

Netflix stock plunges as subscribers quit - SHOwnsYou
http://money.cnn.com/2011/09/15/technology/netflix/index.htm

======
18pfsmt
I agree with some of what you've written, but I have a few nitpicks from the
interviews with their CEO that I've seen,

> Hollywood increasingly sees Netflix as a problem rather than an additional
> avenue for revenue. The studios may be concerned about creating another
> iTunes (virtual monopoly)

I think they see the NFLX subscriber numbers and are simply looking to get a
bigger cut

>There's no offline viewing. IMHO Apple will increasingly address this market.
Netflix needs to as well. When people are mobile they usually don't have a
sufficient data connection, particularly if on a train or plane.

I don't believe that is how NFLX perceives itself. They seem to understand
their market is a niche, and they don't see themselves as the place to go for
the latest TV episodes, for example.

>Netflix seems to want to go the HBO route of creating original content.

I believe they see their ability to directly negotiate with studios (i.e.
content creators) as a major source of leverage when dealing with the content
owners moving forward.

Edit: Fixed horrible formatting. This was a response to cletus that got
interrupted by a minor office fire drill :(

------
loso
I see Netflix having a problem on two fronts. The DVD side in having to deal
with the USPS crisis and the streaming sides lack of good content while having
to pay too much to fix it.

The postal service is itself trying to shut down Saturday delivery and night
delivery. My dad is a postal worker. Him and most of his fellow coworkers do
not have a problem with this change. They know the service is in trouble so
they are willing to make compromises. This means that at least some of the
changes are going to go through but they have to be authorized by Congress
first. Right now the only reason why it hasn't happened yet is that some
Congressmen are scared of how these changes are going to affect rural areas in
their district. This change by nature is going to lessen the value of
Netflix's DVD service. The question is by how much? You would have to order
your movie by Wednesday or you're not going to have anything to watch over the
weekend. Netflix really does not have any control over this.

The streaming sides problems are of course that everyone wants a chunk of the
action. If Netflix wants to stream newer movies then they are going to have to
pay up. Netflix streaming already has a wide assortment of movies but the most
popular section of any video store is the new movie section. Its the same with
Netflix as well. Hollywood learned the lessons of the music business vs Apple.
They do not want to see that game played again. Apple has a stranglehold on
the music world right now. Netflix is not going to be afforded the same luxury
in doing the same with movies.

The crazy part is that, for me at least, $16 for unlimited streaming and one
movie at a time is not a bad value. But it is the jarring way in how they
raised the price which had me ready to quit the service all together. The $6
jump felt like a screw you.

------
kin
If it were up to Netflix they would give customers the content they want for
the price that they want. Hollywood obviously wasn't going to let this slide
and I fear streaming services will soon hike to cable-like prices.

Also, people paid for separate Netflix accounts because they each wanted their
own accounts for DVDs. Now that Netflix upped their device count to a whopping
50 and split DVDs and Streams, I wouldn't be surprised if everyone went Stream
only and shared their account with 10 other friends. That's certainly what I'm
doing. As for DVD's? Well, piracy has become what's convenient, and I now have
no ethical issues with it.

------
pkteison
I think it's weird that wall street responds to customer numbers going down,
rather than the announcement that their costs were going up by an order of
magnitude.

