So Much for Netflix's Recovery

Netflix might very well be the most beloved company that investors hate. After all, for every customer you can find who despises the video rental service because it raised prices prematurely, you can find several loyal customers who couldn't part with their Netflix NFLX subscription if their lives depended on it. Few service-based companies have attained that kind of loyalty, especially in a world where competition is fierce and growing. But the market doesn't care. While it seems as if Netflix had very little trouble maintaining its goodwill among the majority of its customers, Netflix has been unable to appease investors. After the company announced its Q1 earnings (which included a net loss of $4.58 million), investors scrambled, causing the stock to drop 14% in the after hours session. This morning, the stock has continued to decline during the pre-market hours. Many will point to the increased competition as the primary reason why investors are still afraid of Netflix's future. But there are much greater problems at work. Most significantly, Netflix's losses have not proven to be a one-time deal. Instead of fumbling once last year, the company made several mistakes, none of which made any sense. Qwikster, for example, was simultaneously annoying and baffling. Aside from chasing away investors and frustrating consumers, it didn't accomplish a darn thing -- hence the reasons why Netflix ultimately scrapped its plans to separate its DVD and streaming businesses. Unavoidably, investors are anxious. Very anxious. They can't let go of the past because they fear what will happen next. Will history repeat itself? Will Netflix be able to restore its organization and return to pre-2011 success? Or is the company doomed to repeat history forever? With so many negative thoughts swirling around investors' minds right now, it's almost surprising that they haven't abandoned the stock altogether. Yes, Netflix is still a strong brand. And yes, it does still have a very large subscriber base for both its DVD and streaming video business. But the negatives are hard to forget -- especially when the future looks so grim. The company's DVD margins are vastly superior to those on its streaming video business, and yet the company wants to kill off DVDs. Meanwhile, Coinstar CSTR, which owns Redbox, continues to embrace the old-school medium, knowing that there are still many years of life -- and profitability -- hidden within these four-inch discs. Netflix could have intrigued investors and consumers alike by announcing a stellar content deal (or two). Instead, the company failed to do so in 2011. As of March 24, 2012, Netflix has yet to bring any meaningful exclusives to the service. The company bragged about its deal with DreamWorks Animation DWA as if it were the best thing since sliced bread. But never mind that -- the content deal was barely a substitute for Pixar, which Netflix inevitably lost when its deal with Starz came to an end. (Starz allowed Netflix to stream films from Disney DIS and Sony SNE. Without Starz, Netflix could no longer stream films from those studios.) In the coming months, Netflix will no doubt announce some new content deals. But if those deals are shared by its competitors (which was the case with Miramax and The CW, both of which came to Hulu), they won't matter nearly as much to consumers or investors. Why come to Netflix if other streaming services offer the same thing? Follow me @LouisBedigian