Whither Netflix?

http://www.avc.com/a_vc/2011/09/whither-netflix.html

by cwan • 15 years ago

40 39 15 years ago

Won't the price increases more than make up for lost subscribers? (assuming they stop losing them soon).

As their streaming offering gets better, more people will sign up for a streaming only plan, which is actually cheaper than their old streaming+dvd plan used to be isn't it?

Now might be a great time to buy Netflix.

TomOfTTB4• 15 years ago

The issue isn't really profit as much as it is marketshare.

The flawed assumption that people seem to be making is that Netflix will continue to dominate because it was first to market. But that isn't necessarily true. Netflix has to deal with several very viable competitors entering the market including Amazon who is essentially giving a streaming movie service away to entice people to sign up for Amazon Prime (Amazon has found Prime users buy far more than average users so it makes sense for them to incentivize those subscriptions)

It's easier to hang on to an existing customer then it is to acquire a new one. So the market wants to see Netflix hang on to its DVD customers because those customers will eventually go to streaming and will probably stick with Netflix to do it. When those customers leave Netflix's service it makes them up for grabs again.

That's the problem the market sees. They're looking down the road to a future where Netflix has 4 major streaming competitors (Blockbuster, Amazon, Walmart and RedBox with its discount $3.99 plan). So they want to see Netflix hanging on to its existing customers now.

Aron3• 15 years ago

I'm agreeing with your analysis in general. What do you think the odds are of Netflix dropping prices again in the face of competition as they did in 2004? That's certainly marketshare over profit. I presume they'd discount the hybrid customers which are precisely those members that are 'in transition'.

Terretta• 15 years ago

Have you looked at the movies available to Prime members? It's like a roster of rejects from USA Up All Night.

Had an extra Sony BDP-S580 on hand this weekend so checked it out. After contemplating a Jenny McCarthy straight to video versus Clan of the Cave Bear, I had to switch to TV. Studio 60 on the Sunset Strip is great TV, but by itself doesn't make Amazon Instant Video a Netflix competitor.

Nice deck for $120 though, one of the few offering Hulu+.

viscanti2• 15 years ago

It seems like the direction of streaming media is now moving to a studio based model. Each studio would like to create their own streaming service for their content, and reap all the benefits from that. We're seeing that affect Hulu's valuation as well. An aggregated video streaming service needs access to all that content, and the right's holders are less and less willing to negotiate that.

I think the long term is an aggregated model like Netflix, but they're going to have to weather some trying times as studios try to build their own streaming services first. At the end of the day, consumers want one place to go and get all that content. The studios want a bigger piece of the pie and are going to force everyone through some uncomfortable times before they learn their lesson. Ultimately consumers will foot the bill for all the failed experiments and will probably end with a service just like netflix at a higher cost.

Hyena• 15 years ago

I think the major problem here is that the studios are routinely forgetting that thye've never successfully managed full distribution. Never. There's always been another party which aggregated, whether it was movie theaters or stores.

Possibly, they think they can replicate television. But television was either free or 24 hour nichey-ness if it was really popular.

crgt2• 15 years ago

Much scarier for Netflix is the challenge of securing rights to high-quality content for the long haul. This current stock crash is a blip, and their vision of transforming their focus to streaming is brilliant, but it will only matter if they can secure content people want to watch. From the looks of their current negotiations with Starz that will only get harder. The good news for them is that it won't be any easier for competitors to get those rights at a reasonable price. Long term, either the studios build their own infrastructure to stream to the masses or they license someone to do it for them. Guess who is positioning themselves for that role? It may be a bumpy ride, but I wouldn't bet against Netflix.

TomOfTTB4• 15 years ago

"The good news for them is that it won't be any easier for competitors to get those rights at a reasonable price"

I'm not sure this is true. When you look at a company like Amazon or Walmart they have a lot of power to negotiate with that Netflix doesn't. Premium placement of a Studio's new products for example.

