Netflix's future looking grim, analysts say
Concerns about Netflix's ability to retain its customer base while cutting out content, as a result of a licensing disagreement with A&E, has got investors worried that the company may be struggling to meet expectations. Consequently, Netflix stock went down nearly 6 percentage points to $57 last Monday, with industry analysts making a series of grim predictions about the company's future.
Tim Nollen and James Kopelman, analysts at Macquarie Securities, have put together a 35 page long financial report on Netflix, which paints a worrisome picture. The two believe that Netflix's profit margins will always be less than optimal, primarily because movie studios are demanding increasingly bigger prices to license their content. Incidentally, Netflix subscribers have also gradually slowed down, which may force Netflix to find new ways to cut costs.
The market dynamics has led analysts to question whether or not Netflix's streaming media empire is soon coming to an end, on account of an amalgam of factors, like increasing license prices, attractive alternatives from competitors, and growing subscription fees.
The two Macquarie Securities analysts suggested that Netflix could devise a more dynamic pricing plan, and charge their subscribers more for new releases. The downside to this change in pricing method is that it could estrange customers who preferred paying a fixed sum of $8 per month. Netflix also has a history of taking risks that generated a massive consumer backlash. Last year, the company upped its prices by 60% for individuals who wanted to rent DVDs as well as remain subscribed to the streaming media service, which caused many people to cancel their subscriptions as a sign of protest.
Alternately, Nollen and Kopelman believe that Netflix could try to sell stock or corporate bonds to raise money, a method they have also employed successfully last year, when they managed to raise $400 million. In spite of this detailed report, Netflix representatives have declined to to make any direct comments, and later issued a statement pertaining to the company's collaboration with A&E.
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