The backlash against the backlash against Netflix

Dylan Stableford

It's safe to say that Netflix had a not-so-hot day in the investment world yesterday, with company shares plummeting on the news that it had lost some 800,000 U.S. subscribers during the third quarter. That number was 200,000 more than company brass expected--all part of an enormous a customer backlash against a recent subscription price hike.

Despite yesterday's drubbing, some media outlets are characterizing the sell-off of Netflix stock as a knee-jerk reaction by Wall Street investors, arguing that Reed Hastings' DVD rental and streaming business is doing just fine.

Below, just a small sample.

CNET:

It's way too soon to count Netflix out--although that hasn't stopped Wall Street from trying. Since announcing yesterday that it shed 810,000 net subscribers in the third quarter, the purveyor of DVDs-by-mail and video-by-streaming has been the goat of Wall Street. Its share price plunged 35 percent today, to $77.37, knocking a cool $2 billion or so off its market cap.

All because Netflix's attempt to distance itself from its slowly dying DVD business in favor of instant and far more scalable video streaming has been rockier than anyone expected. While the company has made more than its share of mistakes, that doesn't change the fact that it's still got the right strategy, even if its execution has so far left a lot to be desired.

Time's Techland:

Public relations gaffes aside, Netflix is ahead of the curve, and understands that fallingbehind the curve is a death sentence. Online streaming is the future, and optical media is exiting the building. That, and the future's going to get even pricier, in terms of today's ultra-cheap monthly streaming access fees, as studio catalogues and licensing costs increase. If you're a customer who's privately reveling in Netflix's subscription drop-off, I'd just say be mindful of the big picture. Also: Of the fact that the company acted when customers barked (and, incidentally, before its third quarter numbers were public) by shuttering Qwikster and apologizing for moving too fast, too soon.

PaidContent:

Investors have continued to punish Netflix for failing to meet expectations with yesterday's disappointing Q3 earnings report, sending the stock down nearly 35 percent by early afternoon as the video renter lost more subscribers than expected during the period. That obscured some otherwise stellar performance numbers: a 42 percent increase in total subscribers to its video rental services year-over-year, posted 63 percent higher profits and a 49 percent revenue gain—all of which suggests that Netflix should be able to ride out the storm, though it will take a while until it's out of the woods.

But not all of the second-day stories about Netflix and Hastings were glowing. "In hindsight," Reuters' Felix Salmon observed, "it's pretty clear that Netflix CEO Reed Hastings let the bubblicious stock price—it briefly topped $300/share at the beginning of the quarter—go to his head."

This lead in the New York Times probably didn't help on the big-head front:

Reed Hastings was soaking in a hot tub with a friend last month when he shared a secret: his company, Netflix, was about to announce a plan to divide its movie rental service into two — one offering streaming movies over the Internet, the other offering old-fashioned DVDs in the mail.

"That is awful," the friend, who was also a Netflix subscriber, told him under a starry sky in the Bay Area, according to Mr. Hastings. "I don't want to deal with two accounts."

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