Studios make most of their money off the new items and very little off the older ones. Netflix exclusively sells the older items where as companies like Walmart and Amazon control the main distribution models for the newer items. That gives them a lot of power over the studios and a much better bargaining position.

crgt2• 15 years ago

This actually helps Netflix too. The last thing the studios want is to be held hostage by one or two major players that control all the distribution channels and can act as a choke point. Worst case, a viable Netflix gives the studios leverage when negotiating with Amazon & Walmart. Unless you see a reason that this will be a winner-take-all market, the studios need Netflix as much as Netflix needs them. Particularly because of the leverage of the other players that you mention. No?

ams6110• 15 years ago

I wish Netflix could make a deal with someone like ESPN to stream sports events live. I'd gladly pay a premium to get ESPN without being forced to buy a "bundle" of channels I don't want from the cable company.

Aron3• 15 years ago

That seems to be more Hulu's territory. Netflix management has always been pretty good at staying within a tightly controlled niche (dodging Youtube or Hulu or GameFly or 5$ a pop new release type markets).

But yeah, the things you could do with sports and interactivity. Geeze. Money on the table.

dasil003• 15 years ago

I don't think it's money on the table. Sports leagues know where there bread is buttered and they extract a ton of cash out of their fans. The Netflix model is just an order of magnitude less profitable and would cannibalize their existing channels.

morrow4• 15 years ago

Even without changing much to the existing model of interaction I would appreciate the opportunity to pay a reasonable fee for access to non-local broadcasts. My ideal would be the ability to pay a discount rate for season-long subscriptions to sports or leagues, but with the ability to purchase viewing rights at a reasonable rate for games or series that wouldn't otherwise be available with your cable package.

It would be like applying the pay-per-view model that boxing has, but integrating it into a solid, unified distribution platform like iTunes is to music. Offering reasonably priced, a la carte, international sports-viewing-access with discount subscription rates would be incredible, at least in my opinion.

protomyth4• 15 years ago

It looks like the MLB is positioning itself to cut out the middle man when streaming becomes the primary avenue. They have quite the impressive operation.

alanfalcon• 15 years ago

Other than the draconian blackout restrictions. A truly impressive operation wouldn't require me to move to another state to watch my team's games. Actually, I live in Vegas and I still can't watch games for any of six teams that happen to be based in neighboring states.

z2amiller• 15 years ago

Access to live sports is the only thing keeping me from cutting the cord. Everything else we watch is readily available from other sources 'a la carte' which would be much less expensive than buying a giant package of cable channels I never watch.

mpat• 15 years ago

How much would you pay for an ESPN stream? ESPN makes about $3/mo per cable subscriber (not including its other networks like ESPN2, ESPNU, etc). An a la carte equivalent would have to be in the $15-20 range. I don't see this having many takers.

morrow4• 15 years ago

I think the market for an a la carte sports offering would be people who are really only hanging on to cable for it's live sports. If that is the case, then these people could go from paying $60-100 a month to $20 - so it really depends how many of these cable-for-sports-only consumers exist.

protomyth4• 15 years ago

In a lot of ways RedBox is more convenient than Netflix's DVD offering given all the locations (e.g. Wal-Mart, McDonalds). So, given the majority belief that another non-online format is not going to happen, I can see the transition to streaming being the only long way to go.

I just don't see the studios not cutting out the middle man for streaming. The desire to have only the channels I want in cable translates pretty well to buying streams from studios. HBO isn't exactly cheap on cable or satellite currently. I think Netflix will live on for studios that just don't have the amount of content needed to have a whole on-demand service. I just don't think the one-ring style service is going to happen.

veyron• 15 years ago

The question isn't about quantity, but rather about quality. People are willing to pay for HBO because a lot of their shows are really good. What will most likely happen is that the stronger studios are going to run their own services, and the other not-so-great content will end up feeding into an aggregator. And at that point, its not clear if people will continue to pay for that content.

protomyth4• 15 years ago

A single quality show does not make a service. HBO has a good chance, but it would probably provide an anchor brand to a WB service. You need the catalog size also. It is likely that quality shows that don't come from a company with an extensive catalog (e.g. creator-owned production) will be Netflix's best source of material.

jackowayed• 15 years ago

If I were Netflix, I would strongly consider hedging my bets and making a white-label offering so that when HBO/etc decide they want to do their own streaming, it makes sense to pay Netflix for the infrastructure instead of reinventing the wheel.

