Netflix has succeeded on the strength of two things: integrity and ambition.
They genuinely care about their customers. They work extra hard to make sure people who give them money are happy to do it. In their call centers, CSRs are friendly and empowered. They're instructed to err on the side of doing things that are most likely to make a customer happy, instead of pissing people off with stupid "it's policy!" behavior. In their distribution centers, they have a hardcore quality control culture that goes to great lengths to ensure that mailed out DVD's correctly match a customer's order.
Contrast this with their dying competition, who never once gave a damn about customer satisfaction. Who, indeed, codified policies whose direct result was to enrage customers.
As for ambition, Netflix has continually worked hard to make the service the very best it could be, opening more and more distribution centers to minimize the wait between returning and receiving your DVDs. Despite having every reason to rest on their laurels, they decided they'd also be the Netflix to their Blockbuster, going deep on the Watch Instantly strategy that's redefining their business. Instead of waiting for someone else to come along and make them obsolete, Netflix grabbed the bull by the horns.
This is one of the rare moments of modern capitalism producing something truly excellent, on its merits, based on the needs of the market. If only we could see similar disruption in larger and even more corrupt industries.
Honestly: I love these guys.
If it's too expensive to send me that many disks, fine, but don't lie to me about it.
I personally never ran into this -- I've never been more than a light-to-medium user, except in spikes. Like when I when I discovered 24 six years ago.
edit: Here's something straight from the horse's mouth:
"I stopped my subscription to your service because of your well-documented "throttling" of frequent renters. How can you say you are focused on customer service when you alienate your customers in this way? Bill Greenstein, Seattle
When we are short on new releases, which we try not to be, we believe it's fairest to allocate those new movies to subscribers who have not rented much recently. This upsets heavy users because they are not in the front of the line for new releases. We are straightforward about how it works, but not everyone likes that policy."
Eh, okay, assuming it begins and ends there, I can see the argument for doing things this way.
I was a heavy user who got movies sometimes the day after I returned the last one, which was great. Then I started getting them 3, 4, 5 days later.
They blamed USPS, even though no other mail to or from me was slow at all, so I started tracking the returned movies. They uniformly were delivered back to the warehouse just as quickly as before, but remained (via the netflix interface) unreturned for several days after that.
Normally I'd chalk that up to simple incompetence: they just weren't processing the movies very fast and/or their backend system was a piece of shit. I could buy that.
But I'd seen just how efficient they could be when they _wanted_ to be, ie before I passed the "heavy user" threshold, so I knew they were doing it deliberately.
I get the logic, I'm a heavy user, they can only send so many movies before I'm not profitable. But like I said before: don't lie to me about it.
I would've paid extra for a premium "heavy user" account if they had offered me the option, but instead they pretended USPS was magically slow JUST for netflix movies, and they permanently lost a customer.
That said, I'm not sure what the threshold was, because I was a very heavy user during that time and I never hit the problem. As such, whatever the threshold was, it was high.
Not to start a whole thing about piracy -- but what always surprises me in conversations about Bittorrent is that most people speak as if it has no effect on anything, anywhere, ever. Somehow, it also seems to exist outside any real purchasing decisions.
I'm not attacking you personally, but honestly that kind of thinking (as I've stated it, not you) is delusional.
The existence of unlimited free copies of your product is going to effect your business and your ability to profit. No question.
I have access to some trackers where the download very rarely goes below 2MB/s, with 5-8MB/s being the average. Some of these have material like discontinued music and foreign films that I could never get where I live, at least not without significant hassle.
With this setup I can initiate a download for a foreign 720p film, go and make some tea, and it'll be there by the time I come back.
That's quality of service I can't even pay for where I live, no matter how much cash I fork out.
P2P is free in terms of money, but it's not at all free in terms of the effort you have to put into it to get reasonable, useful results. I don't want to do that; I have other things to do with my time and the time in my life when I liked ferreting out the dark corners of the world passed long ago (in my case, it was discovering that our stereo's radio band selector could cause it to pick up shortwave when positioned correctly - that summer, I learned that the Soviet Union was a paradise for academics and artists).