"One analyst predicts that Netflix's streaming content licensing costs will
rise from $180 million in 2010 to a whopping $1.98 billion in 2012." - Netflix
needing to reprice to deal with that change is -why- people are quitting, and
it's been a known problem for several months now, so why did the stock drop
wait?

~~~
veyron
There's lots of talk about customers leaving now. That's known, and that's
occurring now.

Rising costs are in the horizon, and it's not known if Netflix can leverage
its position to strongarm a better content licensing deal.

------
briandek
On top of solid TV shows, I've been able to find amazing and very recently
released foreign films on Netflix.

Their anime library also seems to be improving so for me it's become a more
valuable alternative than an HBO/Cinemax/Showtime/TMC subscription.

------
ck2
The over-reaction kinda confuses me.

I hate price increases too but is there is any proof that Netflix is profit-
gouging subscribers? Or are their suppliers jacking up the prices and Netflix
has to pass it along somehow vs become the next Blockbuster?

------
EREFUNDO
I think Netflix understands that the future is in streaming and not mailing
out physical DVD's. Technology has advanced to a point where we can now watch
movies in our flat screens with DVD like qualities from streaming. Mailing out
DVD's are costly to the company. The change in price is designed to encourage
streaming in my opinion. The more people sign up for the streaming service the
more movies they can afford to upload for people to watch. In the long run I
think this is a really good strategy. The price increase should have been a
little lower though.

------
tsotha
I can't help but think the content producers are overplaying their hand here.
If they make legal streaming too expensive people who might not have bothered
will start using bittorent instead.

------
sudonim
Fewer subscribers = lower revenues. <\- That's the problem.

Fewer subscribers = More articles about fewer subscribers = FUD = Lower stock
price <\- Not the problem.

The movement of the stock price doesn't affect Netflix' viability as a
business. Kudos to them for making the business more targeted towards online
streaming. I hated having to pay for physical DVDs when all I used was
streaming. I switched my plan as soon as I could.

I don't use Netflix all the time. For most shows, I auto-steal them after they
air. For casual watching, I use Netflix and watch things like Pawn Stars,
Trailer Park Boys, and other series long after they've aired. It fills the "I
just want to flip on the TV and see something I wasn't expecting. I don't care
what it is" need.

~~~
maratd
> Fewer subscribers = lower revenues. <\- That's the problem.

That's not the problem. In fact, it might be the solution. What matters is
profitability, not revenue.

~~~
pchristensen
They have large fixed costs for content. Subscriber growth amortizes those
costs across a wider base.

~~~
sounds
Although that's a fair first-order approximation, look here:
[http://files.shareholder.com/downloads/NFLX/1403529688x0x500...](http://files.shareholder.com/downloads/NFLX/1403529688x0x500395/7c72e777-75c5-4f7f-9640-5b06f8cc54e4/Guidance_Update_Sept_2011_final.pdf)

I'd break their costs down into per-byte costs and per-subscriber costs. The
fixed content costs are only fixed until they renegotiate their contracts.
Most media businesses look to merge with the content creators to eliminate
those costs altogether.

I believe the real discussion going on is whether Netflix has a viable long-
term business model. I believe they do, and I'm glad they got rid of DVDs.

------
jsdalton
The main problem Netflix is facing is not subscribers quitting because of a
price hike but their seeming inability to make progress expanding their
streaming catalogue.

------
delinka
Compulsory licensing.

Hollywood doesn't care about markets nor allowing demand to pick the products
and services that are best for consumers. Let's get parity between movies and
music by instituting compulsory licensing for movies and video media. Once MGM
has "performed" or distributed their newest blockbuster, others are allowed to
follow suit as long as they pay the licensin fee.

------
lionhearted
I looked at buying some, it's generally a good idea to buy a fundamentally
solid company after an overreaction to a good-long-term/bad-short-term
decision. I bought Starbucks right after they got hammered for closing a bunch
of stores a few years ago and it did really well.

But their price/earnings ratio is still 42.86, which seems high. For
perspective, Microsoft is at 9.99 _(disclaimer: I own some)_ and Apple is at
15.56.

That means Netflix could double their earnings, and still cost more on a per
earning basis than Apple. I just don't see it as a good buy, especially with
some tough competitors in streaming content like Amazon, Apple, Hulu, etc.

It seems to me like there's lots of very solid buys that are undervalued,
going for a sexy industry with a high P/E, no dividend, not much in the way of
patents or strong assets, and tough competitors... yeah, I think Netflix is a
brilliant company, but I'm not buying their stock at these prices.

