The bad news: As everyone who pays any attention to the company knows, the company’s stock got hammered. So Hastings’s Netflix holdings did, too.

His 4.4 percent stake in the company was worth around $437 million at the beginning of 2011, when NFLX was trading at $175. By the end of the year, the stock was worth $69, and Hastings was down to a mere $172 million.

Netflix stock has climbed back a bit and is now at $106, and that puts Hastings back at $265 million. But that news has a flip side, too: Late last year, Netflix gave Hastings a pay cut for 2012 and cut his stock awards for the year in half, to $1.5 million.

Who wants to haul their discs to a store — and take out their credit card — to do something that should work at home, for free?

BTIG Research’s Rich Greenfield has the same take, more or less. But Greenfield has actually gone ahead and tried the service out (registration required), and he thinks the experience itself is … really good:

“We believe Vudu is a very well done iVOD/EST service and, at worst, Vudu will gain far greater consumer awareness from the industry’s disc-to-digital marketing campaign.”

I still think the overall concept is flawed here. If Hollywood wants people to embrace this idea, which is designed to promote high-margin movie purchases instead of lower-margin rentals, it shouldn’t involve travel and an upfront payment.

And some of the fine print will trip people up, as well. As I noted last month, Walmart’s scheme comes with some important asterisks, like the fact that Disney/Pixar titles won’t work, and that iPad users can only stream the files to their machine, and can’t download them.

But give Walmart credit for a digital product that seemingly does at least some of what it ought to do, right out of the box. Greenfield has a seven-minute walk-through of the process (spoiler: contains no violence, nudity or adult themes), if you’re interested:

As SVP of Worldwide Digital Media, Kessel oversees the company’s digital strategy, including books, music, video and the Kindle.

“After incredible success leading the Kindle team over the last several years, Steve Kessel decided to take a well-deserved and long-planned-for sabbatical,” said Amazon spokesman Drew Herdener.

Herdener declined to say when Kessel would return, but said that, in the meantime, Dave Limp, who runs the Kindle device business, and Russ Grandinetti, who runs Kindle content, were overseeing the digital business.

Kessel’s absence follows the launch of the Kindle Fire tablet late last year, and comes at a time when Amazon is aggressively pushing into digital content. Just today, founder and CEO Jeff Bezos sent a letter to shareholders, emphasizing how the Kindle is disrupting the book publishing industry.

Some sources I talked to believed that Kessel, 46, was unlikely to return to Amazon and were characterizing his departure as early retirement. Another source pointed to internal documents, which listed Kessel as overseeing Donald Katz, the CEO of Audible, the company’s audiobooks group. However, Amazon’s investor page continues to list Kessel as the SVP of Worldwide digital media, and Herdener said Kessel is not retiring and is not in charge of Audible.

As one of 10 executives who report directly to Bezos, Kessel has worked closely with the visionary founder since 1999. Initially, he served as the VP of U.S. Books, Music, Video and DVD, and then was the VP of digital before landing in his current role.

According to a BusinessWeek article, it was Kessel who conspired with Bezos in 2004 to explore the radical idea of the online retailer making their own hardware.

Over the years, Kessel has been quoted occasionally in press releases, providing updates on how well the Kindle is selling. In October 2010, he said: “It’s still October and we’ve already sold more Kindle devices since launch than we did during the entire fourth quarter of last year—astonishing because the fourth quarter is the busiest time of year on Amazon.”

Amazon has never released specific sales numbers about the Kindle — a secret that has largely stayed under wraps, likely due to the company’s small management team.

Kessel received his bachelor’s degree in Computer Science from Dartmouth College, and an MBA from Stanford’s Graduate School of Business.

Let’s assume that some of you are interested in taking your old DVDs to Walmart, and paying up to $5 a disc so you can access the movies on them from Vudu, Walmart’s cloud-based service. Fair enough — different strokes and all of that.

But we’re going to have to shrink the size of this theoretical group a bit. Because Walmart’s new “disc to digital service” won’t work for:

• People who want to watch Disney or Pixar movies. Disney is working on its own cloud service, and isn’t joining the five other major studios on this one.
• People who want to download the movies to iPhones and iPads. Users of iOS can stream Vudu movies to their devices, but can’t keep them on their machines.
• People who want to stream or download their movies on Android phones or tablets. I’m sure there’s a good biz-dev reason that Vudu doesn’t support Google’s OS, because I can’t think of a technical one.

