Netflix's transformation from darling to goat continued yesterday with a letter saying it probably won't reach its U.S. subscription target this year and that the Olympics should create a challenging near-term environment for the company.
Most fundamentally it seems like as a company they continue to be plagued by doubts over the future of their streaming business. The DVDs-in-the-mail business idea was a clever one, and Netflix got out ahead of it. Then they added streaming content as a logic add-on to that core business. But then they realized that DVDs-in-the-mail doesn't have a long-term future in a world that's clearly going to shift to streaming content over time.
But here it gets a little underpants gnome-y.
My wife are streaming-only Netflix customers and we love it and use it all the time. But the reason we use it is that it has a lot of content that we like. But it's really not clear why this should be the case. Apple makes the box we use to facilitate streaming video, Comcast owns the pipes along which the video streams, and various production companies own the copyrights to the content we stream. Netflix has basically no leverage point in this battle. Right now it has the rights to a fair amount of content that I want to watch, but I see no reason for confidence that they'll be able to continue securing those rights in the long term.
Apple, Google, and Amazon are all moving toward models where they sell you devices that are then plugged into retail ecosystems where content owners price their wares as they please and then Apple/Google/Amazon take a cut. That seems like a fundamentally more attractive model for the content owners than the Netflix model which seems to largely depend on someone mispricing the content to work.