A move by US online content distributor Netflix to establish an Australian operation up against Foxtel, Telstra and Optus has been put on hold with analysts tipping that the Company will be acquired by the likes of Google or Amazon who are two Companies that are currently expanding their Australian operations with a view to delivering movie and TV services.
The decision to halt Netflix’s International expansion plans came after the Companies share value slumped 40% overnight when the Company revealed that their US subscriber numbers had fallen by more than expected and that its International expansion was set to push the Company into the red.
The stock fell 40 per cent in the first minutes of trading but climbed back 4% during the day. Netflix said that their International expansion was bleeding the Company of cash”.
They also admitted that the Company had lost 800,000 subscribers in the third quarter and projected far slower growth for the rest of the year and early 2012 than investors had expected.
The consumer exodus came after a series of public gaffes over the last few months including a surprise pricing change that raised some subscribers’ fees by 60%; the impending loss of recently released movies from Sony Pictures and Walt Disney Pictures and a hasty retreat from plans to separate its DVDs-by-mail business into a new brand called Qwikster.
Back in July Netflix shares were worth $300, today they have slumped to $75 from $118 on Monday. The fall happened after a series of gaffes, including a sharp price increase and an ill-judged rebranding exercise, sparked an exodus of customers.
Jason Cheu, Senior Vice President, Consumer Technology at ABR Investment Strategy in San Francisco told SmartHouse that Netflix is in trouble and that their share value could fall to as low as $60 which is when they will be a takeover target.
“The logical acquirer is Amazon, as they are looking to expand their content services and already have established International operations into markets like Australia and the UK. Netflix will kill them self and most observers believe that it is only a matter of time, they are fast running out of cash.” Said Cheu.
Earlier this week Netflix said that they were set to launch in the UK a move which Cheu said was fraught with risk as the UK already had several content providers.
In a letter to investors, a contrite Reed Hastings, chief executive, said that many of the company’s “long-term members felt shocked” after the company increased prices by about 60 per cent, adding “more of them have expressed that by cancelling Netflix than we expected”.
A Citigroup analyst contacted by SmartHouse said “I now doubt whether Netflix will ever set up in Australia. The big risk to local content providers like Foxtel, Optus and Telstra is Google, Apple and Amazon. The big advantage that Telstra and Optus have is that they are able to offer a broadband bundlemovie and TV deal which is why, the likes of Google are in talks with Telstra”.
“We know that Google is close to launching a premium movie service in Australia via their YouTube offering. This could impact several players if it is offered with an unmetered broadband service”.
Earlier this year Telstra sold their DVD business to Quickflix. Netflix has been trying to shift its customers away from the DVD subscription service to the higher margin streaming business, and recently said it would separate the two businesses, rebranding the DVD business as “Qwikster” – only to abandon the plan weeks later.
Netflix users have cancelled their DVD subscriptions in droves but the company warned on Monday that the number of streaming customers had also fallen as customers with bundled subscriptions left the service. “Those subscribers are cancelling streaming, which reduces revenue and streaming subscriptions,” Mr Hastings wrote in his letter.