, sent an apology email to all domestic subscribers for the current pricing disappointment the company has given to their subscribers. The email also contains a brief on the company's plan to separate their streaming (Netflix) and DVD rental unit (will be named as Qwikster). Why? Why would they do such thing when everyone is still coping with the mess company has recently created? And I can imagine a canny idea behind this.

Internet access is ubiquitous. YouTube, Amazon Instant Streaming, Dish Network's acquisition of Blockbuster library and many more to come to share a pie of video streaming business. Growth is going to be good for next few years. Decline phase is not in sight. While the reverse is the destiny for DVD business which has sluggish growth forecasts and is going to be nearly unseen in next 10-15 years. In simple language, if weak outlook for DVD business persists, then Netflix (streaming only) is a better place to get handsome ROI than Netflix (Current: streaming + DVD).

"Wall Street to Netflix: Try Again". I read that on Twitter. After Hastings's public apology, share price tumbled further. So, a tweet justifies a stock market reaction to this event. But now I do not think alike. This seems like a smart move to me rather than pleasing the investors on day-to-day basis. Growth is not immortal. The more you extend your maturity phase, the longer you survive. And Netflix may have learned that already.

How long can you put on your 3D glasses?

When I graduated from high school, I and one of my friends went for IMAX 3D "show". I did not write "movie" because it was a 30 minutes educational/ informative documentary which we always find here in museums. It was expensive. And rare! Times have changed. Now every Friday, we get at least one movie in 3D to spend our wealth on.

Before 3-4 years, when releasing movies in 3D was not as normal as it is now, it started to change the definition of movie watching on the big screens. Stumbling Regal Entertainment Group & AMC Theatres during the painful recession got some room to breathe. Rapid rise of 3D movies boost the earnings for Regal Group, RealD and the hopes for an IPO for AMC. Entertainment sector was almost back on the track with the 3D hits like Toy Story 3, Avatar, Transformers and Harry Potter. Then AMC postponed their IPO plans. Why?

• 3D Burnout- Excess leads to an destruction. Well said! Burnout is the term often used during mortgage refinancing phase for prepayments. When rates are low, you refinance the loan by prepayments. After few years, when rates become lower again, you have nothing much left to refinance. Same applies here. 3D movies and its craze cannot be placed in the category of sustainable items.
• Online movie providers- Ah! Internet is killing everyone. Surge in the paid subscription based online movie providers like Netflix, Amazon, YouTube have clearly staged their competition with these entertainment giants.
• 3D TVs- Dance until music stops. And that is the reason why we can see the brand new isle of 3D TVs at Best Buy or Wal-Mart stores. 

RealD does many innovative things. It recently launches "Wimbledon 3D" for 2011 Grand Slam. Beautiful. Wimbledon 2011 is still in progress, but still RealD stock is suffering today. Why? It is because of less than expected, not poor, box-office performance of Cars 2 which also released in 3D during last weekend. It is a lovely example of positive correlation, isn't it?

Let's see how long we are able to witness the entertainment industry's fight against sustainability and volatility.

"Let's assemble new Netflix." says Dish TV?

OK. I had knocked the right door when I heard about the bankruptcy filing of Blockbuster back in the last year.   Looking at the swaggering stock performance of Netflix over the last two years, I thought of a potential deal of buying Blockbuster. And Dish TV has finally done it. With that, an array of acquisitions in media & cable industry continues.

I believe the impetus behind this $320mm deal is:

• Blockbuster has phenomenal collection in their library and it used to reign the movie rental market cleanly just before Netflix started to expand exceptionally.
• Looking at such potent parameters, distressed value of $320mm seems like a handsome investment.
• Subscribers do not need broadband connection to play content offered by Dish TV. This factor may become critical after AT&T and other broadband providers start putting "already announced" cap on internet usage.

If you cannot compete with expeditious NFLX, you have to build new NFLX. I will not be surprised if Dish TV has this gimmick behind the scenes.

Unforeseen rivalry for Netflix (NASDAQ:NFLX)

Since its inception in 1997, Netflix has risen phenomenally. I still remember the stock price of NFLX was around $50 in the summer of 2009- in the midst of the great recession when I joined Netflix community as one of their over 10 million subscribers. I like this concept of movie-watching and so do the Americans. Since then it has increased fourfold and is seen as one of the bullish stock on the Wall Street.

Netflix has seen many competitors in the American market like Blockbuster Video, Movie Gallery and Hollywood Video. It is solely considered responsible for bankruptcy and shrinkage of those ubiquitous DVD rental chains. And now a days, it is successfully dominating this sector of industry despite of some substantial competition provided by Coinstar's Redbox.

The most buzzed topic on the Wall Street in recent times is bubbling and bullying "Social Networking Industry". Star bankers from everywhere are following these private companies like Facebook, Twitter to help them go public and cash in billions for their banks like it happened during Google's IPO. Netflix's business model is nothing to do with social networking industry. As we studied in ECON 101, competition lures new entrants and squeezes the mature companies. And Netflix is not an exception. But the competition it is going to face, seems unforeseen and out of theory. It has deals with a number of studios like MGM, Paramount, Lionsgate, Warner Brothers etc. to stream or rent their movies after they release DVDs. Studios have earned handsome money from Netflix's expansion. But recent deal between Warner Brothers and Facebook is eye catching to me.  Why would someone take such a cannibalizing step?

• Buzzing atmosphere around social networking industry.
• Facebook has 500 millions subscribers; the way bigger than Netflix has.
• Impetus for linking yourself with social networking giants like Facebook is skyrocketing these days.

To me, it is not clear yet. But Netflix suffered immediately after this news and justified analysts' skeptical recommendations for NFLX. I have not made any valuation for NFLX, but based on my market insight I would love to HOLD for NFLX.