You can download and stream movies to Windows or Mac PCs. Walmart says Vudu will work on “more than 300” devices, but I only count 211 on the service’s Web site, and most of those are Internet-connected TVs and Blu-ray players.

I guess there are some people who would rather go to Walmart and upload their movies instead of ripping them directly from their DVDs to their PCs, even though it’s very easy. Maybe they are very, very interested in obeying the law, because — weirdly — it’s technically illegal to copy a movie you own, even for personal use.

But I can’t figure out who’s going to use disc-to-digital to watch movies on their TVs, since it’s very likely they already have a machine that plays discs sitting right next to their TVs. (Based on the promotional video Walmart has rolled out, it can’t either. As you can see at the bottom of this post, it’s playing up disc-to-digital’s mobile advantages.)

I’m also pretty skeptical that anyone who doesn’t have kids will have much interest in making digital copies of movies they already own. The reason that Hollywood is working on schemes like this to promote movie ownership is that most people have figured out they’d rather rent. Not because they’re constrained by device compatibility, but because they only want to watch a movie once or twice.

Kids’ movies are the big exception here. I think lots of people would jump through lots of hoops to get copies of kids’ movies on as many devices as possible. But the absence of all those Disney movies, and all those Pixar movies, sure looks like a problem for that pitch.

But I don’t want to end the evening on a negative note! So take a look at Walmart’s video. It’s pleasant enough. And perhaps at some point, Walmart figures out how to rope Disney in, add more devices to its lineup, and actually deliver on the promise sketched out below:

We Twihards saw it coming at the end of the last installment of the “Twilight” movie franchise, as the main character, Bella, finally got to be a sparkly vampire.

Actually, she seems to have become a rather pasty white one, with blood-red lipstick — which is also the look being sported by her long-tortured paramour, Edward, in this new clip from the second “Breaking Dawn” film.

The video ran in an exclusive deal with Target in its retail stores, connected to the DVD release for the first part of the movie. Guess what? Someone had a smartphone and caught the whole thing.

Kids today! Enjoy:

But that hasn’t happened yet. And it’s possible that even as Web video grows, TV will continue to do just fine.

That’s the thesis of Bernstein analyst Todd Juenger, who made his case to investors earlier this week. Two slides from his presentation sum it up well.

First, he notes that even though eyeballs have moved away from broadcast TV, ad dollars have not (click to enlarge):

Even more important: Though the Web ad business is growing, TV continues to grow, too. And while other old media industries have shrunk, their losses haven’t turned into equivalent gains for the Web (click to enlarge).

But what about consumer spending? After all, Netflix is streaming more than 2 billion of hours of video every three months. That has to cut into TV, right?

Not really, says Juenger, noting that overall TV viewing is still up. Instead, he says, Netflix, iTunes, Amazon et al are eviscerating the DVD business. Important distinction.

And yes, all of this could eventually change, particularly if the digital guys figure out how to break up big cable’s lock on programming. But as we keep pointing out, that’s a very strong lock. It’s not going away anytime soon.

Totally evil.

Also, totally untrue.

So says Netflix PR rep Steve Swasey. “Completely bogus,” he says.

And I’ll take his word over the tale that has spread over the Web the last few days — that whoever owns the streaming rights to the 1992 Whitney Houston/Kevin Costner film had yanked them away from Netflix after Houston’s death, so it could make more money selling discs.

The reason that story didn’t make any sense to me isn’t because Hollywood studios are paragons of virtue, but because digital licensing deals are usually rigid, and start and stop on certain dates. If they allowed rights holders to yank their stuff on a whim, then we’d see it all the time, right?

And sure enough, it turns out Netflix hasn’t had the streaming rights to “The Bodyguard” — which belong to Time Warner’s Warner Bros. — since the end of last year. “We didn’t renew it,” Swasey says.* Netflix still rents the DVDs, if you’re into that kind of thing.

Ah. But what about that Netflix rep who supposedly told talk show host and publisher Dan McDermott that a “production company” was pulling “all the streaming titles we have of Whitney Houston,” so it can make a “very large amount of money”?

This one is harder for Swasey to say is categorically false, since he didn’t hear the exchange himself. But he says it’s “highly doubtful” that a rep told any caller anything beyond the fact that the movie wasn’t available. Because support reps are trained to offer very little information beyond that, Swasey says.