------
ahi
Netflix is stuck between a rock and a hard place. They don't control the
content (the studios) and they don't control the distribution infrastructure
(Amazon). They have a large subscriber base but it's just been shown that that
might be fleeting. Netflix can't ride any network effect from their customer
base. In short, their market position is indefensible. Their suppliers have
the interest and ability to wring any profit margin out of them. If the
suppliers demand too much, it's just an incentive for the consumers to buy
direct from the source.

~~~
brown9-2
This seems to come up in every discussion of Netflix, but they do not use AWS
for distributing streaming content.

~~~
binarycrusader
Really?

[http://techblog.netflix.com/2011/04/lessons-netflix-
learned-...](http://techblog.netflix.com/2011/04/lessons-netflix-learned-from-
aws-outage.html)

~~~
mjschultz
That doesn't say that Amazon is their CDN at all. They probably use AWS for
pages and user-oriented stuff, but content delivery is done through Level 3
[1].

[1] [http://www.reuters.com/article/2010/11/11/us-levelthree-
idUS...](http://www.reuters.com/article/2010/11/11/us-levelthree-
idUSTRE6AA3IQ20101111)

------
ilamont
I wouldn't underestimate Netflix. Their business model and viability has been
doubted by Wall Street and others for years (see
[http://www.usatoday.com/money/media/2004-10-17-netflix-
dvd-w...](http://www.usatoday.com/money/media/2004-10-17-netflix-dvd-
war_x.htm) and [http://www.fool.com/investing/general/2007/12/27/will-
apple-...](http://www.fool.com/investing/general/2007/12/27/will-apple-kill-
netflix.aspx)) but the company has always been very clever with their product
strategy and partnerships.

As for the drop in subscriber numbers, it's understandable that people don't
like price hikes, but losing less-profitable DVD customers may not be a bad
thing in the long run. Postage and regional distribution centers are a drag on
the company. Reducing those costs frees up funds for content distribution
deals.

~~~
seanalltogether
A lot of people seem to think that the recent price changes are done to
discourage dvd rentals because they are less profitable.

I see it the other way, the recent separation in prices were done to isolate
dvd profits from the rest of netflix. Make no mistake that the studios are
already working on deals that will bleed netflix dry. They will look to
squeeze every last penny of profit out of the streaming division. By
separating the 2 units, netflix is making sure the dvd unit can chug along
merrily with their relatively fixed profits that the studios can't bargain
for.

~~~
ChuckMcM
I believe the studios will push people back to using streams that are 'free'
and see their revenue go down to zero. I hope that eventually they will learn
that the 'economic' cost of getting their content is limited by the
'opportunity' cost.

~~~
seanalltogether
I completely agree, Netflix is about to face the same problem that cable and
satellite operators have faced for years, which is having every provider come
at them demanding a fixed cut of subscriber revenue. If the top 6 (
[http://en.wikipedia.org/wiki/Major_film_studio#Today.27s_Big...](http://en.wikipedia.org/wiki/Major_film_studio#Today.27s_Big_Six)
) had their way, they would _each_ demand at least $5 per subscriber for
access to their content. The next 5 years are going to see netflix
increasingly operating the streaming division on a razor thin profit margin
while jacking up prices.

~~~
jasonwatkinspdx
I am not an expert on the industry, but from my armchair I think netflix will
live or die by offering productions a better deal directly than the big
studios. I expect some sort of anti-trust legal fight in an attempt to limit
the lock in measures the big studios can put in the contracts they leverage.

~~~
ChuckMcM
Certainly if I were Netflix I would be thinking along those lines. Clearly the
move to lock in some original content was part of the game here. The
'learning' that has to happen for the big content folks is the difference
between 'some money' and 'no money.' Hopefully Netflix will help educate them
in that regard.

------
fuzzythinker
PE is still 43+. Their subscription rate change only speeds up the inevitable
realization of their stock being way over valued. Unless they have some plan
that takes them to another level, their stock would have to come back down to
earth sooner or later.

