Earlier this month, Gaming Bus reported on Netflix decision to terminate Qwikster. This left the future of the company’s plan for a video game rental service in doubt. Today via Gamasutra, the company had addressed investors but was still unclear on what those plans would be.
Netflix’s CEO Reed Hastings said this specifically:
“We have yet to decide whether or not to offer video game discs. The decision will have little financial impact either way.”
The doubt of the video game service isn’t the foremost problem facing Netflix. Today the San Francisco Chronicle reported that Netflix had released their third quarterly results. Along with it went a letter from CEO Reed Hastings and CFO David Wells to stockholders. They warned that the company would likely operate in the red for the better part of 2012. They went into detail as to why this would happen:
Netflix expects the impact to lower both revenues and profits in the fourth quarter. And in the first quarter of next year, the company expects to lose money as it invests heavily to launch in the UK and Ireleand. It expects to continue to be in the red “for a few quarters” … But it plans to return to profitability after the international launch (it will have to pause other international expansion plans to do so).”
The letter also brought into focus where they believe this trend started:
The price changes in particular “hurt our hard‐earned reputation, and stalled our domestic growth.”
Analysis: When I said in my previous analysis, “Netflix needs to instill confidence in its customers again… I see this as a reasonable step forward,” I meant they needed to put that confidence back in its existing customers, that the company would have to do things in their interest, not just investors. Today, doesn’t completely change my mind; I still think Netflix has not regained all of its past glory, but damn have they shown if they make a mistake, they’ll take the punches and roll with them without hurting its customers. This is something I was hoping for but wasn’t holding my breathe to see. This is because they’re not raising their prices to stay out of the red. Instead, they’re sticking to the current prices and say they’ll pick themselves back up. This definitely brings back confidence in me, and I think it should for anyone reading this as well. This is also echoed in the company’s stock going up 1.54%. It isn’t much, but it’s a start.
Netflix is going to be in the red for 2012, but what does that mean for the games portion? Unfortunately, I think at this point we can all but say this endeavor is dead, at least for the short term. I was really hoping this would come out and put the pressure on Gamefly. To help lower prices and direct competition is always good for a companies soul. This doesn’t mean the company won’t try to pick up on this at a later date, after they’ve gotten their groove back. This is something I prefer right now because I want to see Netflix pick itself back up in the market it’s in before it tries to enter another one, where it could sink if it’s not fully prepared.