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    Tom Dougherty CEO, Stealing Share

    Tom Dougherty is the President and CEO of Stealing Share, Inc., and has helped national and global brands such as Lexus, IKEA and Tide steal market share over his 25-year career.

    An often-quoted source on business and brands, he has been featured recently by the New York Times and CNN, discussing topics ranging from television to Apple to airlines.

    Tom also regularly speaks at conferences as a keynote and break-out speaker. To find out more on inviting him to your speaking engagement and view a video of him speaking, click here.

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Netflix profits up. Wall Street cheers. Be afraid.

Netflix profits surged in the 4th quarter as it saw a increase in subscribers and a decrease in the costs to get them. As a result, its stock was up more than 15% yesterday and now Netflix seems to be a new Wall Street darling.

If I were Netflix, I would be very, very, afraid.

Netflix is a very interesting case. It has single-handedly changed the way people “rent” DVDs and it basically put Blockbuster, Hollywood Video, and “Mom and Pop’s Video Store” out of business. At first, Netflix seemed like a silly idea. It wanted people to relinquish the thrill of the “find” in the traditional video store, create a queue of movies and then make them wait for the movies to arrive in the mail.

In addition, it required subscribers to mail the DVD back.  Nobody would do that right? Usually, for a new model to work it has to eliminate barriers not create them.

But people were all too happy to give up the cheap thrill of the find in order to have the convenience of not having to go out and ordering from a much larger library. And, for many, it made more sense than spending $3 or $4 on a pay-per-view movie.

Then Netflix revolutionized the way many of us watch movies. It gave subscribers the ability to stream them directly to their computers and TVs, removing the inconvenience of having to get off of the couch to go to the mail box. So, today, Wall Street rewarded Netflix for its efforts.

Netflix profitsIn hindsight, this seems like a natural evolution. As more and more people are giving up their cable subscriptions in favor of streaming on-demand content from the Internet, it seems like a no brainier that there would be an online movie-streaming service, and its caught on elsewhere. Hulu and a whole host of other companies are getting into the online movie streaming business. Even the “on life support” Blockbuster now has a streaming servics (but not if you want to stream to a Mac). But Netflix is king and owns the market.

Flash back a several years ago and you could have said the same thing about Blockbuster. Was it not once the king of the rental business? The problem with being a king is that there is usually only one direction left to go. Down. In middle to late 2002, Blockbuster stock was trading at near $30. Today, the stock is worthless, trading at about a dime.

Netflix, which arguably has no real current competition yet, is in nearly the same place that Blockbuster once was. The major difference is that Blockbuster did not have some of the most successful companies in the world coming at them. Google, Apple, and Amazon are slowly but surely getting into the streaming business. Alhough they do not currently have the same amount of content that Netflix has, they have more than enough weight to throw around in order to procure it. Streaming content is the future of this business and the big boys are taking notice.

So what does this mean for Netflix? Personally, I think one advantage it has is having the subscription-based model. It gives subscribers the feel (illusion?) that they are getting a deal.

But if Netflix is not careful and rests on its laurels without envisioning the next step, it too will go the way of Blockbuster. Netflix must understand that its business is not about delivering content. What you do is never the reason why preference is created.

The only promise Netflix has right now is “Stream Instantly.”  As a message, that is a little redundant. Streaming, by its own definition, is to see something online instantly. It is not a promise at all. It is a statement of what Netflix’s business does.

If I were Netflix, rather than rejoice in its stock price increasing by a factor of four in 2010, I would be looking over my shoulder and figuring out what to do next. The first place I would start would be to ask myself, hypothetically, if I were in a market with a number of competitors, why would a customer use me? I can pretty much guarantee that the answer is not “Because We Stream Instantly.”

One thought on “Netflix profits up. Wall Street cheers. Be afraid.

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