Netflix

[cross22]

is a fascinating study in business strategy. A visionary startup that successfully created a niche in a sizable industry and gained popularity among its subscribers. Now the big boys are entering this market and Netflix suddenly faces a very bleak outcome. It has no leverage with content providers and there is zero switching cost for its subscribers.

Where did Netflix go wrong, and what can it do to save itself now?

 

[passingtime]



is a fascinating study in business strategy. A visionary startup that successfully created a niche in a sizable industry and gained popularity among its subscribers. Now the big boys are entering this market and Netflix suddenly faces a very bleak outcome. It has no leverage with content providers and there is zero switching cost for its subscribers.

Where did Netflix go wrong, and what can it do to save itself now?

Getting something I would want to watch on streaming would be a good start if they want me back. If you are betting on streaming you need a workable catalogue.

 

[Slopho]

Right now this company is tettering, 50/50 if it makes it or not.

 

[burningbright]

I'm assuming that you're a member and got the "I screwed up" email from the CEO the other day?

Here's a few ways where I think they went astray, though much of their present circumstances can simply be attributed to a perfect storm:


1. Grassroots-type connection - Netflix was perceived by many as the upstart David that slew Blockbuster Goliath (OK, an elder Goliath way out of his prime, but still). Anybody who signed up for their $4.99 a month services early on felt a connection to that mentality of taking down the big dog with the horrible renting costs. That and it was mildly humorous to watch big, bloated chains like Blockbuster flounder to come up with a way to combat the younger, more limber Netflix. As a subscriber, you felt like you were not only "in the know" by getting your DVD's in the mail, but you were also on the winning side.

2. Rising costs - Yet once Blockbuster was out of the picture, prices for the service slowly started to rise (to allow for growth, I'm sure) and the mentality was, "well I guess I could pay $6.99 a month"; "well I guess I could pay $9.99 a month," so on and so forth. Before you knew it, you were paying twice what you were initially paying and you felt like the only thing really changing about the service was the prices. This agitated a lot of customers, though they were still willing to play ball.

3. Watch instantly really shot them in the foot - I think anytime you pioneer something, you run the risk of other followers out-pacing you because they can see things that you can't. The move and TV studios are literally holding Netflix hostage because of watch instantly. Their primary mistake, I think, was offering this service for free with their DVD plan. They should have just charged a nominal fee for this service from the get go and then slowly ramped up the cost as more titles became available. Anytime you offer something for free and then take it away to offer as a separate package later is not good. This is even more so when, once you take the free service away to offer as a separate package, you do not adjust the price to a lower cost to reflect this separation. People's rationale when Netflix dropped this bomb on their customers was, "Well if I can't get watch instantly anymore, then I want my DVD's to go back to $4.99 or even $6.99. But you can't expect me to pay $9.99 a month for one DVD out at a time!? And I'm certainly not going to get watch instantly and be forced to watch Ice Road Truckers or Swamp People, or Mega-Shark vs. Crocosaurus or some other b-rated crap because that's all you can afford to get from the studios!"


So now there's blood in the water and other sharks are moving in: Amazon, cable networks, even Google are all getting a piece of the streaming action. And if Netflix can't meet the outrageous demands that the movie or TV studio's are making in order to try and compensate for lost advertising and DVD/Blu-Ray sales, then they'll just take their business to these companies.

Neflix is in a bit of a catch-22 here. I think it was forecast somewhere that Netflix spent something like 180 million dollars in 2010 for licensing rights for watch instantly and by 2012 it will be up to something like 2 billion dollars. Where's that money going to come from if they can't keep their customer base due to crappy watch instantly content? People aren't going to sit around and wait for their favorite movies or shows to come to watch instantly and they're certainly not going to put up with $9.99 a month for one DVD out a time or multiple DVD's for more than that - especially when most everybody is moving to Blu-Ray anyway and won't accept DVD quality anymore, at least not for that price. There are plenty of other options out there not least of which is simply pirating the content, which more and more people of this younger generation are doing. So that leaves Netflix in a very tenuous position and unless they come up with a new plan, I think their days are numbered. It's going to be Amazon, Google, and cable companies who all have other streams of revenue who will survive this and come out on top.

 

[Joffrey]

Still with them (for streaming) but haven't used them lately. The selection is pretty awful but it's a great service when it does have what you are looking for (X-men! Intelligence! Dexter) before they abruptly pull the series (Dexter!). It's not really their fault. It's the content owners (studios, networks) that dictate what can be available for streaming, when and for how long. I feel as if their killing off of their DVD business is a way to try to pressure the content owners to make more available for streaming. Their only savior is that the content owners generally want as much competition as possible (between Apple, Amazon, Netflix to keep the damage Itunes did to music industry) so must keep their options open between the streaming providers. What could kill them and the other providers is if the studios and networks wisen up and do it themselves (what they tried doing with Hulu but have abandoned for short sighted reasons).

 

[burningbright]

Studios are short-sighted?

Peter: Everybody I've got bad news. We've been cancelled.
Lois: Oh no Peter! How could they do that?
Peter: Well unfortunately Lois, there's just no more room on the schedule. We just gotta accept the fact that FOX has to make room for terrific shows like Dark Angel, Titus, Undeclared, Action, That 80's Show, Wonder Falls, Fast Lane, Andy Richter Controls The Universe, Skin, Girl's Club, Cracking Up, The Pitts, Firefly, Get Real, Freaky Links, Wanda At Large, Costello, The Lone Gunman, A Minute with Stan Hooper, Normal Ohio, Pasadena, Harsh Realm, Keen Eddy, The Street, American Embassy, Cedric The Entertainer, The Tick, Louie, And Greg The Bunny....
Lois: Is there no hope?
Peter: Well I suppose if ALL those shows go down the tubes we might have a shot.

