Now HERE’S a puzzler for to puzzle on, folks–despite the fact that Netflix is making money hand over fist, bringing in new subscribers like no tomorrow, and keeping up with future developments like crazy, the Wall Street Journal is making the recommendation to sell as frantically as possible.
Despite the fact that the Journal actually admits that the company’s numbers are “solid”, they’re still issuing a sell recommendation based on this:
“Earlier this year, Netflix management stated that the company will manage its operating margin to a 10% ceiling, and that it will reinvest any excess profits in either higher marketing spending or higher payments for streaming content,” Pachter wrote. “If this policy is adhered to, earnings growth will be limited by revenue growth.” He noted that as more customers subscribe to Netflix simply for streaming movies, Hollywood studios are likely to increase the pressure on the company for higher royalties.
I really don’t think the Journal’s right on this one. Seriously, they’re not throwing over their DVD subscriber base FOR streaming movies! They’re ADDING IT ON! They’re being forward thinking, guys…trying to put the pressure back on the studios to KEEP them from demanding higher royalties. After all, if stuff like Epix keeps going up, Netflix is going to be seriously hard-pressed to keep their market as the distributors handle the duties themselves. Netflix, meanwhile, can present themselves as the value provider by virtue of having a wide audience already in place, something things like Epix would have to build up before they can make a play on Netflix’s numbers.
Building a network costs money in promotional costs. Netflix already has it. Why build when you can move in?