Resentment of Netflix by carriers, media companies grows
Old guard sick of online upstart fighting dirty by giving consumers what they want
Shares of online video streaming and DVD-mailing superstar Netflix were down Monday as much as 7.93, or 4.1 percent, from Friday's close.
Not a precipitous drop, but Monday's low of 186.70 is 9.3 percent below Netflix's all-time high closing price of 205.90 set on Nov. 30, less than two weeks ago.
So what's going on here? It could be that the stock is hitting turbulence because it's becoming overvalued, as Seeking Alpha suggested on Sunday. After all, nothing goes up forever, except bank profits.
It also could be that Netflix shares are suffering as a number of media and Internet service providers companies, resentful over Netflix's soaring profits and threatened by its emerging streaming business model, begin to train their sights on the phenomenally successful company.
First, cable TV and broadband Internet provider Comcast in late November began leaning on broadband backbone provider Level 3 to pay a recurring fee to deliver video content to Comcast customers. In other words, a toll. Level 3 is one several companies that Netflix uses to stream and store its growing inventory of movies and television shows. Level 3 argues that this is a clear violation of net neutrality, the idea that ISPs must treat all Internet traffic equally.
Then, in Sunday's New York Times, we learn that media giants such as Time Warner are livid that Netflix has the nerve to become wildly popular and profitable. They also vow to make Netflix pay dearly for tricking them into signing distribution deals years ago that no longer work to the advantage of the giant media companies. What duplicity! They generously patted Netflix on the head for their own benefit back then, and now look how their condescension is being repaid!
It's very clear that Netflix, with its current market capitalization of $9.8 billion, has been picking on companies such as Comcast ($44 billion) and Time Warner ($35.3 billion) by offering consumers the programming they want -- and only the programming they want! -- when they want it. What kind of crazy business model is that? The way it's supposed to work is that consumers pay for a subscription package that delivers the Home Shopping Network and straight-to-DVD movies starring American Idol runners-ups, along with the 1 percent of content they really want to see.
This bullying must stop.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.