So, perhaps a rep did think way outside the box here, but I tend to believe Swasey’s story here, too. Always more fun to imagine big companies behaving outrageously, but if that happened every time we imagined it did, it wouldn’t be outrageous.

*Perhaps there’s a good story about Warner Bros. titles leaving Netflix in general, since the studio and its parent company have had a … strained relationship with the movie service.

Streaming is the future. We’re focused on it. DVD will do whatever it’s going to do. We’re not — we’re going to try to not hurt it, but we’re not putting a lot of time and energy into doing anything particular around it and then we’re focused on, how do we take advantage of this incredible global streaming opportunity.

Now, with that context in mind, consider this news: Netflix announced last night that customers could sign up directly for a $7.99-a-month DVD-only plan by visiting dvd.netflix.com.

Some of my fellow typers believe that this is a sign that Netflix has re-embraced the DVD business, which has much better margins than the streaming business, but is dropping away, quarter by quarter.

That would be a good narrative, but I don’t think it’s true.

Consider:

• This is the same $7.99 DVD-only plan that Netflix introduced last July.
• It’s the same URL that Netflix introduced last July. Apparently, it must have gone away at some point between then and now, but the fact that no one seems to have noticed its disappearance is telling.
• New customers who head to the Netflix home page will have no way of knowing that Netflix offers a DVD-only plan. If they click around a bit, they’ll find a note telling them they can add DVDs to a streaming-video subscription plan, but no word of the disc-only option.
• It remains nearly impossible to give someone a Netflix gift subscription that includes DVDs.

This doesn’t sound like a newfound appreciation for the DVD business to me. It sounds like Netflix is continuing to “not put a lot of time and energy into doing anything particular around it.”

So why bother with the new/old URL at all? I asked Netflix PR for comment; if they find the time or energy to respond, I’ll update here.

On another level, however, I understand the motivation. When it comes to delivering audio-visual content to a wide audience, the Internet has lowered the barriers to entry so far that anyone with even the dinkiest camera can become a major broadcaster. The television industry may face a crisis of overhead when a large number of scrappy upstarts deliver comparable value with almost no fixed costs. Also, there are some aspects of the television business that the Internet simply does better, specifically when it comes to reaching an audience.

So there is the scent of blood in the water, and out of the resulting frenzy a few lessons have appeared. Here are four of them.

There doesn’t have to be a difference between a “channel” and a “show.”

You probably have a clear understanding about what a television channel is. Comedy Central is a channel. Your local CBS affiliate is a channel. A channel is the thing you tune in to at a specific time to watch a particular show. A channel runs a lot of shows on it. Time Warner Cable offers 900 channels. This seems like too many. Bruce Springsteen wrote “57 channels and nothing on.” That sounds so quaint now.

But if you have a conversation about YouTube channels with this concept of a “channel” in your head you may experience some cognitive dissonance. There are “tens of millions” of channels on YouTube. One company, Machinima, operates 3,380 of them. That’s literally 100 times as many channels as are owned by NBC Universal, and it’s not enough. YouTube just launched 100 more channels with premium content. YouTube must be using the word “channel” differently. Except they’re not.

Both a YouTube channel and a television channel deliver a stream of content from a transmitting device to a receiving one. Viewers tune in to a television channel by selecting its number; they reach a YouTube channel via its URL. The main difference is that the cost of creating a television channel from scratch is incredibly high, while on YouTube it’s pretty close to zero. Unlike television, a YouTube channel can turn a profit with very little programming. The comedian Ray William Johnson, for example, has one of the most lucrative channels on YouTube. It plays one show. That show adds 12 minutes of new programming per week.

If a channel online costs next to nothing, and you can build one around a single show, then why do television shows need television channels at all? Every once in a while there’s a lot of fuss about getting cable channels à la carte. But who cares about that when you can have à la carte programming?

I like to think about this in the context of “The Daily Show.” On cable, you’re limited to 30 minutes of “The Daily Show” per day, and you have to tune in at 11 pm or set your DVR to watch it. There could easily just be a “Daily Show” channel, with all the extra programming that Comedy Central now reserves for the Web site, plus spinoffs for the various “Daily Show” correspondents. More content means more places to sell advertising, which means more profit. One challenge, of course, would be getting the audience to modify its behavior, but new technology seems to be inspiring this already.