------
r00fus
I never understood why Netflix effectively divorced their two major offerings.
At one point, it made sense to carry the DVD subscription even if you're
primarily a streaming customer.

However, as they currently structure it, these two services (DVD vs.
streaming) could be separate companies and now almost compete for the same
dollars.

Also I wonder if the loss of Starz is a bigger impact to their stock price
than the lack of subscriber growth.

~~~
timdorr
Their Starz content doesn't run out until February of next year, so it won't
have a real impact on subscribers until then.

~~~
garethsprice
Not so sure about that, they just split the offerings which is already causing
a lot of users to evaluate their subscriptions, hearing about the ending of
the Starz contract will affect that decision.

I love the concept and want to support the company, but I feel like the value
of their offering just dropped drastically (I lost the DVDs by mail, so down
to half the content, then losing Starz means that I'm essentially getting 1/4
of the content - if that - for the same price).

Previously we just let the subscription get charged, even if we had a busy
month and didn't watch anything, but I feel like if I'm going to have to go to
that "Change Account" screen then "Cancel" is going to be the most appealing
option.

Netflix needs to do a better job of engaging it's customers and explaining the
reasons behind the price hikes, and offering an incentive to stay - even if
it's "hey, the studios are screwing us, please stick by us and be part of
ending that messed-up system".

------
dendory
I think there's a lot of overreacting. Personally, I don't really see any
alternative to Netflix, even though their selection sucks here. I don't have
cable so no option there. Hulu isn't available in Canada, most websites like
NBC or ComedyCentral don't allow us to view either. Amazon rentals or buying
is so much more expensive, I'd get a handful of movies for the same price as
unlimited Netflix. So again, who gives a better deal than Netflix?

~~~
ubercore
Free streaming of certain movies/TV shows on Amazon with a Prime membership is
arguably a better value. Selection seems to be mostly the same as Netflix,
though device penetration is far more shallow. Still works on my Roku, though.

~~~
tsycho
IMHO, Amazon's free collection that comes with a Prime membership is quite
horrible. Or maybe you like different stuff than me.

And their interface on Roku is even worse

\- ugly, long lists of movies with no way to search or skip through the list

\- all seasons for a series (I think Doctor Who has some 20+ seasons there)
are placed in the above list as individual shows (rather than being grouped
together), and are not even in chronological order

Netflix's interface on Roku is a godsend in comparison.

~~~
ubercore
No argument about the interface. In fact, I'd say most of the interfaces on
Roku leave something to be desired (especially Hulu!).

I'm basing my catalog comparison on the fact that I found most of the things I
watch with Netflix also on Amazon. Maybe my particular interests have a strong
intersection with Amazon's selection, though.

------
vaksel
the problem with Netflix is that over the past year they started offering less
and less content on Instant Streaming(what most people tended to use). And the
content they do have left is subpar at best. Sure there are a few good
shows....but overwhelmingly anything popular is not available.

~~~
aaronbrethorst
I'd disagree with you, but I'm too busy watching Mad Men and Breaking Bad on
Netflix right now.

~~~
brndnhy
That's a lot easier when you're a year or more behind following a television
series.

~~~
aaronbrethorst
Netflix Streaming is the only way I consume TV, so yeah, I'm definitely at
least a year or more behind :)

------
ashrust
This kind of stuff happens pretty frequently to momentum stocks when they have
what is perceived as bad news. Baidu is another stock with similar volatility
sometimes caused by news.

------
brianbreslin
so if i read this correctly, 4% subscriber attrition, but they are jacking up
prices like 60% right? still likely going to make more $...

~~~
evilduck
That's if subscribers keep the same level of service. Their subscriber count
could stay relatively flat while everyone drops disc delivery service and
their revenue wouldn't change by +60%.

------
alexcraig23
this doesn't surprise me at all. It's a chain reaction. Prices increase along
with subscription rules, subscribers leave, less revenue, less profits, the
company is worth less.

I'm interested to see how Netflix is going to respond to this. I expect them
offer new deals to try and recover users. I canceled my service three weeks
ago

------
ZipCordManiac
The movie companies are just shooting themselves in the foot. If I can't find
it on Netflix or download a copy for a reasonable price (I'd pay a couple
bucks to download a movie and have permanent copy...), I'll torrent it. Their
loss.

