I like Netflix.

I believe Netflix will be a business well into the next decade.

But I believe that the media and certain analysts get aroused by Netflix in ways that have little to do with reality.

Rich Greenfield, who is this period’s great analyst/self-promoter came out with Netflix as a “Buy” yesterday (free subscription needed), part of a media circle jerk (including one of the rare weakly-reported, “I read someone else opine about this, I basically agree, and I’m passing it along with the NYT logo on it” columns by David Carr). Greenfield was quoted by way of another outlet quoting Greenfield, so I went to the source and these are the arguments that I do not feel hold up as factually accurate.

1. “The more a subscriber streams daily, the lower churn should fall.” – This is as silly as 99% of the decoding of individual behavior based on broad, undetailed stats. The comment makes sense, out of context. But the lack of context for the presumption in the statement, that subscribers are streaming quite a bit daily, is a big problem.

Greenfield is worked up about the stat, released by Netflix, that the site has streamed 4 billion hours of content in the last 3 months. Greenfield got out his calculator and surmised that “Netflix now has an estimated 29 million US streaming subscribers (households), utilizing the service for more than 87 mins per day.”

Multiple issues. First, of the “estimated 29 million US stream subscribers” about 2 million are free subscriptions, presumably more during the last quarter after the heavy push to get people to watch episodes of House of Cards “for free” and all the attention to binge viewing. Very few people seem to pay attention to the “paid subscribers” vs “total subscribers” issue in reporting the highest possible number of Netflix subs.

Second, the presumption that 29 million subscribers are spending 87 minutes per day on Netflix is, obviously, inaccurate. Experiential indications are that there are subscribers who watch Netflix occasional, if at all, in any given month, and those who watch it quite a lot (especially cord cutters). And as mentioned before, a lot of free hours were given away specifically for House of Cards.

Third, by speculating with such gusto, Greenfield – and others – essentially manufactures the false idea of insight into what the stats inside of Netflix’s viewer habit really are. He has none that Netflix has not given us. None of us do. This doesn’t mean they are lying, but it should be a big red flag when contextualizing this info in terms of the broader industry.

2. “With device manufactures, ISPs, talent, and content creators/programmers all rooting for Netflix’s success, in fact it is now hard to find anyone who does not want Netflix to succeed.”

Again, this is rooting, not analysis. A few studios are taking long, deep pulls off the Netflix teet. The vast majority are not. This is not to say that they want Netflix to fail. But Netflix is a means to an end for the industry. It is not a hero… outside of its willingness to overpay for content, setting the market value at 30x or more what it was 3.5 years ago. Nor is it the enemy, which was the stupid media spin of a couple years ago.

Netflix is a buyer. Netflix is a leader in a streaming market what will grow exponentially in the next decade. But Netflix owns (almost) nothing, which makes them vulnerable to content pricing issues and competition from both new content bundlers and the content providers themselves. As soon as content providers feel there is a way to equal or surpass the amounts that Netflix is paying for content, the dynamic will shift in a hurry.

3. “HBO costs us $180/year ($15/month), but we probably only watch four series each year plus several documentaries/original movies.”

I guess the “us” excuses a specific number that varies wildly from one cable/satellite provider to the next. The assumption, again, that Mr. Greenfield knows what people watch or don’t watch on HBO (and its many branch channels) each year is wild, to say the least.

But it is, once again, a pretty clear show of pro-Netflix bias that clouds any serious conversation about the company’s future.

4. “While it is far too early to call Netflix’s original programming push a success, they are trying to reach a point where consumers know that there will always be something new and interesting coming that requires a Netflix subscription, in addition to top tier syndicated programming and a sufficient movie selection.”

Yes, that is one thing that Netflix is trying to do. At least, for now, without a single exclusive streaming deal with a major studio and 2 years to wait for Disney to kick in. Greenfield is trying to assert the strength of the original programming push, but damns Netflix overall with faint praise.

In some regards, the streaming libraries of Netflix’s competitors are already quite competitive. And in terms of filling the gap with content that is sold or rented by unit, both Amazon and Apple’s iTunes are well ahead (given that Netflix doesn’t compete on that turf). But as the players evolve on price point, and on the indie side, VOD becomes more the standard, this will become a bigger strain on Netflix.

5. “Content Leverage Coming In the early stages of streaming, Netflix needed to license whatever content they could get their hands on. Content owners were able to sell old content at incredible prices – but Netflix was desperate and bought everything they could find. As Netflix streaming has matured, with the company launching original programming and having lined up a Disney movie output deal starting in 2015, we expect Netflix will be able to exert far more control over its programming investments for 2014 and beyond (they will either get fresher content or pay less/give up content they currently license).”

I took the whole paragraph on this one, as you can see, because the whole thing is just so ass backwards. It assumes, like so much writing on Netflix does, that Netflix is smarter than the content providers and are, somehow, critical to the future of said content providers.

To start, when Netflix started streaming, it wasn’t Netflix that desperately took whatever it could get… it was the content providers, who took very little money to stream. After all, it was truly an emerging delivery system. And the content providers were thrilled, especially in light of the collapse of the DVD market, to take what Netflix offered.

And by the way, this is in a market with reduced competition, as pay-TV lowered its priority and spends on feature films as well, completely coincidentally. So a deal like STARZ, which brought two studios along with it, meant studios got paid more for their pay-TV deal with little exposure from the early days of streaming.

A few years later, the worm turned. And yes, when Netflix went into the market and was suddenly (shockingly) willing to spend $100m a year per studio, they ended up settling for smaller fish. They lost the big fish they had. And that hasn’t changed. EPIX, which brought Netflix Paramount and Lionsgate product, was a non-exclusive deal. Relativity, Weinstein, etc.. not majors.