Programming can now be delivered to your television set through a remote control.

Let’s define “remote control” as a handheld piece of electronics that tells your television set what to do while you’re sitting on the couch. Smartphones and tablets fit into this category, and before you argue that this definition is too broad, I submit that an iPhone is no less a remote control than it is a camera. It commands your television set far more profoundly than your traditional remote control. At least, if you have an Apple TV. Which you should.

The Apple TV comes with a technology called AirPlay, which allows you to throw videos wirelessly from your phone or tablet to your television set. Got a movie sitting in iTunes on your computer? You can watch it on TV via AirPlay. Find a video you want to watch embedded on a Web site you read? If AirPlay is available, a little button will pop up and you can stream the video to your TV. Need some good recommendations? Try one of the many “discovery” apps out there, like Shelby.tv or ShowYou or VHX. They skim your Twitter and Facebook feeds looking for videos your friends have posted. And you can throw those to your TV.

There are apps for ESPN and Discovery Channel and PBS and other traditional channels that allow you watch their shows, on demand, on your TV, via AirPlay. There are also a growing number of apps for channels that have never been included in a traditional cable provider’s lineup. The Wall Street Journal’s news channel, WSJ Live, is one of them. Time Warner Cable doesn’t carry it, but my iPad does.

I should note that WSJ Live is also available in the main Apple TV library, so you don’t actually need to use AirPlay to watch it. But the fact that you can illustrates my point. The remote control has become a very personal device, one that you carry around with you all day long, one that you use to store and index your favorite media. A viewer is just as likely to watch a channel she’s added to her home screen as anything available in the cable menu. The programming of her choice routes through her remote control.

Marketing and distribution are often the same thing.

Last month, IFC released the entire first episode of the second season of “Portlandia” online a week before its airdate. They used an embeddable video player, so that any online publication could feature the episode on its Web site. Individual sketches from the show were also made available in the same way. IFC didn’t just tease the show or talk it up, they let people actually see it for themselves. The result was an 81 percent increase in viewership among 18-49 year olds when the show returned to the network.

There are few examples of this sort of thing happening before the Internet. A movie poster hanging in a theater where that movie is playing, perhaps, or a DVD insert in a magazine ad. But this is something the Internet does really well. A single sentence can promote a film and deliver it to your computer at the same time. Allow me to demonstrate: “This video is amazing.”

That, of course, is the lifeblood of online publishing. Here’s something that resonated with me, I’m recommending it to you, my audience. They call it “curating” now. Somehow that word got separated from “blogging” recently, and I’m not entirely sure how or why. I think Tumblr and Pinterest had something to do with it. But curating, which is a thing bloggers do, is a distinct talent. It’s highly respected in other manifestations, such as museum curators or fashion buyers or television programmers. It was curators who spread that “Portlandia” preview around. And when you factor in the marketing power they brought to that show, and you consider how much a network pays to advertise a program in general, there’s only one conclusion to draw. Online curators are the most undervalued talent in the television industry.

A few of those new YouTube channels seem to recognize the power of the curatorial voice. Vice, Pitchfork, SB Nation and the Bleacher Report all received funding to create new YouTube programming. Presumably their editors will create shows that they’d want to watch themselves, and with that level of personal investment, they’d vouch for those shows to their readers.

Television is no longer that different from publishing.

Just last week, the Gawker Media site Kotaku announced a programming schedule similar to that of a television network. This strategy was conceived well over a year ago, and is designed to sell audience size to advertisers, the way television does, rather than pageviews, which have been dropping in value for years.

This is only the latest example of conceptual overlap. Video embedding took off after the launch of YouTube, turning online publications into versions of The Daily Prophet, that newspaper from Harry Potter with the magical moving pictures on the front page. Some Internet video hosting and streaming services are built on content management systems designed for online publishing. When you upload a video to Blip, the last thing you click to make it go live is “publish.” Awl Music, the music video channel launched by The Awl in January, is run entirely on Tumblr. You can watch it on a television set connected to Google TV.

Both traditional and online publishers are producing original video series with increasing frequency. Reuters, Slate and The Wall Street Journal all have news and documentary programming on the new YouTube channel lineup. The New York Times and New York Magazine have been doing their own video programming for years. It’s only a matter of time before some of these compete with the cable news channels.