~~~
MatthewPhillips
You're not their target customer.

~~~
angrycoder
People who want to consume media and are willing to pay money for easy access
to it aren't their target market?

~~~
MatthewPhillips
People who are only willing to pay half of the market rate are not their
target customer.

~~~
mindcrime
Maybe what they think of as "market rate" isn't justified by any fundamentals,
and will continue to decline as people become more aware of the alternatives?
Especially if people find illegal/free downloads via bittorrent to be more
convenient than the legally available services.

------
tryitnow
As a consumer I know I am supposed to want lower prices, but I also wanter
better selection. I'm probably never going to have both.

If I had to pick I'd pick higher prices and better selection. So my hope is
that Netflix is sincere when they say they raised prices in part to get a
bigger selection.

~~~
nigham
Why hope?

I quit Netflix streaming because I didn't want to pay more for a selection
that has become smaller. I will rejoin if and when they bring a bigger
selection.

------
wccrawford
This reminded me that I hadn't used my account in a long time, so I cancelled
it. I was greeted with:

"Cancellation will be effective immediately - no refunds for partial months."

... That made me even more determined to get out of there. I can't believe
they think I'll be back if they have that attitude.

~~~
crenshaw
That's horrible. This article did also remind me to cancel my streaming (but
now I'll wait until the end of the month ;-). I'm going the surprising route
of doubling down on DVDs now.

~~~
mechanical_fish
No surprise to me - I'd prefer the DVD route myself. The streaming service has
a fraction of the content and is apparently destined to grow _smaller_ , or
more expensive, if the Starz news is any kind of bellwether.

My fear now is that the golden age of rental DVDs will come to an end before I
have finished enjoying it. I want to be able to watch older or obscurer films,
and the disks are better for that, probably because they don't require me or
the rental company to acquire and maintain a stupid never-ending oft-
renegotiated contract with a movie studio and its lawyers.

~~~
hack_edu
While I doubt that the market for older and obscure DVD rentals is going
anywhere, most of the titles you seek are likely available in your library
system. Ordering them on (free) loan from nearby branches would take about as
long as Netflix would to postal mail it.

------
joeguilmette
maybe it's because the content on Netflix is awful? i exclusively use
streaming. i don't have any way to watch a DVD any more than i do a VHS tape.

i went back to piracy for movies a few months ago when i realized that there
were actually good movies that came out in the 3 years I'd been relying on
Netflix.

i still use Hulu for TV, but that will change if their content does.

------
Jun8
This is a transient reaction. They still habe 24M subscribers, are a monopoly
in their field, and are robustly expanding in other countries.

The real danger to Netflix is not subs leaving because of price hikes (what
alternative do you have really, shell out $70 per month to Comcast for
horrible TV content?) but disruptions to their content sources, like the
recent Staz debacle.

~~~
ghshephard
I'm curious as to why you think they are a monopoly in their field? On any
given evening, when I want to watch video content, it's a total coin toss as
to whether I (a) end up buying on iTunes, (b) Go watch with amazon prime, (c)
Use netflix, (d) bittorent the content.

I end up with (d) only when the content is not available on the first three. I
can't say I have any particular bias - so "monopoly" is perhaps an overly
strong word.

~~~
chc
"Monopoly" refers to their share of a particular market, not their share of
how you personally watch video. I don't think Amazon's streaming numbers even
compare and Bittorrent is not a commercial entity. iTunes is kind of a
competitor, but their business model is so different that it's questionable
whether they're really competing for the same people in general.

~~~
lucasjung
Amazon's numbers might not compare right now, but they are very well
positioned to elbow their way into Netflix's market.

