Accountability for Business Decisions

Over the last couple of months we have followed the Netflix story here on the blog, and used it from time to time as an illustration showing the difference between the business world and the racing world.

For those who have not followed along, the story is pretty straightforward: The online video streaming company raised prices in Q2, much to the ire of its customers, and they paid for it, as their stock dropped from around $300 to $220. This loss of market cap was mainly due to future quarter projected earnings. The market said - you need to grow eyeballs, and raising your prices is not the way to do it. The company was punished.

After the exacta of annoying your customers, and your shareholders, a mea culpa was issued on their blog. They backtracked some, and tried to re-energize.

However, today Netflix's quarterly earnings came out. The price hike, although good for a short term revenue bump (sound familiar high takeout proponents?), killed their subscriber growth.

• Netflix reported 21.45 million streaming subscriptions at the end of the third quarter and 13.9 million subscribers to its DVD-by-mail business. The company said total U.S. subscriber base by the end of its third quarter was 23.79 million—below expectations of roughly 24 million. Netflix lost 810,000 subscribers between the second and third quarters.

Further, growth does not look good for the next quarter, based on churn rate:

• More worrisome, however, was that in the latest period, churn rate in the U.S.—a measure of customer cancellations and free subscribers—rose to 6.3% from 3.8% a year earlier and 4.2% in the prior quarter.

There was hell to pay and they were punished again. The stock, afterhours, dropped 27% to $85, down from over $300 only a couple of months ago. Gone are executive bonuses, millions in stock options, big valuations, and good press. Takeover chatter (i.e. throw the bums out) and downgrades are coming fast and furious.

If we compare this accountability and speed of such with our sport, there simply is no comparison. Racing makes Netflix look like Apple. Our sport has lost upwards of half its customers, and revenues from betting are falling and have been falling since about 2003.  California, perhaps a perfect example, raised prices on January 1st this year (doing what  Netflix did), and handle has fallen about $200 million dollars. Yet, California continues along the same path, making excuses for the losses, with zero accountability. Most of our so-called "racing press" even gives them a pass.

Lose half your business over a decade? Raise your prices in 2011 and lose $200 million in handle? Ah, it's the economy and no one likes racing. Don't blame us.

During the Netflix earnings call this evening the CEO responded:

• CEO Reed Hastings and Chief Financial Officer David Wells acknowledged the anger sparked by its change of pricing plans for subscribers. "We've hurt our hard-earned reputation, and stalled our domestic growth."

That's something we will likely never hear in our sport, ever, because without accountability, there is no need to respond. It's a big reason why we're in the state we're in.