Eric Spiegelman produces the Web series “Old Jews Telling Jokes,” which is about to launch its fifth season. He helped bring the hit Japanese television show “Retro Game Master” to Kotaku.com, and he helped launch AwlMusic.tv in partnership with TheAwl.com.

But at least as important are the company’s subscriber numbers and guidance, which should give us a much better sense of whether consumers have forgiven/forgotten its missteps of 2011. Netflix has already warned investors that it would lose money through much of 2012, largely because of its international expansion plans.

Q4 Domestic streaming: 22 million subs
Q4 Domestic DVD: 11.17
Q4 International: 1.86 million

Outlook: The company had already warned that it may not turn a profit in 2012, and it is now being more explicit about that, citing expansion costs and diminishing DVD revenue: “We expect modest quarterly losses, as well as losses for the calendar year.

Netflix ended the year with 24.4 million U.S. subscribers. That’s up 25 percent from the previous year, and — crucially — up from the previous quarter’s total of 23.79 million subs. That doesn’t mean its customer base has completely forgiven the company, but at the very least it means it is growing again.

Investors are pleased, and are pushing the stock up 10 percent in after-hours trading.

This is a case where the cheat sheet that Citigroup’s Mark Mahaney provides is particularly useful (click to enlarge).

Here’s a very interesting note on competition from Amazon: Netflix agrees with a New York Post report this morning which says Amazon will offer a standalone video service: “We expect Amazon to continue to offer their video service as a free extra with Prime domestically but also to brand their video subscription offering as a standalone service at a price less than ours.”

Hope to hear more about that from CEO Reed Hastings during the company’s conference call, which starts at 6 pm ET.

Just as the annual Consumer Electronics Show kicks off this week, according to a report from the NPD Group: Consumer electronics sales during this past holiday period dropped six percent from last year.

That should be some not-so-welcome news for the vendors at the Las Vegas gadget confab, which is seeking to show off new wares to excite said consumers.

Those offerings had better step it up, from a look at the NPD Weekly Tracking Service, which noted that the decline was coming off another decline from a year ago.

While 2011′s drop was not as bad as 2010′s, it’s not the right direction, although the tally did not include some of the more explosive device categories being prominently featured at CES, such as tablets.

Said NPD: “Total consumer technology sales (excluding cell phones, tablets, e-readers, and video games) fell 5.9 percent to around $9.5 billion for the 5 weeks ending December 24, a slight improvement over the 6.2 percent decline in 2010.”

Sales of personal computers and televisions fell 4 percent, with flat unit volumes.

“2010 was the first year in quite awhile where the real drags on the core CE marketplace were not TVs and PCs,” said Stephen Baker, VP of industry analysis at NPD, in a press release. “Revenue for those two segments outperformed while the rest of the market dropped by more than 7 percent. The accelerated rate of decline in older technology categories such as DVD, GPS and MP3 players put a ceiling on how well the industry could perform during the holiday.”

Consumers did snap up flat-panel TVs, with screen sizes of 50 inches and higher rising by 32 percent in unit sales.

And the rocky 3-D TV business also grew by more than 100 percent, with TVs with “3D capability accounting for more than one in every five dollars spent on TVs during the holiday.”

Also up: Home theater systems (10 percent) and stand-alone streaming devices (65 percent).

But those increases did not stem the overall negative tide.

For other sectors, here’s the damage to holiday revenue in percentage change from 2011 dollars spent:

Blu-ray players: Down 17 percent.

Camcorders: Down 42.5 percent.

Digital picture frames: Down 37.5 percent.

GPS: Down 32.6 percent.

HDD: Down 25.1 percent.

Mice and keyboards: Down 7.1 percent.

MP3 players: Down 20.5 percent.

Multifunction printers: Down 9.9 percent.

Point-and-shoot cameras: Down 20.8 percent.

MORE CES NEWS:

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Which means we’re in for an interesting game of chicken between Time Warner’s movie studio and the two rental services. And the result will be meaningful for Netflix, too.

Here’s where things stand: Warner Bros wants to double the “window” that keeps new DVDs away from rental services from 28 days to 56 days, a strategy that’s supposed to encourage would-be renters to buy DVDs instead. Netflix intends on going along with the plan and will be able to buy discs directly from the studio at wholesale rates.