I don't have the time to find the right trackers, and there's the ever-present danger of the RIAA sending me a nastygram - or, as happened before I turned on security on my WiFi, sending my ISP a nastygram about movies downloaded. That sucked. This neighborhood is dirt poor, and I didn't mind sparing some bandwidth, but if my ISP is forced to turn me off if I don't police it?
That's the hassle of P2P, unfortunately. My beef is that if the RIAA were roughly as intelligent and mature as my 11-year-old, I'd be able to keep my WiFi open and buy movies online for reasonable amounts of money.
So when an otherwise excellent article like this slips in an incorrect assertion about evil pirates without justifying it, that really burns me. There are perfectly good business opportunities that the "rightsholders" (god how I hate that word) are too fat and lazy to take advantage of - but plenty of lawyers.
For movies, same deal. As long the movie is out on DVD, I can find it in minutes from any popular search site and have it downloaded within 30 minutes. I've never had a bad result. As for RIAA, I do have an IP filter installed but even that was extremely easy.
Being a small South American country means large corporations often ignore you (it's cheaper than trying to cater to yet another mass of hungry legislators and tiny fiefdoms)
*that means I haven't actually tried Netflix itself despite it would be good for me, but I have tried similar services like Pandora and they aren't legally allowed here.
Remember, many people technically sophisticated enough to do bittorrent are also smart enough to be lazy with their effort.
Didn't the strength of iTunes paid songs show that people's time is worth money?
Is there any numbers backing this up?
If this sort of use case has penetrated this portion of the population, I'd have to imagine that it's prevalent enough to be at least a tiny competitor to Netflix et al, if not more.
So with that I can see it being a competitor, but then I wonder how do you compete with something that is illegal and not really an entity?
Netflix competes by being more convenient than BitTorrent. BT might be free, but it doesn't deliver TV shows and movies directly to your HDTV.
Again, it's not hard. But there is a small learning curve. Netflix and competitors have to keep making it easier and easier, since alternative sources will also keep getting easier to use.
Really I think the onus of proof would be on anyone claiming that the pirating percentage is insignificant, not the other way around.
What do you mean? I hadn't noticed.
1. It can take several minutes to find a decent release for titles that are older (>5 years) or less popular.
2. Older/Less popular items are poorly seeded, meaning I potentially have to wait overnight for the download to finish. (A new episode of a current series, however, usually comes in as fast as my broadband connection can handle).
3. Unless you know all of the release groups by heart, you have to spend a minute or two sifting through search results to find a release in a usable format in good-enough quality. Often I have to settle for something that plays fine in mplayer/vlc instead of something I can stream to my PS3 connected to my TV.
4. Maybe about 1/20 times I finish a download only to realize that it's A) not in the right language or burned-in with foreign subtitles B) terrible quality C) incomplete.
Sure, I get to keep the files, and often I can find stuff that streams on all my devices without hassle, but I watch stuff infrequently enough that the effort and possibility of failure is bothersome. I'd gladly pay to be able to choose a show and watch it immediately, assuming that the library of available content was large enough.
In a sense, you can think of the money spent legally purchasing all (or most) of your media as an insurance policy -- you're paying for the right to enjoy media without having to worry about losing tens of thousands of dollars. Low probability high cost scenarios might not trouble younger unattached folk, but I found they weighed more on my mind as I grew older and started a family. YMMV.
It's not really competition. I never go to that convenience store because they don't have what I want to eat. So in your sense, while they exist in the same market and are therefore "competitors", that viewpoint really distorts the reality of the situation.
Overstating BitTorrent's influence would be a mistake, but ignoring them altogether would be a distortion as well.
Like the iPad which many pundits couldn't figure out, the consumers never wrote off Netflix and that's pretty much all that matters.
