Netflix under pressure on all fronts

Subscriber grumblings and exploding competition are weighing heavy on company’s stock price.

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Netflix Under Pressure:

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It’s a rough time to be Netflix, with the company facing storm clouds on seemingly all fronts.

The streaming provider came under fire this week from Vancouver-based internet advocacy group Open Media, which issued an open petition to the company urging it to stop blocking subscribers who are using virtual private networks.

Netflix has for the past few months been cracking down on VPNs at the behest of some of the content companies that supply it with TV shows and movies.

Open Media believes there are better ways to keep customers from border hopping – using credit card information, for example – than taking the nuclear option. Blocking VPNs exposes subscribers to potential malware and also decreases their online privacy.

The group’s petition has close to 45,000 signatures, a good number that Netflix is going to have a hard time ignoring. Chief executive Reed Hastings recently said the number of subscribers complaining about the VPN crackdown was insignificant.

Perhaps of more concern to Netflix is the slowdown in subscriber growth, especially in the United States, which it reported at the end of April.

The company attributed the dip at least partially to its recent “modest” price increase, which actually underlines its long-term problem: Netflix is facing growing costs in producing or acquiring content, which will inevitably butt up against subscribers’ willingness to pay.

Grumblings on this front are growing. Khoi Vinh, a designer at Adobe, recently blogged what many subscribers have been thinking when he asked, “Is Netflix still worth it?

The service is adding original content at a rapid clip, but for fans of movies – which are quickly shrinking in number on Netflix – it’s a valid question.

It’s even more poignant when you look at the competition on the horizon. Vinh is just one movie fan who’s looking forward to the launch of FilmStruck, a new streaming joint venture between Turner Classic Movies and Criterion Collection.

The service is set to launch this fall – in the U.S. only at this point – and will feature supposedly high-quality movies.

Then there’s Spotify, which this week confirmed it is working on 12 new original shows. The music streaming service is quickly expanding into video, probably because it’s finding profitability hard to come by with audio.

With competition for eyeballs and wallets is exploding, Netflix’s road forward as a provider of just video is going to get harder, which explains why its stock price is mired near its 52-week low.

Hastings downplayed the likelihood of getting into other businesses in an interview in January, but it’s increasingly looking like the company isn’t going to have much of a choice for much longer.

What other businesses could Netflix get into? That’s a topic for another post…

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