I found an estimate[1] that Amazon has 121-131 million customers, of which
about 5 million are Prime members. Those prime members pay less per year than
a Netflix streaming customer, and they pay it mostly to get free 2-day
shipping, so they're already deriving a lot of value from it even without the
streaming. Amazon just dropped a big library (although not as big as
netflix's...yet) of free streaming videos in their laps. Word will spread,
plus they get to advertise this new service essentially for free to their
other 120M+ customers. They also have tons of servers to handle all of this.

Amazon could also elbow in on netflix's DVD rental service pretty easily. They
already have a worldwide rapid-shipping system in place, including handling
plenty of returns. I'm sure they could add DVD rentals with two-day shipping
each way if they wanted to. I'm guessing they don't want to, because they
don't see a lot of profit in it, and maybe also because it could hurt their
already-established business of selling DVDs.

[1][http://www.quora.com/What-percentage-of-Amazon-
subscribers-p...](http://www.quora.com/What-percentage-of-Amazon-subscribers-
pay-79-year-for-the-Amazon-Prime-Service)

~~~
Jun8
Here's the question: of those 5M Prime members, have many are prime Prime and
how many are through the friends and relatives? I'm an Amazon Prime member
through a friend (i.e. I didn't pay the $75, I think a Prime member can have
up to four people use Prime services) and Amazon doesn't let me stream videos.

~~~
lucasjung
I honestly don't know. It might also include people that get Prime for free
(new moms, college students, etc.), who also don't get streaming video.
Assuming that the 5M figure is correct, and that it includes everyone with
access to Prime shipping, it might be as little as 1M or less who qualify for
the free streaming, although my gut tells me it's probably a lot more than
that.

All that being said, I don't think it's all that important. I wasn't trying to
imply that 5M current Prime members compare to 24M Netflix streaming
customers; I was trying to say that they have a _really_ big foot in the door,
which they could use to rapidly leverage their way into the market. The more
important number are the 120M+ customers. Amazon can pitch them with, "You
didn't want Prime for shipping, but maybe you'd like it for videos!
(Especially if you're dissatisfied with Netflix!)" There are also rumors that
they will soon let Prime members "rent" eBooks on their kindles for free (with
a limit on the number of titles they can have at any given time). That would
pull more people into Prime, and some of those people would inevitably take
advantage of the free streaming.

------
dreamdu5t
If we ever want to be free of Hollywood's firm grasp, then there needs to be a
revolution in content creation. Netflix should create their own shows.

~~~
foobarbazoo
Meet the new boss, same as the old boss.

If you want content free from Hollywood, give YouTube a try.

------
funkah
I have a feeling that this could just be a blip on the radar and Netflix's
business is actually OK long-term, but I am one of the people who quit when
they announced the price hike. Not because I didn't want to pay more, but
because it was the last straw of me realizing I wasn't getting much value for
my money in the first place. Their instant streaming service never had what I
wanted to watch, and I'm no longer willing to deal with the two-day turnaround
time for the DVDs. (I'm not proud of that last fact, BTW.)

~~~
pork
> I'm no longer willing to deal with the two-day turnaround time for the DVDs.
> (I'm not proud of that last fact, BTW.)

I don't see why that's unreasonable -- they've had instant viewing for quite
some time now, but the online collection has been woefully lacking for an
equally long amount of time. It's very reasonable not to be satisfied with the
2 day turnaround time on good stuff, when thousands of B-movies are available
instantly.

If they hadn't introduced all 7 seasons of TNG, I would have quit too.

~~~
veyron
I feel ashamed for having to ask, but what's TNG?

~~~
ubercore
Star Trek, The Next Generation.

------
cletus
The idea that people are quitting now because of theoretical price hikes in
two years is... ludicrous. Remember that Netflix is month-to-month. People
will leave when they no longer get value from it _now_.

Netflix movie selection doesn't seem to be great. In my case I subscribe to it
for the TV shows more than anything else and for $8/month, the cost is easy to
justify. YMMV.

