BUSINESS -- October 10, 2011 at 5:26 PM ET
In Wake of Qwikster's Hasty Death, Netflix Faces Questions of Its Own
Can you declare a company dead if it never actually began doing business?
It's a slightly existential question one might pose to those who would have run Qwikster, the DVD-by-mail business that Netflix said it was launching just three weeks ago. Today, Netflix CEO Reed Hastings announced that Qwikster will never see the light of day. So Netflix is facing some pressing questions: Is the market losing faith in the company? And just how much self-inflicted damage has Netflix done to itself this summer and fall?
Investors who have been dropping the stock in recent weeks, ever since Netflix announced it would raise prices, appear none too pleased by the way it's all been handled so far.
True, shares rallied initially when Hastings posted a blog explaining that Netflix had been too hasty with its decision to split up its streaming video and DVD-by-mail businesses and angered customers. But by the end of the day Netflix fell from $125 a share to roughly $111.
Market analysts said Netflix made the right decision in bowing to customer anger and outrage over Qwikster.
But Hastings did say that Netflix intends to continue apace with its new pricing plans, which would raise prices by about $6 a month for those who wish to both watch videos online and receive DVDs by mail.
The company has already made it clear that it expects to lose a million customers in the third quarter of the year. Bear in mind, Netflix is still the giant in the industry with a subscriber base of roughly 25 million.
The question now, is whether this change stops the bleeding, whether the pricing changes will lead to a continuing erosion of its customer base -- and whether there's a sense that Netflix may no longer be quite at the peak of its game in an ever-changing digital media business.
"Stock moves aside, the about-face -- three weeks after an announcement that itself seemed rushed -- is a little hard to square with the aura that used to surround Netflix, and Hastings in particular: Super smart, able to see around corners, not afraid to run against the herd.
"Because if Netflix really thought that 'over time, both DVD and streaming will be much better, because they're separate,' as Hastings put it in a much-unloved video message last month, why reverse the decision after some squawking?"
The other question lurking for Netflix is whether its online streaming site can provide enough content to keep customers happy.
The New York Times' Brian Stelter pointed out today Netflix will lose streaming rights to films from Walt Disney and Sony next year. But, as he also noted, the company also has announced a new deal to stream the films of DreamWorks Animation.
And the company is getting into the content business itself with a new drama called "House of Cards" and the possible distribution of new episodes of "Arrested Development."
Murrey Jacobson is the National Affairs editor. Follow him on Twitter.