WhatBOX?: Netflix Subs Flee, Street Responds

Netflix may have tried to apologize, but it doesn't appear to be what customers want to hear. A new study suggests that 16% of current subscribers have plans on canceling their streaming or DVD-rental service.

Worse still is that another 14% is on the verge of leaving, too... So says a recent survey by Frank N. Magid Associates.

Of significance is the study's timing: Nearly 1,000 Netflix subs and non-subscribers were polled the week before the now-infamous price hike took effect. Couple that with the company's own acknowledgement that it expects to lose upwards of 600K customers in Q3 alone and reaction from investors has been disastrous.

Netflix shares have plunged more than 30% during the past three days of trading as the markets continue to react to the company's announcement that it will separate its DVD mail-order business into its own service dubbed Qwikster. Janney Montgomery Scott analyst Tony Wible says it appears the company is "actively trying to push people away" from the disc-rental biz. Which, most agree, would be a boon for Coinstar and its Redbox DVD-rental kiosks.

However, some analysts see some light at the end of the tunnel, as Stifel Nicolaus' George Askew says splitting the two businesses would create a pure-play online model for Netflix with more freedom to experiment. The analyst also says the separation of streaming and DVDs would set the stage for a possible sell off of the disc business down the road.

Wible disagrees, putting the odds of a sale at less than 50%, as finding a buyer for the shrinking DVD market would be difficult at best. "I think you'd find a lot of skepticism, like the Postal Service trying to do an IPO right now," Wible said. "There are issues that are only going to get worse." Ouch.

Look, we aren't trying to beat a dead horse, but the Netflix "apology" to subscribers and investors this week seems like crocodile tears.•

RealNumbers: Cable Broadband Numbers Up, Shares Flatline

Ah broadband ... it's THE place to be these days as the world rushes headlong into internet-everything.

The numbers are impressive:  Across the past year "true" (i.e. non-DSL) broadband providers have added nearly 4M subscribers to their rolls.  That's an 8.6% y/y growth rate.  And, with the notable caveat of the economy, it shows little signs of slowing. 

Clearly cable operators have been major beneficiaries in this growth:  Across the 12 months ending June 30, 2011 the top 10 added 2.39M broadband subscribers, mostly at the expense of telco DSL services.  That's very nice.  A quick look at the overall numbers, however, suggests that the biggest beneficiaries of the rush to "true" broadband have been the same telco players watching their DSL subs drain away.  Looking back over the past two years, AT&T U-Verse and Verizon FiOS have not only gained strongly in broadband subs, they've also steadily increased their share of the pie, boosting their "true" broadband presence from 4% at the end of 2Q08 to 10% at the end of 2Q11.

Editors Note:  This RealNumbers was taken from our recently released The BRIDGE quarterly report.•

Etc: Microsoft Flirting w/ Cable? - TWC Gets Insight Approval - Fox News is "Best"

Strategy: Microsoft is reportedly flirting with Comcast and Verizon for deals to fuel its Xbox TV venture. While the industry has long thought of the gaming console as cable STB killer, DigiDay writes that the two services may actually get along rather well. Read more.

In Court: Viacom filed a lawsuit against former stockholders of former subsidiary Harmonix Music Systems seeking payment of nearly $131M. The company bought Harmonix, the studio which developed the Rock Band video game franchise, in 2006... then the market for music-simulation games vanished. Viacom wants some of its money back. --- Cellular South became the latest entity to sue to block the AT&T-Mobile merger this week, saying smaller regional carriers like itself should have a voice in the negotiations.

$$$: News Corp. is looking to make amends with the family of Milly Dowler, the murdered teen whose phone was allegedly hacked by News of the World, to the tune of $4.7M ($1.6M to charity).  Bringing the "phone hacking" mess home to the US, The Hollywood Reporter said last night the Justice Dept. has sent a letter to News Corp. concerning "foreign bribes. --- Warner Bros. and Charlie Sheen are reportedly finalizing a multimillion-dollar settlement that would put an end to the two sides' public split. LAT has the story. --- A handful of communities in Westchester County, NY are trying to recoup upwards of $800K in payments from Cablevision for fees they say the MSO owes as part of its franchise agreements. Details here.

M&A: Time Warner Cable secured U.S. antitrust approval to buy Insight Communications in a deal valued at $3B. Insight is the 10th-largest MSO with 750K customers in Illinois, Indiana, Kentucky and Ohio.

Rules & Regs: The FCC sent its net neutrality rules to the Federal Register late last week; the rules  will go into effect 60 days after publication. Opponents are getting ready to pounce, as the rules can be challenged in court immediately after being published. --- The FCC also unveiled the previously-secret cost model from the nation's largest telcos' Universal Service reform proposal known as the ABC Plan. Connected Planet has details. --- Technology Policy Institute VP of Research Scott Wallsten testified before the U.S. Senate Committee on Finance that a permanent tax credit is needed to boost research and development to stimulate innovation in the private sector. More information at the Institute's website.

Programming: Discovery Communications will premiere two new NFL-branded series tonight at 8pm ET on HD Theater: NFL Single Coverage and Greatest NFL Rivalries. (HD Theater will be renamed Velocity Network beginning Oct. 4.) --- Verizon's official FiOS TV blog says the service now offers 30K titles per month, more than half of which are free.

Research: A survey by Pew Research found that text messaging is the preferred method of contact for 31% of U.S. adults. The group which texts the most is unsurprisingly 18-24 year olds, who send an average of 110 text messages a day. (Wha??) The daily average for all adults is around 42 messages, the firm said. --- A Poll Position telephone survey of TV viewers revealed 36.1% of respondents think Fox News is the "best" cable news network, compared to 27.8% for CNN and 16.6% for MSNBC. 

Retail: Forbes contributing blogger Chunka Mui says Best Buy is doomed in an online world. As quarterly profits plunged 30%, the retail chain launched a new online marketplace in hopes of remaining relevant. Read more. --- Beyond Philosophy says Apple delivers the "most admired customer experience" in the marketplace, with Amazon.com, Zappos, Starbucks, and Disney rounding out the top 5, respectively.

--- Catch today's media market news from The Evening BRIDGE. •