It seems like Netflix has invested a lot of money into making a large-scale, high-availability platform for streaming video with DRM. They should be able to offer some serious cost savings over everyone trying to reinvent that difficult wheel.

Then they have a chance to become the new network or the new cable company. And they'll already have a commercial relationship with these companies, so it'll be easier for them to sell people on "once the season's over and you've made most of your money, why don't you let us stream those old episodes?"

powertower3• 15 years ago

HBO GO already started to do own streaming service.

Next came Cinemax with www.maxgo.com

Then came TNT for iPad http://www.tnt.tv/mobileapp.jsp

And I'm sure the rest of the cable channels will soon have their own service.

I can't imagine anyone of them wanting to give Netflix anything but the finger.

davidwparker• 15 years ago

Interestingly, I don't know a single person signed up for any of those services. All of my friends and family use Netflix, Redbox, and/or Hulu|Hulu Plus.

I wonder how much they're paying to build/maintain those services and if they're actually profitable.

shaggyfrog• 15 years ago

But I wonder if any of those services can handle the immense scale of usage that Netflix has been designed to handle. GP's idea of a white label service makes a lot of business sense.

georgieporgie• 15 years ago

I've been a Netflix subscriber for over a decade. Last night, I rented my first Redbox video. I don't see myself getting rid of my Netflix subscription, since Netflix has a reasonable number of unusual films I want. However, Redbox is the superior solution for 'normal' people.

Redbox is owned by Coinstar, and I'm really impressed with how they leveraged their understanding of supermarket-based kiosks to deliver media. They were able to expand their existing agreements with supermarkets, and both benefit from the relationship. Netflix is dependent upon the US Postal Service, or upon Internet Service Providers, and neither is a particularly mutually-beneficial relationship.

Since offering your own content streaming service really isn't that hard, media companies are control freaks, and most people don't care about obscure films, I just can't see Netflix being a mainstream solution for long.

By the way, the movie I sent back to Netflix on Monday never arrived. Another problem I'll (probably) never have with Redbox.

morrow4• 15 years ago

When the netflix pricing scheme changed, I personally switched from the 1 disc + unlimited streaming to discs only - simply for the selection it offers. I'd rather have good selection and have to wait a day or two than have limited selection instantly available (and for movies specifically, I think most people would agree with me on that). I'm wondering how many people also went this route, and if this change combined with the recent increase in competition from studios has taken a lot of wind out of the sails of Netflix streaming.

I say this because in order for Netflix to making a compelling argument to studios to distribute through them over some form of in-house streaming, they need to have good numbers for their streaming subscriber-base, both in size and growth. When studios decide to pull their content or go their own way, then the product suffers and Netflix loses some ability to convince other studios that it would be dumb to go alone.

Forcing subscribers to choose now between streaming and discs may have been a bad decision in that forcing people to re-evaluate their subscription options in a time when they seem to be hemorrhaging premium content may have forced some people's hand who may have otherwise seen the potential in the streaming service and stuck it out.

On a related note, I also had the unpleasant experience of getting really into in a show that was on Netflix streaming, only to have it pulled by showtime after I had made it mid-way through the second season (of 9 seasons). There was no way I was going to start a new subscription, pay for showtime, and download / use whatever client they have just for access to this one show, so I stopped watching it, sadly. I think that experience has definitely had an effect on me as far as willingness to pay for Netflix (and potentially other services) subscription content as well.

Whither Netflix?

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