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David Poland

By David Poland

More Netflix Hype: Citibank Edition

The Netflix headline of the day is “Analysts: Netflix Has Fully Recovered From Its Qwikster Debacle”

Citibank is bullish on Netflix. Good for them. But the logic, as laid out by PaidContent, is bizarre.

Although it is constantly been repeated as a fact, It is a to stretch one fact into a false perception to say that Netflix recovered from the Q3 loss of customers. The fact is, as offered by Netflix, that in their domestic streaming business, which is now their core business, they lost another 350,000 paying streaming customers in Q4, ending Dec 31. Q1 2012 doesn’t close until the end of this month. The company did add 581,000 FREE subscribers in Q4.

Netflix also lost 2,774,000 domestic paying DVD customers in Q4 with a marginal increase of 11,000 free DVD subscribers.

In combined domestic (Streaming + DVD), paid customers were up 15,000 in Q4.

The one area of real growth for Netflix in paid customers was internationally, up 458,000 paying subscribers. But expanding the business into new countries, which Netflix has openly acknowledged is not going to be a profitable business for years, isn’t really the same as recovering from the domestic losses of Q3 2011.

Citibank’s report apparently relies on the notion that Netflix’s paid domestic subscriber base will continue to grow. There is no reason to make that assumption. There is no specific reason to assume that there will be a massive exodus of subscribers either. But leaps of faith about a company in a significant transition seems sloppy, at best.

The second big issue is that Citibank is assuming that Netflix’s Cost of Revenue will be $2.1 billion in the next year… when Netflix’s Cost of Revenue was $1.1 billion in the last 2 quarters. So the theory is that Netflix is done spending on content?

And this brings me to the third and most serious problem with the oddly timed Citibank report. Netflix has, in the last month or two, opening admitted to a new paradigm… TV-programming first.

The assumption that the only issue facing Netflix is today’s customer satisfaction and that the only problem in the last year was “the Qwikster problem” is a sad joke. The company – which I still think is a terrific and interesting addition to anyone’s media mix – is not in the same business that it was in just 2 weeks ago. And the response from customers is not likely to settle in for another 3 or 4 months. The timing of the Citibank survey makes a mockery of its results. It’s not valid.

No question, one of the first steps for Netflix to get back to a growth mode is to stop the talk about it stepping backwards. But why is Citibank carrying their water against some very basic logic? Why is the media so anxious to help Netflix turnaround by continuing to run the myth instead of the not-that-ugly facts?


4 Responses to “More Netflix Hype: Citibank Edition”

  1. storymark says:

    David v Netflix: Round Whatever.

  2. David Poland says:

    Sorry, Storymark, but that’s just simplistic.

    I know that readers prefer the legend to the facts every bit as much as hack reporters enjoy lingering in them. But the truth is the truth and bullshit is bullshit and I don’t really care that I have to repeat it.

    As you certainly didn’t notice, I’ve been on the right side of this story for 18 months.

  3. Bennett says:

    i like your netflix perspective David. I may not always agree with you but I respect and appreciate your work…

  4. David Poland says:

    Oddly, it becomes less and less about my perspective, Bennett, and more and more just keeping the spin in check.

    As I was writing this piece, I realized that I wasn’t actually offering my perspective on the future of the company at all… just pointing out details that others seem to want to overlook as they drool over their precious.

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