RIP:

Firefly
Arrested Development

 

[Joffrey]

interesting article on the netflix "debacle": http://www.slate.com/id/2304131/

 

[cross22]



Their primary mistake, I think, was offering this service for free with their DVD plan. They should have just charged a nominal fee for this service from the get go and then slowly ramped up the cost as more titles became available. Anytime you offer something for free and then take it away to offer as a separate package later is not good.

I think this is an interesting point. I think what Netflix should have done was not to generate more revenue by charging more, but use the large subscriber base to bully the content providers to make available more content and prevent new entrants. I think they should have required an annual or bi-annual contract for customers who wanted streaming. That would have achieved both goals.

 

[poorsod]

I heard this on NPRs Marketplace today. If correct, the split could be potentially brilliant move to get around the Video Privacy Protection Act and integrate Netflix with Facebook.

http://marketplace.publicradio.org/...oks-new-changes-and-its-goals-for-the-future/

HENN: Well, you know, I think it could be enormous. You remember, Netflix announced earlier this week that it was splitting itself in two. And I'm actually convinced that decision has a lot to do with what Facebook is doing right now.

MOON: Whoa, we're almost out of time, you throw me that intriguing tidbit. So explain this to me, Qwikster: Why would wanting a Facebook presence cause this big split for Netflix?

HENN: Well, because Netflix rents DVDs. And in the U.S., it's prevented from sharing customer information online this way by a 23-year-old law called the Video Privacy Protection Act. After Netflix spins off Qwikster, and is just offering streaming content like Hulu, I think it'll be much more likely to be legally free to jump in and create a Facebook app in the States.

MOON: Ah, much easier to divulge what we stream than what we physically rent, huh?

HENN: Yeah, that's right. I wrote a post about it, it's online.

http://www.publicradio.org/columns/...mous-impact-and-why-netflix-split-in-two.html

How important is Facebook’s push into digital media? It’s huge. Reed Hastings, the CEO of Netflix, believes the social network could remake the way we discover movies, music and news. He also believes his company is being left behind.

Hulu launched its Hulu on Facebook app last night. Hulu has let users share their viewing habits on Facebook for a while. But with the new app, all that sharing becomes nearly automatic. You sign in once, give one consent and start sharing. You can even adjust what you want to share and with whom. But from then on, everything you watch on Hulu will be archived on Facebook in your new Timeline. If you chose it, it will show up in the ticker that runs down the right side of the new redesigned Facebook page, and keeps you up to date on everything your friends are doing, and vice versa. Posts about what you’re watching on Hulu, for instance, will show up on the tickers of all your friends.

And Facebook takes it a step further. If a bunch of my friends watch the same show on Hulu, Facebook may let me know that in a special post, kind of like a peer recommendation. Facebook and Hulu will then be watching, and studying, whose tastes are influencing mine.

Yesterday Reed Hastings spoke at Facebook’s developers conference, known as f8, to say how excited he was about doing the same thing with Netflix. When Facebook first approached Hastings, he was cautious. But CEO Mark Zuckerberg convinced him a partnership would help Netflix double its rate of growth online. Zuck also helped convince Hastings to join Facebook’s board.

Today, Netflix is rolling out sharing on Facebook in every country Netflix serves except the United States. The hope is that by seeing what your friends watch — you will want to watch too. And if you are not a Netflix subscriber, you will join.

But in the United States, Netflix can’t do any of this because of an old law called the Video Privacy Protection Act, or VPAA. If you are old enough to remember the Robert Bork hearings — and you’re a recovering political junkie like myself — you may recall that during Bork’s Supreme Court confirmation hearings the D.C. City Paper obtained Judge Bork’s movie rental records from a local video store. What they found was completely boring — but Congress freaked out. What if reporters could get video logs on whomever they wanted? Congress quickly passed the VPAA.

 

[Joffrey]

Why would I want to share my movie tastes?

 

[Slopho]



Why would I want to share my movie tastes?

I once heard a guy tell a woman that if she "Watch these three movies, then you'll get me." I almost fell out laughing.

 

[scientific]

obv their handling of recent moves was a huge blunder, but otherwise they didn't "go wrong." they're just facing the gales of creative destructive that will make their business obsolete in a couple years. their best bet is to quickly sell to the dumbest person possible (Ballmer).

ps facebook sux

 

[musicguy]



I once heard a guy tell a woman that if she "Watch these three movies, then you'll get me." I almost fell out laughing.

lol, you've got to be kidding me! crazy guy.

Anyway, Netflix just opened their market to South America. Unfortunately, I haven't seen ANY advertisements about it here, but this is the land of pirated DVDs. People sell them all over the place. Quite stupid since the same thing is on torrents.

But for those who buy those DVDs, I think Netflix will appeal to them. It is a whole lot cheaper if you watch a lot of movies.

Yes, their stock is plummeted over 50% from it's 52 high, but I don't think it's going to go out of business.

 

[Slopho]

NFLX over paid in this Dreamworks deal. They will be overpaying a lot early on as the studios try and kill the golden goose.

 

[Joffrey]

Netflix likely didn't have a choice given their streaming content is so weak.