One year ago today, Netflixkilled its hybrid subscription plan, jacking up prices for DVD and video access by 60 percent. Since then, the stock has tumbled more than 70 percent. With streaming costs and competition on the rise, can Netflix stay on top?
Although streaming-service providers such as and Dish Network compete with Netflix, they have yet to pose a significant threat, said CNET senior writer Greg Sandoval. The real competition, he said, is Amazon.com.
“Amazon is the potential Netflix killer,” Sandoval said. In addition to its Prime Streaming service, Amazon offers users free two-day shipping for any Amazon.com order. These deals extend beyond movie rentals — an effective marketing strategy Netflix does not have.
Sandoval said Netflix’s biggest mistake was that it did not consider its customers when it decided to eliminate the hybrid subscription plan, which forced users to subscribe to DVDs and streaming separately. He attributed this mistake to Netflix founder and CEO Reed Hastings.
“[Hastings] didn’t believe in DVDs anymore,” Sandoval said. “He was looking to push the company into streaming, he believed the timing was right, but he didn’t take it to his customers.”
Sandoval argued that Hastings stopped listening to the people around him and that is what led to what he called a “fiasco.” As a result, Netflix lost 800,000 subscribers and its stock plummeted.
In addition, many of the Hollywood film studios, including Starz and Sony , turned their business away from Netflix after the cost increases. This reduced the amount of content that Netflix could stream. However, Sandoval does not see this as a long-term impediment.
“We cannot think of each studio as a monolithic structure,” Sandoval said. “You have fights between the TV guys and the home entertainment guys, and a lot of times decisions are made on whoever prevails there.”
Despite Netflix’s recent rough patch, Sandoval is confident that the movie-rental company can re-emerge.
“I don’t think you should count out Netflix.” Sandoval said, adding that, although the company messed up, its management team has been restructured and it has a strong potential to rise once again. “Reed Hastings is a smart guy,” he added.
In the first three months of 2012, Netflix streaming subscribers rose to 26.5 million. Looking at the year ahead, Sandoval said the winner in the sector will continue to be Netflix. “Nobody’s gonna take them in a year,” he said.
But Netflix’s lead in the movie-rental industry may not last forever. Sandoval warned, “Amazon is the company that Netflix should be worrying about.”
—By CNBC.com’s Madeline Laskoski
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Disclosures:
No disclosure information was available for Greg Sandoval.