Netflix Inc. (NASDAQ:NFLX) is in serious trouble and the fact that its stock is down 17.8% in the year-to-date period may be the least of its troubles. On Tuesday, news broke that the poor subscription numbers that the firm was experiencing because of the Olympics is an indicator of a fundamentally bigger problem. Now, one of Netflix’s founding team members has left the firm to set up a rival firm.
The most painful thing is that the former exec is going for Reed Hastings’ jugular as he plans to attract people away from video streaming back into the brick and mortal world of theaters and cinemas.
Former Netflix exec pushes theaters over streaming
Mitch Lowe who was on board when on-demand video streaming business was just starting has jumped in bed with theaters and cinemas. Mitch Lowe who used to be VP of business development and strategic alliances at Netflix is now the CEO of Moviepass. Moviepass is a movie subscription platform that allows its user access to major movie theaters for a monthly fee starting at $14.99 per month.
Mitch Lowe says no firm in the streaming business has a monopoly on blockbuster content that viewers love. Netflix (NASDAQ:NFLX) enjoyed the spotlight with “Orange is the New Black” and Amazon had its time with “Transparent”. Hence, viewers would need to keep subscriptions to multiple services in order to enjoy all the content they want.
He also noted that people are spending so much time indoors instead of getting out of their “cocoon” and meeting new people. In his words, “I think a lot of people have forgotten what a kind of great social interaction it is… So I’m hoping that we can reinvigorate this. Our subscribers go to the movies twice as often after becoming a subscriber, so I think that’s really great for the whole entertainment ecosystem.”
A content glut will do more harm than good
The fact that Mitch started MoviePass in a bid to give users access to fresh movies in all the major theaters is forcing Netflix (NASDAQ:NFLX) to increase its content library. John Landgraf, CEO at FX Networks observed that Netflix is leading the surge in scripted TV shows in order to keep viewers glued to its platform. He however observed that there is so much U.S. television, we’ve lost much of the thread of a coherent, collective conversation about what is good, what is very good and what is great.”
If Mitch Lowe had left to establish another streaming firm, investors might have not have many reasons to be worried. One would expect him to launch a streaming service that has found a way to fix the lapses at the giant streaming firm. But Reed Hastings’ firm would have been able to use its sheer size to stay ahead in the game.
However, the fact that Mitch Lowe is building a business on theater and cinema suggests that he is plain crazy or that he know something that the rest of the market doesn’t know. Mitch is an Netflix insider and he understands how the on-demand video streaming business works. If an insider with all the connections is betting on theaters instead of a streaming model, perhaps it is high time Netflix investors reexamine the fundamentals of their investment on the stock.