Posted by 5 October 2004

Newsflash! Netflix makes MORE by selling LESS!

Don’t we all wish we had such a stellar business model? In what could go down as the joke of this earnings season, Netflix gets a pop today after announcing that it will make MORE money because customers are buying LESS. Next, traders and investors will get excited when Netflix announces they are saving money by offering fewer movie titles…and only the worst movies to boot. That will reduce operating costs AND get customers buying less. Only one more step to just driving those pesky, margin-draining customers away for good! Wouldn’t we all like to make money by selling nothing to noone (or is that everyone?)? :D

“Netflix Announces 73 Percent Year-Over-Year Subscriber Growth for the Third Quarter; Raises Guidance for GAAP Net Income”

(I highly recommend you check out any of the many articles commenting on this news).

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Comments

  1. Posted by Michael on October 5, 2004 at 11:17 am

    LMAOROTFL! As the great Don King would say — only in America. As I told you earlier today, those clowns may actually drive me away. I’ve been a NetFlix subsriber since 1998 and I never thought I’d leave, but the price increases combined with all the content stored on my TiVo is making NetFlix less attractive all the time…

  2. Posted by Duru on October 5, 2004 at 11:44 am

    Alright NFLX flippers! You hear that!? Even MIKE is getting fed up with NetFlix! Proceed appropriately!

  3. Posted by Charles Kirk on October 5, 2004 at 11:54 am

    As always, nice job Mike!

  4. Posted by C. Maoxian on October 5, 2004 at 12:47 pm

    I use Blockbuster’s Netflix-like service here in the UK and I have to say I envy you Netflix guys… the only titles available to me are the Porky’s Trilogy and Showgirls. ;-)

  5. Posted by Michael on October 5, 2004 at 12:50 pm

    Kirk, I wish I could take the credit but that was Duru’s post. You see why i’ve been trying to turn him into a blogger. I will take the credit for recruiting him though. :-)

  6. Posted by Brian on October 7, 2004 at 9:21 am

    The release didn’t say subscribers were buying less — it said they were renting less.

    Assuming consistent subscription levels, when subscribers rent fewer movies Netflix will incur lower costs (s&h), higher margins, and higher profit.

    To couch this as “making more by selling less” distorts the press release. The company sells subscriptions. The movie rentals are essentially free. If they can sell more subscriptions and give away fewer movies, they’re going to make more money!

  7. Posted by Duru on October 7, 2004 at 3:29 pm

    Brian, you are technically quite correct. But the point of this slightly tongue-in-cheek piece was to poke fun at the folks who bought the stock and/or got excited on this news. At its core, NFLX’s business model is not sustainable, and this is why shorts are all over that puppy like, well, like fleas on a mutt. As Mike intimated, NFLX is being forced to raise subscription prices to compensate for those customers who take profligate advantage of the *rentals*. Eventually, NFLX will have to start charging *something* for each *rental*, or they will have to maintain very high subscription prices which will force out the occasional renters. But hoping your subscriber base decides NOT to use the very services they paid to access sounds like a loser over time…but that’s just my humble opinion.

  8. Posted by Brian on October 12, 2004 at 2:01 pm

    Duru, I agree with your analysis. Just wanted to point out the difference between NFLX’s “rentals” vs “subscribers”. (I.e. where the costs come from vs where the money comes from.)