You would have to give each prediction an "audacity factor", how unlikely it seems.
The system would work in fashion where a 50% accuracy rate and a 30% one would actually be considered the same accuracy. Either you get higher than a 50-60% rate OR you get some of your predictions rated as having a high audacity factor.
The basic idea of a prediction market is like a stock market for outcomes with an end point. If you make good predictions you will make 'money' and if your predictions are correct but go against the common idea your rewarded even more handsomely. Of course a true prediction market has a shifting price point where you can choose to sell your 'shares' at any point, yada yada, but I think the concept applies.
The trick is you have to have the pundits participate in order to make it work. I suppose there could be some third-party that pulls their articles and 'ghost trades' for them?
However I think the truth is that pundits DON'T WANT to be held accountable. Even if they are shown to be 'the most correct' they are still going to be wrong some of the time and those will always be used as examples to attack them and their views.
Just look at another comment in this thread that tears into this pundit for his poor job predicting the Sony vs MSFT vs Nintendo war over this console generation. This is a SINGLE data point being used to try and dismiss his views.
edit: For anyone interested in prediction markets check out Inkling (http://inklingmarkets.com/). I don't work for them, but I just think they have done an awesome job of creating some useful software. I am trying to push for this to be adopted internally for creating 'confidence metrics' of how stable a build is going to be, or if a deadline is going to be hit.
It's not really realistic to comprehensively log all of this, of course. But it sure would help me assessing the relative quality of some sources, especially now that sources for news are so varied and fragmented. I suppose in the past the reputation of a publication served some of this purpose (i.e. WSJ or NYTimes having stellar reputations).
I knew of a couple of databases for equity analyst performance like Starmine and Bulldog Research. So those do exist. Not sure if either are still around since I'm no longer in the finance space.
from Google cache: Site: http://bit.ly/9JiRrz & FAQ: http://bit.ly/9cQeTb
I have to admit that I'm a consumer and I still don't get the iPad. It's like an underpowered laptop that I have hold instead of letting it rest in my lap. What could the benefit possibly be? But... here I am, eating my proverbial hat.
Netflix, on the other hand, I get. I had it early and people would say, "Why would you want to wait for your movie when you could get it at the video store?" I would explain that 1. I wanted movies I couldn't get at the store and 2. I generally had 2 or 3 going, so I wasn't without something.
It's just a matter of what you value and then projecting those values onto the observed behaviors of a large population. If you see a bunch of people going to the river you might think that they are thirsty, but in reality they want to go swimming. That uncertainty makes predicting hard.
Not that I necessarily wrote off netflix, but I did jump ship to Blockbuster's online service for short while when it was first introduced. The ability to return the movies I got in the mail with any movie at their physical store was a pretty nice feature, in addition I got to rent one game per month as well.
A couple of months later, blockbuster started changing their policies and I switched back to trusty netflix.
When blockbuster first introduced their service I thought that netflix might be in trouble...but my unpublished prediction was unfounded! ;)
When you read a story on any of X sites, a popup appears in your browser informing you that the writer of this story has an entry on JournoWiki (or whatever), and that independent readers like you have deemed him/her "Full of Crap."
The popup would then have a link to share something on Twitter of Facebook indicating whether you thought their latest story was better or worse than what people thought of them. That share would have a unique tag in it so it could be picked up by your app and sucked onto his/her profile page.
Why does Netflix, which is solving some hard and interesting problems both on the technical (delivery/algorithms) as well as business side (licenses etc) only charge $9-$15 a month whereas online services like dating sites and project collaboration SaaS tools that are arguably much easier to build get away with charging anywhere from $30 to $60 a month?
If pricing is about supply and demand, shouldn't Netflix be able to charge a lot more (at least double of what they do now) since there aren't any comparable services with the level of user satisfaction as Netflix. I would gladly pay $30 a month for Netflix just because of how great the service is - I mean unlimited instant watching, access to some amazing foreign films, DVDs. Dating sites and some other SaaS services - dime a dozen. When a Match.com asks me to pay $30 a month, I cringe.
