I’ve written about Netflix in this blog many times; from the perspective of both customer and investor.  I have been a dedicated Netflix subscriber almost since they launched, and a frequent trader of the stock, buying and selling many times over the years. And for the most part, both relationships have been quite fruitful.

But lately I have come to the conclusion that Netflix and I should permanently break up.  From a customer’s perspective they seem to be falling apart, which does not bode well for the company from an investor’s view.

As a customer, my relationship with Netflix has been particularly bittersweet over the last few years.  While I greatly admire the concept and efficiency of the organization, it seems the more successful they have become, the more disdain they show for their customers.  It
started when they began “throttling” their most dedicated subscribers, moving them to “long wait” status on hot films. That was followed up with “delayed releases” of other top films. They often agree to be the last to release a film on DVD in exchange for some other streaming considerations from the studios, which means that you can rent a new film in the vending machine at your local grocery store, but not get it from Netflix for several more weeks (at which time it will probably the throttled). This makes the once great tech company look particularly “low tech”.  Making your customers last in line to receive a product is not a good business strategy.

Supposedly this was the payoff for all the great films and television shows customers could stream on demand, but the truth is that most of the content available is so old that your television will almost smell musty as you download. Allowing me to download a 1955 B-movie starring Ray Miland is not a reasonable trade to delay the availability of the newest George Clooney blockbuster. In fact, here are a few of the “hot new releases” this week on Netflix:

• The Flintstones Movie
• Tom Horn, starring Steve McQueen
• George Romero’s Bedtime Stories, Part 2

Wow! And the customer abuse has continued unabated.  A couple weeks ago company CEO Reed Hastings actually wrote an apology email to customers for all the turmoil at Netflix, and then he announced they were splitting into two companies and raising their prices. Essentially the email said “I’m sorry we have been mean, expensive, and incompetent – but if you think that was bad wait until you see what’s next!”  Now customers will have to deal with two entities and websites – Netflix, which will be the organization responsible for streaming you old and irrelevant movies and TV shows, and Quikster (nice name!), which will send you old and irrelevant DVDs – all at a price increase of 60%.  The combination streaming and home delivery service that at a minimum did cost under ten bucks will now run you sixteen dollars, and for that price you will now have the complication of dealing with two sites and two charges on your credit card.

Netflix’s meteoric rise over the last decade seemed to make them feel invincible.  Company officials and stock commentators would often speak of the tremendous lead they had in streaming home entertainment, but that lead has been obliterated in a few short months.  If I want to stream good entertainment now, I use my HBO ap, where I can see the very latest entertainment, or dig into the incredible HBO archives – all included with my HBO subscription. Or I use my ABC ap and see shows I missed the night before – on demand.   If I want to watch old television shows for free I can use Crackle, go into Comcast’s on- demand section, or use Amazon or Hulu.  There are dozens of potential options that offer a similar or better experience than Netflix streaming at a lower price, or even for free.  While Netflix was busy basking in temporary limelight, the competitors sped past them.

Still want DVDs delivered at home? The once almost defunct Blockbuster, now owned by Dish, also provides a reasonable home delivery option, offering the newest releases without a delay – and at a reasonable price.  I used to always prefer Netflix over Blockbuster as the combination of delivery and streaming at one price gave Netflix the advantage – but that will be eliminated. Blockbuster is now poised well to capitalize on customers that will opt for other streaming options and sign up for a superior home delivery system.

As an investor, I will miss Netflix.  While I have never timed the stock perfectly, I did make enough money to pay for my home entertainment needs for the rest of my life, first buying at in the $40’s and selling at around $100, rebuying a few months later at $90, and reselling at over $300 just a few months ago, when there was still Netflix frenzy.  Most recently, the stock closed at about $113, down from a 12 month high of $305.

Now my investment advice caveat…..  First strongly consider that I might be wrong. On the positive side, Netflix still has a formidable 24 million subscribers, a terrific infrastructure,  and a worldwide market to attack.  Home entertainment streaming is still in its infancy – and certainly Netflix is a strong candidate to continue to take a leadership role if they tweak their business model. They recently signed a streaming deal with Dreamworks that could be very good for business.  And, their stock is now trading at almost a third of what it was trading at four months ago.  A PE of 28 is high by most stock’s standards, but fans would argue that Netflix is still very early in it’s growth phase.  Credit Suisse still ranks them a buy.

But they have also lost over a million customers since the last price hike, and while the company still has many fans in the investment community, most advisors are avoiding them.  I tend to closely correlate my stock picks to my shopping picks – and right now since Netflix does not look appealing to customers I will avoid the stock.