THB #239: Good Morning, NETFLIXXXXXX!

You are reading the best newsletter about the television and film industry. I am the smartest person on the planet and if you are an unpaid sub, it would be insane for you to go another day without paying the meager price for an annual subscription.

If you know anyone who is not already subscribing, you are making their life worse by not forcing them to subscribe. All the other newsletters are fine… but the model of gathering a bunch of journalists together and raising the price every year is… I think Bob Iger said this… is going off a cliff.

I am the future. Only I can write it.

Did that work?

It’s working for Netflix today.

What did Jim Cramer love about the call yesterday? Not the numbers. The bravado.

He loved, as many have mentioned, the big dick energy.

Of course, that energy didn’t really make a lot of sense. The upturn this quarter for Netflix hasn’t made up for the downturn of the last year. The real story remains that the company is flat. The big dick energy boys themselves told us that the new ad tier would be revenue flat. Apparently no one heard that part. BDE Boys told us that the “ads are going to be targeted” thing that makes investors wet themselves are not happening anytime soon… that their current system is much broader than anything that is really exciting potential ad buyers, though they has sold out their first offering.

George Seay of Annandale Capital had it right yesterday, just after earnings were announced, which CNBC is now headlining as, “Pleasant surprises in this market are most welcome, says Netflix investor George Seay.” Watch the actual interview. He says that the pitch yesterday was a bit of a con and suggests that if you aren’t in it long-term, sell the stock today, taking advantage of the price bump after hours.

Seems like a mixed review to me.

When the conversation this morning on Squawk Box turned to Netflix password sharing, which is rolling out in South and Central America based on location - as locked down and limiting as cable - the two guys shrugged and wrote off the likely increase in the monthly Netflix bill for individual families if this becomes the norm in America. Becky made the point that her 4 kids using their $20/mo family membership at college didn’t seem like cheating that required a price bump.

Becky, trying to fight off the shrugs of Andrew and Joe, couldn’t quite find the argument to crystalize her very smart point.

This strategy by Netflix is the end of the promise of streaming… everything, everywhere, all the time, for a flat price.

Becky pressed on the basic idea of, “What of I want to watch outside of the house?” Andrew hemmed and hawed that this was just about people who were sharing their password to someone across the country.

But that isn’t actually what the Central/South American rules suggest.

I am not mocking Netflix on this. It is a difficult problem. No one else is out there trying to find the right answer either.

It is the same problem they have with the new pricing offering. They have not found a solution to the chicken and the egg. If they are going to make a lot of money on ads, they need a significant chunk of their subs to be watching ads. But the offering they have made is extremely marginal, even by their own count, projecting 4 million new subs next quarter, less than 2% of their base and not all based on a non-HD, limited extra-cheap offer.