Jenga is not a game that should be used as a model for running a business,
especially a consumer-oriented entertainment venture. A proper strategy for
building a business is the opposite of Jenga: Offer a solid product, then slowly
build on its strong foundation, an ever-climbing structure that grows in value
at the same time as it does in scale. Its not smart to removing multiple pieces
from your foundation without replacing them, watching a sturdy tower start to
sway under the pressure of losing its base. Netflix (NASDAQ: NFLX ) is not by
any means a tower about to fall, but if the company removes any more from its
streaming service, the foundation of its monumental success over the past three
years, its going to start to sway. Now that it has taken away users ability to
watch multiple streams at once on the same account, Netflix looks a touch
unstable. To investors, the home video company already was on shaky ground.
Share prices in Netflix have plummeted since July, shedding almost a third of
their value in the fall from $304 to just above $214 on Wednesday. The companys
initial decline came after tens of thousands of subscribers decried Netflixs
plans to alter subscription pricing so streaming and by-mail DVD rentals had to
be purchased separately . It took another hit on Friday after contract
negotiations with Starz the Liberty Media -owned (NASDAQ: LSTZA ) premium cable
movie channel broke down, leaving Netflix without guaranteed access to many
Disney (NYSE: DIS ) and Sony (NYSE: SNE ) films in 2012. While shares showed
some signs of recovery on Tuesday, word through website Stop the Cap that the
company had altered its Terms of Service agreement to limit the number of
streams users can watch on the same account appears to have kept investor
confidence low. Netflix hasnt actively prevented users from watching multiple
streams on the same account for example, one on a living room television and
another on a laptop in another room in the past even though it has used
messages on streams to discourage it. Now Netflix users must purchase
multiple-stream subscription packages much as theyve had to pay extra for
additional DVD rentals. Any attempts to watch more are blocked entirely.
Investors following the recent drama of Netflixs subscription metamorphosis
might recognize this change in structure as being heralded in the companys
testing of Family Plan subscription packages , a model that seemed promising
when first hinted at in April. The family plan pricing model as suggested at the
time, however, suggested Netflix also would offer a wider array of content at
the same time as offering multiple streams via a single account. This new
policy, one unpublicized by the company, offers nothing to subscribers to
replace any lost value in the change. Bad business no matter what way its looked
at. With the rapid rise in popularity of Netflixs streaming service came a rapid
rise in content provider dissatisfaction. The companies providing movies and
television shows to Netflix felt they werent getting enough for their wares, and
changes to Netflixs pricing were inevitable as a result. Limiting the number of
streams users have access to at the same time as doubling the cost of
maintaining a streaming subscription and a by-mail subscription without
introducing new content might be too much change too fast for Netflix. From
here on out, it might only take one false move to make the tower crumble. As of
this writing, Anthony John Agnello did not own a position in any of the stocks
named here. Follow him on Twitter at
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