Whither Netflix?(avc.com)
avc.com
Whither Netflix?
http://www.avc.com/a_vc/2011/09/whither-netflix.html
8 comments
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.
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.
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.
I wonder how much they're paying to build/maintain those services and if they're actually profitable.
Those services are free... As long as you have a cable/dish subscription to them.
They are also fairly new, so give it some time to get around.
Personally, I think the current Netflix stock crash has nothing to do with the subscription "loss" noise going around, and everything to do with the above (and other) competition.
They are also fairly new, so give it some time to get around.
Personally, I think the current Netflix stock crash has nothing to do with the subscription "loss" noise going around, and everything to do with the above (and other) competition.
I have less than 0 interest in picking up a separate app or service for each channel. Aggregation is just way too convenient. Whether they like it or not, I don't think of things in terms of "I want to watch an HBO show", I think of them in terms of "I want to watch x, so I will go to y which has every show I want to watch". Hulu seemed to be pulling this off, but the networks couldn't seem to make that work for them.
I agree that the cause of those services existing (networks wanting to go it alone, causing licensing problems) is also the cause of Netflix's troubles. Netflix's subscription pricing change and subsequent subscription losses is a reflection of those licensing issues, though, as the producers are no longer giving it away for a relative pittance.
I agree that the cause of those services existing (networks wanting to go it alone, causing licensing problems) is also the cause of Netflix's troubles. Netflix's subscription pricing change and subsequent subscription losses is a reflection of those licensing issues, though, as the producers are no longer giving it away for a relative pittance.
How did you first find out about the next show z that you want to watch? Content distributors know that often some is introduced to their next show z while watching x on y. They want to make y one of your dedicated content discovery places.
For me, at least, it's usually from friends who mention that show z is awesome, completely disassociated from where that show appears. Why would I be loyal to HBO when I know that AMC has some great shows as well, as does Showtime. HBO doesn't have the monopoly/near-monopoly on good stuff that it would need for their version to be attractive. I'm far from a normal TV watcher, though.
> Personally, I think the current Netflix stock crash has nothing to do with the subscription "loss" noise going around, and everything to do with the above (and other) competition.
I've seen this many times before.
The way it works is like this:
1. Insiders (both inside and outside the company, anyone with non-public information) known there are serious issues at play.
2. Insiders can't just start dumping shares (due to insider knowledge rules) without exposing themselves / future repercussions (SEC, lawsuits, prison time, etc).
3. Insiders wait for bullshit noise to go around... Such as a small fraction of users canceling subscriptions, Netflix raising prices, and media reporting that Netflix is now losing money even though they are making more now. Sometimes insiders create the noise via proxy (media contacts, websites, etc).
4. Insiders dump shares while pretending they are acting purely on "public information".
This is not something that happens once in a while, but almost 99% of the time.
Think of how many stocks have lost value due to bullshit news (a completely unproportionate response), and then a year later some real bad news comes out that finishes that company.
Red flag # 1 is unproportionate downward response of stock price on not-so-bad news.
I've seen this many times before.
The way it works is like this:
1. Insiders (both inside and outside the company, anyone with non-public information) known there are serious issues at play.
2. Insiders can't just start dumping shares (due to insider knowledge rules) without exposing themselves / future repercussions (SEC, lawsuits, prison time, etc).
3. Insiders wait for bullshit noise to go around... Such as a small fraction of users canceling subscriptions, Netflix raising prices, and media reporting that Netflix is now losing money even though they are making more now. Sometimes insiders create the noise via proxy (media contacts, websites, etc).
4. Insiders dump shares while pretending they are acting purely on "public information".
This is not something that happens once in a while, but almost 99% of the time.
Think of how many stocks have lost value due to bullshit news (a completely unproportionate response), and then a year later some real bad news comes out that finishes that company.
Red flag # 1 is unproportionate downward response of stock price on not-so-bad news.
Yeah i am greatly enjoying watching live CNN and The Weather Channel online. I'm using a friend's cable TV log in to watch them. I even ditched Netflix recently because Ive found myself watching more free things such as CNN, Youtube and Justin.tv. I use to love netflix but recently got tired of the B grade stuff they're pushing.
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.
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.
"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.
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.
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?
I agree with the logic of your statement but I'm not sure it will work out that way. I've never understood why the studios didn't do more to help iTunes competitors.
I'm not well aware of any iTunes competitor with the number of paying customers apple has or had when iTunes first came out - I'm guessing they just went where the money was.
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.
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.
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.
Oh, I agree their "watch the home team" model is one of the stupidest things, but I think they are looking ahead to the post-tv world.
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.
But yeah, the things you could do with sports and interactivity. Geeze. Money on the table.
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.
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.
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.
The money on the table reference was in regard to the kind of interactivity one could add to a sports stream: camera angles, betting, fantasy\gaming stuff, stats, alternate commentary, etc.
It really should be it's own thing. It's more than just a movie\tv show in it's possibilities, and so doesn't just plug into a Netflix model.
It really should be it's own thing. It's more than just a movie\tv show in it's possibilities, and so doesn't just plug into a Netflix model.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Possibly, they think they can replicate television. But television was either free or 24 hour nichey-ness if it was really popular.
I agree. I think the strategy of the studios is doomed to fail, but I think Netflix and consumers will end up paying the price (through more expensive services, and less content). They absolutely hate that someone else is building a profitable business on their content. The studios, much like the recording business, is slow to react, and they didn't realize the value of streaming video until Netflix proved it was a viable business model. I see the studios throwing money at it, hoping to buy their way into a new source of revenue. That will only serve to fragment the market, and won't succeed in the long run. The big question for me is, does Netflix have the resources necessary to weather the time Studios spend experimenting with their own distribution?
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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.
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.
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+.
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+.
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'.
I don't think the odds are that great (though I think it's what I'd do in the same situation). I figure Netflix still thinks they have the right strategy and they've already taken the hit for the customer loss. So why not ride it out and see where it takes them.
Truth is they've probably earned a little arrogance in this arena. People questioned their streaming strategy at first and we all know how that worked out.
Truth is they've probably earned a little arrogance in this arena. People questioned their streaming strategy at first and we all know how that worked out.
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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.
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.
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?"