Warner plans on announcing the new terms next week at the Consumer Electronics Show. But though I reported yesterday that Dish Network’s Blockbuster and Coinstar’s Redbox had signed on, the two companies — directly and indirectly —  say that’s not the case. Earlier today a Coinstar rep told me the company won’t agree to a longer window, and a person familiar with Blockbuster’s thinking now says the same thing.

If neither side backs down, then Blockbuster and Redbox would have a marketing advantage over Netflix, since the companies could boast about getting new movies before their rival.

But that assumes they can get their hands on the movies. That will be costly, and perhaps quite difficult.

In the past, Redbox has bought movies directly from retailers (Netflix also used to do the same thing in the service’s early days. But chains like Wal-Mart and Target have instituted buying caps on their discs  that are supposed to thwart that strategy. (Thanks, Janko Roettgers.)

Grab your popcorn!

A new deal between Time Warner’s movie studio and Netflix, Redbox and Blockbuster will double the “window” for new releases. That means the services will now have to wait 56 days after the discs first go on sale to offer them to their customers, instead of 28 days. [UPDATE: Redbox parent Coinstar now says they haven't agreed to a new deal; see below]

The move is part of Hollywood’s ongoing campaign to bolster flagging DVD sales, and sources tell me the new deal is supposed to be announced at next week’s Consumer Electronics Show in Las Vegas. Warner Brothers executives have already talked publicly about extending the current window.

This is the second time that Warner has been able to get the rental services to wait before distributing its movies.

In 2010, it struck deals with Netflix, and later Coinstar’s Redbox, to wait 28 days before renting its new discs. Coinstar and Netflix later landed similar pacts with most of the other big studios. (Coinstar did up end up in legal battles with Universal Studios and 20th Century Fox, which like this Web site is owned by News Corp.)

Two years ago, Netflix was able to argue that by delaying access to DVDs, it was able to get its hands on more streaming content, and lower prices for the discs it did buy. This time around, though, Warner won’t be granting any additional digital rights to the studios. It will simply be offering them the ability to buy discs in bulk, at a significant discount to retail pricing, like they already do.

Earlier today, news broke that HBO, another Time Warner unit, would stop selling its DVDs to Netflix altogether, but sources tell me the two moves aren’t directly related. Next week’s planned announcement is supposed to be tied to Warner Brothers’ continuing push for Ultraviolet, an industry consortium that’s supposed to allow home video buyers to watch their purchases on multiple machines, in multiple formats.

Reps for Time Warner, Coinstar, Netflix and Blockbuster parent company Dish Network declined to comment.

UPDATE: Coinstar is now commenting, via email. “The current agreement Coinstar has with Warner Bros. is to receive movie titles 28 days after their release. No revised agreements are in place.” The company’s current deal with Warner Bros. expires at the end of January; PR chief Marci Maule referred me to comments CEO Paul Davis made last fall about pursuing “workarounds” if studios try to extend their windows.

Today’s underscore opportunity: A press release announcing that Netflix customers streamed “more than 2 billion hours” of video during the last three months of 2011. CEO Reed Hastings telegraphed this one in December, when he told an investor conference that the company was set to stream “well over” a billion hours for the quarter.

But beyond a boilerplate reference to “more than 20 million streaming members,” Netflix isn’t saying how many customers were watching that video. And it’s not providing any other meaningful metrics until it announces Q4 earnings in about a month. So no need to spend any more time on this one.

Streaming is the future. We’re focused on it. DVD will do whatever it’s going to do. We’re not — we’re going to try to not hurt it, but we’re not putting a lot of time and energy into doing anything particular around it and then we’re focused on, how do we take advantage of this incredible global streaming opportunity.

That was Netflix CEO Reed Hastings, at the UBS media conference earlier this month, reiterating the point that Netflix has been making over and over again for some time: They want out of the DVD business, even though it is generating more than $1 billion a year for them.

Hastings and his team are convinced that even though consumers say that discs are important to them, their usage data shows that few people … use them. “Old fogey discs,” Hastings calls them.

Netflix tried very hard to accelerate the decline of DVDs with the Qwikster fiasco. Since then, Netflix has been careful to tell its subscribers who are still paying for DVDs that it is happy to have them around.