So then Netflix adjust its spend to allow for a $350m a year buy of Disney product for five years. It should be good for Netflix and great for Disney. But what else will come? Will Netflix be able to afford an exclusive with another major studio? And with Netflix already allowing smaller content deals to drop every month, how much more content will Netflix lose if they want to spend, say, another $250 million a year on another studio?

If by “assert control,” Greenfield means “give up,” his analysis is correct… though it is already happening and has nothing to do with being in control, but simply being able to afford content.

Greenfield, like others, seems to think that Netflix will somehow become “more than a buyer” at some point. But there is no such thing in this marketplace. No content provider gets an advantage by being more widely viewed. It is the opposite in a model that is not like the conventional television series universe. If A will pay $100m and 25 million people will see the content and B will pay the same $100m but only 1 million people will see the content, the content will be more valuable when the deal with B is over, as it has been underexploited and still has value as “relatively new” content without the stigma of a ratings failure, as streaming networks have no ratings as such.

6. “Netflix Set-Top Box Integration While Netflix has done a great job making their app available on every device capable of streaming video, using Netflix generally requires changing HDMI inputs on your TV. The big opportunity is when Netflix is seamlessly integrated into the TV experience. Two recent examples point to where the video world is going: (1) Google Fiber which has Netflix integrated and (2) the Time Warner Cable Roku app. As TV simply becomes an app like Time Warner Cable on a Roku, it becomes much easier for consumers to shift between live TV and on-demand TV such as Netflix (just switch quickly between two apps, without HDMI switching). The more cable “unboxes” itself, the easier it will be for consumers to access Netflix.”

This is true on its face… but feigning ignorance in terms of context. Hulu Plus is already on equal footing with Netflix in placing its app on devices both on and off TVs. Amazon Plus is right behind it. And HBO Go is slowly expanding. So will every other competitor in the field.

Two years ago, Netflix had a massive advantage in this regard. That advantage is near fully spent… especially as regards Roku, which is not just making room for all competition to Netflix, but it almost reckless in the number of channels it is making available to streamers. The days in which Netflix could leverage its power and be the only app on a blu-ray player or streaming device or set-top box moving forward are over. Consumers will not accept being told that they only have one choice.

7. “with Netflix greatly improving the service’s content and user experience” – I’ve been over this before, but month by month, Netflix is offering less and less content while competitors have improved their user experience. Netflix is still, pretty much, the best… but more competition is coming and this technology is not proprietary.

PS3 is now experimenting, for instance, with the Laugh Factory channel, which is meant to offer nightly live comedy shows from the stage of one of Los Angeles’ prime comedy clubs.

MLB.TV is about the same annual price as Netflix for all of the baseball season, including most live games, all radio broadcasts, and various added features, streaming to your TV and portable devices.

The NFL is still being paid more by DirecTV than they can make by opening up the market, but their packaging and streaming of the entire NFL line-up each weekend is excellent and integrated.

There is nothing bad about Netflix. But they are no longer the one star shining above all. That’s just not what the territory looks like.

8. “Netflix is able to reach 40 mm US streaming subscribers by 2015.” Seriously?

The big play for Netflix is Disney. Can Disney product drive 5 million – 10 million new Netflix subscribers. That’s what Netflix needs to find out. That’s what Disney needs to find out.

But there is no history that suggests that there is a streaming market out there to expand Netflix by more than 1/3 of its existing subscriber base in the next two years. Disney could change that. All the studios are hoping it will, because the future is going to rely on a redefinition of bundling that has subscription rates in the 70m+ range… more like cable/satellite subscription levels.

9. “Increased competition from TV Everywhere initiatives and over-the-top broadband streaming providers (such as Amazon Prime)… we no longer believe it matters as much as we thought, as there appears to be plenty of room for more than one consumer streaming service.”

That’s a bit schizophrenic, no? Greenfield doesn’t believe the competition matters so much any more AND there’s room for more than one streaming service.

And 3 years ago, Netflix was a completely different business.

I don’t really think that Amazon is the Netflix-killer it was made out to be. But 4 or 5 studios that are not in the streaming business with Netflix? That’s where the real competition is. The content providers have been freed and they really haven’t shown their hand yet… mostly because they haven’t made the technology side work right. But they will. It will take too long and cost too much, but they will certainly catch up with Netflix. And when they do, there is a tsunami coming… not of gimmicks, but of content… so much content that it fills every niche.

That is why I believe that a healthy Netflix will be purchased by 2020… because the content issues will overwhelm their business, not too much unlike the way Netflix overwhelmed Blockbuster and the remaining mom & pop DVD/video stores.

10. “Netflix bears point to the company’s significant content commitments being too large and fear that they will eventually be forced into bankruptcy. However, we feel that Netflix’s future content commitments are manageable, especially as subscriber growth has reaccelerated.”

I keep noting that I am not saying that. And I am not 100% bearish on the company. Today’s stock price may make the company a very good investment for the day they sell Netflix to a studio or consortium of majors.

I don’t think Netflix will be forced into bankruptcy. But I do think that they will continue to narrow the amount of content they provide which will, especially against increased competition in streaming, change the perception of their product.

Netflix has been very innovative. Ground breaking. but as a business, they have had nearly open road in doing so. There is no logical reason to assume that they will ever has as much space to work as they do today (much less 2 years ago). And it will only get more crowded.

Netflix is neither David nor Goliath. But they will become victim, as all sensations do, to the most feared thing of all in Hollywood… disinterest. They are now finding themselves battling in the more traditional field of play, which strips them of the advantages they have had all these years. The press is still a big one. But it’s a fickle group, as Netflix learned 18 months ago. And some things really don’t change.

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