I see Netflix's problem as this:

\- Hollywood increasingly sees Netflix as a problem rather than an additional
avenue for revenue. The studios may be concerned about creating another iTunes
(virtual monopoly);

\- Studios and distributors increasingly want to go on their own, which is
really bad for consumers and seems to be driven by simple greed of cutting out
the middleman without realizing what that middleman is actually doing for you;

\- Netflix uses Amazon for scale. This is a problem. As much as burst
architectures have theoretical advantages, the costs just don't add up beyond
a certain size. I cannot believe that Netflix isn't at the point where they'd
be better off owning their own servers;

\- There's no offline viewing. IMHO Apple will increasingly address this
market. Netflix needs to as well. When people are mobile they usually don't
have a sufficient data connection, particularly if on a train or plane.

Netflix seems to want to go the HBO route of creating original content. This
is an incredibly dangerous game to play with them forking out big bucks [1].
At least AMC's content in comparison is relatively cheap to produce and they
have a relatively stable income due to cable bundling (although they're
struggling with rising costs of Mad Men).

EDIT: Let me clarify. 2012 price hikes don't drive consumers. Current value
and _current_ price hikes drive consumer behaviour. The recent price hike in
DVD+streaming will no doubt have caused some to drop the service. They could
drop either streaming or DVD or possibly both.

I'm inclined to believe that DVD is an ever-smaller piece of their business
but it may yet be significant to have a real impact on subscriber counts (in
terms of subscriber loss).

[1]:
[http://www.reuters.com/article/2011/03/21/idUS17633242872011...](http://www.reuters.com/article/2011/03/21/idUS176332428720110321)

~~~
gwright
_Netflix uses Amazon for scale. This is a problem. As much as burst
architectures have theoretical advantages, the costs just don't add up beyond
a certain size. I cannot believe that Netflix isn't at the point where they'd
be better off owning their own servers_

I'm guessing that Netflix has probably spent a few minutes more than you
analyzing their infrastructure costs. Sure they could have made a mistake and
are being less efficient by using Amazon over their own data centers but I
have a hard time believing that the mistake is as obvious as you seem to
think.

~~~
ghshephard
I'm intimately familiar with the decision pattern that took place at Netflix,
and what analysis they did, as I know some of their sr. operations staff.

The net-net is that Netflix could have saved 20-30% on their infrastructure
costs by not going with Amazon, but then they would have to hire smart
operations and infrastructure people. They wanted to focus on Software, and
had no Operational leaders in their organization, so they walked away from
that 20-30% infrastructure savings - likely because they realized that over
time - infrastructure costs are not going to be particularly material to their
overall cost of business - which will be dominated by the cost of the content.

~~~
gwright
That is a strange way to look at the decision. Clearly the costs of staff have
to be included if you want to compare operating your own data centers to using
Amazon. It is pretty easy to say that Amazon is more expensive by x% if you
are willing to exclude certain costs from the alternative. What is the
difference after adding in staffing costs?

~~~
sp332
Amazon really is that much more expensive. Even among "cloud" providers, they
are expensive. Their competitive advantage is extreme flexibility with large
amounts of servers (spin up a few hundred instances in a few hours, spin them
down again a few hours later).

If you do it yourself, you don't just have to worry about money, but also how
to hire good operations people, and what effect all those extra people are
going to have on your organizational structure, internal culture, etc.

~~~
ZipCordManiac
Do they not offer any kind of bargains for such a huge purchase/company ? I'd
think Amazon would work with Netflix to offer at least somewhat competitive
prices. I am just talking out of my backside here, but it seems to me like
they probably are getting a better deal then the average joe running an EC2
instance.

~~~
sp332
OK, that's probably true. Even on the EC2 pricing page, if you go over 1PB/mo
the price is "contact us" <https://aws.amazon.com/ec2/pricing/> so I'm sure
they're getting a better price than the "official" quote.

