Shoulda Bought Netflix; Fixed

January 28th, 2011

Regular readers surely know my Apple love. But a close second has long been Netflix.

The Good

• Successfully changing their business model. Over the past few years, Netflix has expertly managed a tricky transition from DVD rentals by mail to an online streaming service.
• Device-agnostic: Like Amazon’s Kindle, Netflix has deployed Watch Instantly available across a laundry list of devices, from its own Roku partnership to game consoles and mobile devices.
• Netflix’s Watch Instantly content offerings are exactly the same across devices. Huge usability win; no hassles trying to remember what shows will work where — a selling point completely missed by Hulu Plus. Netflix is probably paying the content rights holders a pretty penny to secure streaming rights across devices; to the end user it’s worth every cent.
• Holding their own against other streaming video services. The Apple TV is arguably pointless without Netflix streaming, while Hulu and Google TV have suffered from muddled execution. Netflix’s DVD-by-mail service shamed Blockbuster, and Netflix may be able to out-execute bigger competitors. Hulu’s recent stumblings may be an early indication that cable will fail to embrace the web fast enough.
• Huge secret sauce: customer service. Netflix repeatedly demonstrates a proactive willingness to keep customers happy, before they realize they should feel bad — issuing refunds whenever an outage occurs, allowing for lost DVDs, sending new ones when there’s a scratch — no questions asked.
• Streaming video over the web is the future. Netflix is arguably well positioned to deliver this eventuality, and I’ll gladly pay for it.

The Bad

• Increased competition. By abandoning DVD rentals, they face head-to-head battles with tech heavyweights (Apple, Google, Amazon) and cable companies that are both content rights owners and ISPs. Netflix’s increased popularity could damage content partnerships with the latter.
• A gut-churning P/E ratio of 80.

Anyhow, I just took a humble stock position (am nowhere near wealthy and keep individual stock picks to a minimum to cover my own stupidity) in yet another company I love.

Netflix embraces the future, executes surprisingly well, has a solid service that’s worth paying for, and keeps the customer first. Along with Apple, this is the kind of company I can get behind. Wish I’d done it earlier.