10 Dying (or Dead) Brands Netflix Hopes to Learn From

Netflix (NASDAQ:NFLX) CEO Reed Hastings all but admitted the old Netflix model is slowly decaying. Netflix stock was slammed on news it lost 1 million disgruntled subscribers after launching a dual-pricing model, then the Netflix founder dashed off a now infamous apology that was more self-justification than a mea culpa.

In that missive, Reed Hastings actually had a very important statement we should all focus on:

“Most companies that are great at something — like AOL dialup or Borders bookstores — do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

Say what you want about Netflix stock, its CEO and the rather ham-handed split of DVD and streaming businesses. At least NFLX acknowledges that DVDs are not long for this world and that Netflix can’t continue in its current form forever.

That’s a hard lesson many companies don’t learn. So while everyone is giving Reed Hastings and NFLX a poor review right now, consider the alternative: Netflix could be in the same boat as these once-popular consumer businesses that are now in very dire straits:

America Online: Yes, AOL (NYSE:AOL) still is around. Yes, it has next to zero debt, and creditors are what drive a company to bankruptcy. But Hastings was right to call it out in his memo to customers. This once-powerful Internet company is now the poster child for struggling tech companies that haven’t adapted. As InvestorPlace author and former AOLer Jonathan Berr reported recently, AOL’s subscription business generated $201.3 million, or 37% of AOL’s $542.2 million in Q2. Yet the company finished the second quarter with a loss of more than $11 million because dial-up revenue slumped 23%. Just imagine what will happen as this inevitable trend continues. With a mess of an org chart after the Huffington Post buyout and layoffs this spring and disgruntled Tech Crunch blogger Michael Arrington airing the company’s dirty laundry in public … well, you wonder how long AOL can carry on.

Yahoo: In a very similar boat is Yahoo (NASDAQ:YHOO), which recently has stolen the spotlight from AOL thanks to the ugly ouster of Carol Bartz. The company’s once-impressive search capabilities are now just a storefront for Microsoft‘s (NASDAQ:MSFT) Bing as the pair try to fend of the monster that is Google (NASDAQ:GOOG). In regards to display advertising and content, Yahoo is doing better than AOL — but revenue is tracking off about 15% in fiscal 2011 compared with the previous year. And that’s on top of a slight decline from 2009 to 2010. A change in leadership might rally the troops or spark interest in a private equity buyout, but it doesn’t stop the bleeding at Yahoo. As portal sites for legacy email addresses wane and Facebook and smartphone apps become the new way to get news, Yahoo will continue to suffer.

Nokia: It’s a testament to how fast technology changes that a company that is in many respects dominant right now still can be panicking and expecting certain doom. If you’ve never read the infamous “burning platform” memo from Nokia (NYSE:NOK) CEO Stephen Elop, I highly recommend doing so in its entirety. In a nutshell, the company leader admits Nokia has nothing close to Android or Apple (NASDAQ:AAPL) iPhone gadgets and has a stark choice — stand on its current platform of fading dominance as it burns to the waterline, or jump into the cold ocean waters and hope the company can swim somewhere before it freezes to death. Think that’s hyperbole? Well consider this: Nokia had an approximate 32% market share of the 1.43 billion mobile handsets shipped in 2010. That is simply stunning. Its share of the North American market? Just 4%. Presuming the rest of the world will soon want what U.S. smartphone users want and will follow this trend, the writing is on the wall.

There still might be a glimmer of hope for the previous three stocks, since they all have a little time left on the clock and wiggle room in their balance sheets. But here are a few other names from the dustbin while we are harping on brands that failed to adapt:

Tower Records: Remember this publicly traded stock? It was quaint that it called itself a record store long after the move to CDs and tapes. The anachronistic name was even more painful once MP3s came along and drove Tower to bankruptcy in 2006.

Borders: In more recent memory but in the same vein, the rise of e-books and the dominance of online book sales via Amazon.com (NASDAQ:AMZN) and others slowly but surely pushed this brick-and-mortar bookseller into irrelevancy.

Books a Million: Don’t feel lonely, Borders. Books a Million (NASDAQ:BAMM) won’t be far behind.

Circuit City: Chalk another one up to Amazon. Half of electronic sales moved to online, yet management didn’t see the writing on the wall. What’s more, while Best Buy (NYSE:BBY) was able to build a name for itself with the so-called “Geek Squad” and focus on customer service, Circuit City missed the bus — until a late and half-hearted attempt at a Geek Squad service knock-off dubbed Firedog. Throw in the recession and brutal consumer spending cutbacks, and you get a big-box retailer that was a big failure.

CompUSA: Ditto. Only it didn’t make it past 2007, so it can’t blame the recession. But it’s worth noting that CompUSA is owned by Systemax, the same company that swooped in to pick the carcass of Circuit City, and still is operating stores in Florida and Texas.

Blockbuster: There has been enough dancing on the grave of this once-dominant video store in the wake of recent Netflix news, so I won’t rehash things. But it’s interesting to see that the leftover Blockbuster streaming video archive bought by Dish Network (NASDAQ:DISH) for $228 million finally could be relaunched this week. Reminds you of a good B movie zombie flick, with Blockbuster rising from the dead to eat Netflix’s brains.

Linens ‘n Things: OK, I’m admittedly not one for scrapbooking and silk flowers. But can even the craftiest of Americans explain to me how this chain could justify 571 stores and 7,300 employees at the end of 2006? The online push for crafting — both sales of supplies and finished goods via handmade kitsch sold on eBay (NASDAQ:EBAY) and sites like Etsy — was well under way. Linens ‘n Things currently is enjoying an “online revival,” for those who want to spend $743 on a 31-inch copper witch weathervane for Halloween. Who says this brand is dead?

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/netflix-dead-brands-aol-yahoo-nokia/.

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