

Whither Netflix? - cwan
http://www.avc.com/a_vc/2011/09/whither-netflix.html

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jackowayed
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?"

~~~
powertower
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
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.

~~~
powertower
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.

~~~
ericd
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.

~~~
grhino
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.

~~~
ericd
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.

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crgt
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.

~~~
TomOfTTB
"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.

~~~
crgt
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?

~~~
TomOfTTB
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.

~~~
morrow
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.

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ams6110
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.

~~~
Aron
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
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.

~~~
Aron
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.

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protomyth
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
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.

~~~
protomyth
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.

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morrow
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.

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RandallBrown
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.

~~~
TomOfTTB
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.

~~~
Aron
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'.

~~~
TomOfTTB
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.

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georgieporgie
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.