New subscribers are a different story, though. Netflix exclusively pushes its $8-a-month unlimited-streaming option, on its site and in its promotional materials. You have to work very hard to discover that the company still rents DVDs, and that’s by design.

Same deal for former subscribers that Netflix is trying to woo back: Even if you used to get both DVDs and streaming videos from Netflix, the company will only tell you about its streaming plan in its “come back!” emails. (See the screenshot of an email my colleague Tricia Duryee, who quit her hybrid plan this fall, got recently, at the bottom of this post.)

But the message is most clear for people who want to give someone a Netflix subscription as a present: The company no longer allows you to gift a subscription that includes a DVD plan, period.

Go ahead and see for yourself — there’s no way to give Reed Hastings and company an extra $8 a month for a service they’re still providing to some 11 million subscribers.

The one tiny workaround that the company offers (if you look very, very hard — or do what I did, and call up Netflix PR and ask) is the ability to let current subscribers extend their current deal. So, for instance, if you’re currently getting the equivalent of a $16-a-month hybrid disc-and-streaming option, and someone gives you a year-long $8-a-month streaming gift, you can convert that into a six-month hybrid plan.

But, boy, that’s complicated. Easier to just give someone a year of streaming, and then send them a check so they can add the DVD portion on their own. Which is what we just did this morning, here at the AllThingsD Brooklyn outpost.

So to repeat: If you work very, very hard, Netflix will let you give it money, and will let you rent DVDs in return. But it would really prefer that you didn’t.

They’re less happy than they used to be. But they don’t seem to be going anywhere.

That’s the cautiously optimistic conclusion of a new survey Citigroup commissioned over the past few months. It finds existing subscribers still fairly pleased with the service Reed Hastings is offering: 57 percent say they’re either “extremely satisfied” or “very satisfied.” But Hastings’ good will has certainly eroded a bit: In May, a similar survey found 50 percent of his customers in the “extremely satisfied” category. That number is now down to 18 percent.

As Citi analyst Mark Mahaney points out, the survey is a bit skewed, since Netflix subscribers who were most disappointed with the service’s changes — a price hike, an ill-fated attempt to spin off its DVD business into a separate unit, and the loss of programming deal that gives the company access to Sony and Disney movies — have already bailed.

But a different survey question suggests one reason customers are sticking around with Netflix: They don’t see many other options.

While Amazon has been building up its catalog of streaming video, only 9 percent of Netflix customers said they’ve watched movies or TV shows there. And while 15 percent said they’ve used Hulu, that number is down from 19 percent in May. Apple’s iTunes comes in at 8 percent. (Perhaps the reason only 27 percent of Netflix subscribers say they use Netflix is because they’re distinguishing between apps and the site. But that seems like a fairly precise distinction for a large number of people to make, so who knows.)

The very big picture is that Mahaney still assumes Netflix will keep growing. He figures its DVD-only subscribers will drop by 800,000, to 9.9 million, over the next year. But he thinks streaming subscribers will increase 9.9 million, to 30.9 million, and that the company will add a few million more as it expands in Latin America and the U.K. He also thinks Netflix will become profitable again by the end of 2012.

But none of that is going to help anyone who bought Netflix stock earlier this year, when shares had climbed as high as $300. Mahaney has lowered his price target for NFLX, and is now hoping it climbs back to $80.

Sony tried doing this with “Bad Teacher” last month, and the results sound encouraging for the studio. It says its “windowing” experiment boosted digital unit sales by 60 percent, and overall digital revenue by 24 percent.

That is: Most people prefer to rent a movie than buy it outright. But when offered the chance to pay for a download or wait a couple weeks to rent the movie, some folks paid up.

Digital sales of “Bad Teacher” make up a small percentage of the movie’s overall digital revenue (Sony won’t release actual sales numbers), but there’s a lot more profit in each transaction for the studio. Rentals via iTunes run from $3.99 to $4.99 for the Cameron Diaz vehicle, but sales run from $14.99 to $19.99 a pop.

More good news for Sony: It says demand for digital rentals didn’t seem to drop once they became available two weeks after digital sales started. And physical sales — still the most important source of income for the studio — don’t seem to have suffered, either.

That last point is crucial for Sony’s relationships with the retailers it counts on to move old-fashioned discs while stepping into digital at the same time. Retailers like Wal-Mart and Best Buy are selling Sony’s movies via digital outlets, like Wal-Mart’s Vudu, but they won’t do it at the expense of their brick-and-mortar business (yet.)

