Netflix, Inc. (NFLX) May Be Getting Too Customer-Friendly

Since customers who want to see House of Cards can watch the full season in one month and then cancel, the series will not have much of an independent impact on churn. By contrast, if episodes were released one at a time over the course of several months, Netflix could expect fans of the show to keep the service for at least those months. In releasing all the episodes at once, Netflix is gambling that the show will attract new members, who will then find other content they enjoy and decide to keep the Netflix service. To put it a different way, if subscribers pay for one month of service to binge-view the full season of House of Cards, Netflix would need to attract more than 6 million additional viewers to meet Season 1’s $50 million production cost.

Giving away the store
Moreover, not all viewers are actually paying. While I applaud Netflix’s decision to make the first episode of House of Cards available for free to “hook” people, the company’s policy of offering free one-month trials for all new users will allow many people to watch the full season for free. Additionally, Netflix has been aggressively courting former members with free “trials” for returning members. (As a former Netflix member, I received at least four emails last fall offering me a free month if I rejoined the service. I got my free month, enjoyed House of Cards and other content, and then canceled.) In the short term, Netflix may boost its subscriber numbers this way, but the company is not maximizing the value of its investments in original content.

Conclusion
In short, Netflix’s business model seems flawed. The company spent too much for the rights to House of Cards to give the show away for free (or at most, $7.99) to binge viewers. If original content is meant to reduce churn, it needs to be released in a “serial” manner that forces viewers to keep the service. That might seem less customer-friendly, but it would better ensure Netflix’s long-term health.

The article Netflix May Be Getting Too Customer-Friendly originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg is short shares of Netflix and Amazon.com. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix.

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