“The good news that encourages us is that the physical retailers, those are the guys that are playing well and getting good results out of this,” says John Calkins, who heads up digital for Sony’s home video unit. Calkins figures that the promotion for the early digital sales ended up working as marketing for all of the movie’s sales, and thinks that will work with other films, too.

Calkins just tried the experiment again, with “30 Minutes Or Less,” and says that comedy saw similar results. Calkins says he’ll try it one more time in 2011, with a movie he won’t disclose.

You’ll forgive both groups if they’re a tad skeptical.

But if you feel like extending Reed Hastings the benefit of the doubt once more, then pay attention to the shareholder letter he published yesterday — in particular, the part where he explains the company’s content strategy.

In the end, if Hastings does deliver, this is the plan that will let him do it. And it’s a change from the company’s original content strategy, which means some folks haven’t figured it out yet.

Short version: When Netflix was a DVD company, it could afford to offer just about every movie or TV show every made. Now that it’s a streaming video company, it has to pick and choose.

So Hastings is trying to build an $8-a-month version of HBO — a network you pay for in addition to your regular TV package, not one that replaces it. And to make that work, he doesn’t have to have everything — but he has to have stuff you can’t get anywhere else.

Here’s an extended excerpt from his letter:

In television… the networks (ABC, FX, etc.) have long relied upon exclusive content to differentiate among themselves. As video moves online, so too has this practice of exclusive content. HBO has an exclusive license to recent Universal movies that includes its online HBO GO, for example. Netflix has signed exclusive licenses for DreamWorks Animation, for Relativity, and others. In episodic television, exclusives are also the norm. Netflix doesn’t license “Deadwood” from HBO because they see strategic value in keeping it exclusive. Netflix licenses “Mad Men” and “House of Cards” exclusively for much the same reason.

…We don’t have to “beat” Starz or other networks to succeed…We won’t have every movie or TV series; but we do provide enough value that consumers also want to subscribe to Netflix.

Any given consumer will have only one of DirecTV or Comcast, say, for their video service. That is classic either‐or competition. But with premium television networks like Netflix, the more good experiences there are, the more consumers are willing to spend to have multiple channels from which to get enjoyment.

Simple, right? The complicated part is the execution, of course. Hastings and his team have to figure out what their customers, and future customers, will value, and how much Hastings and his team can afford to pay for it.

And if they make the wrong calls — if it turns out that “House of Cards” isn’t interesting to anyone besides Kevin Spacey, or if the DreamWorks movies don’t satisfy people who used to watch the Pixar movies Netflix used to have — then Netflix really is toast.

But Hastings still has some 25 million subscribers, which means he still has plenty of money to keep betting — during his earnings call yesterday, he said the company’s content bill had shot up to $3.3 billion, up from $1.2 billion just a year ago. That’s not enough to pay for an unlimited supply of videos. But it should be enough to build a decent pay TV channel.

But now we’ll get Reed Hastings’s own report card, when Netflix announces its quarterly earnings this afternoon.

As Citigroup’s Mark Mahaney notes, the key numbers to look for aren’t the Q3 metrics — the company has already preannounced that its subscriber numbers are going to be lower than it initially thought — but its guidance for the rest of the year.

That’s where we’ll be able to see the impact of its many stumbles — the price hike, the broken Starz deal, Qwikster’s New Coke moment — or at least what Netflix thinks the impact will be. If Netflix subscribers are really bailing out — and not just threatening to do so on Hastings’s Facebook page — you should be able to see that reflected in its expectations for the next three months.

Remember that shortly after Netflix dropped its first bomb this summer — a 60 percent price hike for many of its customers — management predicted that it would suffer a subscriber blip in Q3, but would recover by Q4. Let’s see if they’ve hung on to that confidence.

Here are Mahaney’s best guesses for Netflix’s Q3 results and Q4 guidance, along with Wall Street’s estimates (click image to enlarge). I’ll be covering the results live at 4 pm ET.

We need to take a few deep breaths and not move quite as quickly. But we also don’t want to overcorrect and start moving stodgily.

— Netflix CEO Reed Hastings, reflecting on a very rough couple months, to the New York Times Magazine’s Andrew Goldman. “It’s causing, as you would expect, an internal reflectiveness.”