I'm perplexed by this.
I suspect that "I want to be entertained" is a bit more universal than "I want to find a mate" or "I want to manage my project."
So maybe they're finding some kind of sweet spot there?
The thing is, I use Watch Instantly sporadically. Sometimes hardcore, every night, for a week when I just need a break from everything, and other times not more than once or twice a month. $9 is such a fair amount of money to ask, I just let them bill away regardless, because I want to have it immediately if and when I want it.
So it could also be that <$10 is just the right amount of auto-pilot billing to maximize their revenue for spotty users.
Throughout their history, all of Netflix's pricing structures have been designed to stay within that range.
It costs Netflix pennies to stream movies. ("Akamai charges a customer like Netflix about 5 cents for an HD movie, compared with about 3 cents for standard definition." See: http://www.businessweek.com/magazine/content/10_34/b41920385...)
I expect their prices to rise, though. If they want to stream first run movies (a la cable), they're going to have to pony up serious dough for the licenses. That means higher costs to the end consumer.
As other commentors said, it's partially volume.
Second, it's partially strategy - Netflix could charge more, but have a smaller customer base. Even if the net profit for the short term was higher at a higher price point, they might think it's worth it to get market share, word of mouth, and future expansion.
Third - for some services, customers see higher price as a desirable attribute. That could be the case in dating - people in certain demographics might prefer to know whoever else is using the site is serious enough to pay a decent chunk of coin, not just throwing a profile up for kicks.
Lots of factors. Shortest answer is - strategy. Netflix might be able to make higher short term revenues and net profit, but they might prefer the lower-price driven expansion to get economies of scale, volume, market share, word of mouth, and loyalty. Match.com might be able to make higher short term revenues and profits by lowering price and attracting more users, but instead they prefer trying to brand and position themselves as a premium, curated, high-quality site for serious people. Strategy is complex, lots of layers you can look at it, especially when playing at that really high dollar level.
The price is at a point where even if we're busy and don't watch more than 1 or 2 movies that month, we won't mind, because of the convenience of having them instantly available via streaming, and knowing that the price is low.
It's low effort, high convenience.
When it comes to those SaaS and dating services: Never underestimate the value assigned to hooking up or getting paid. People will pay if it thinks it will help them make more money or meet someone.
The question I have is how is Match.com still charging $30/month when Plenty of Fish is still pretty much free?
100% branding and brand ranks probably at the top when it comes to things that people perceive as "serious" - like finding a mate.
Obviously this isn't a really deep analysis, but it's perhaps one reason.
And I pay them a hell of a lot more than 9.99, too, being that I have a fondness for HD/BluRay and a modest broadband connection.
If there is a perfect substitute for a good, competition might drive the price down. In a perfect market, the price of a perfect commodity will equal its cost (in theory), but in practice there are no perfect commodities-- not even toilet paper.
Much higher than that, it becomes a budget item that's scrutinized once a month, twice a year, or when times get tough.
I canceled cable with enthusiasm because it saved me $50 a month. I look at the value I get for $10 from Netflix, and it's clear that canceling it would be a mistake.
If it was $20, I'd cancel it. Instead, they have me forever and ever.
1) Customer Acquisition Costs. I'd be surprised if NetFlix pays more than $20-30 per customer. Dating websites have a lot more competition and are probably closer to $50/customer.
2) Lifetime Value. Customers of dating websites are transient, there only for a matter of months. As such, their lifetime value is not particularly high (I'd guess something in the $150 neighborhood). Netflix customers have long lifetimes (I've been a customer since 2000, with no intention of quitting) which adds up to a LOT of value.
3) Customer Price Elasticity. Dating websites are catering to people who will spend many hundreds of dollars on dates in their pursuit of happiness. $30/mo is a drop in the bucket if it helps increase your odds of finding that somebody. Netflix charges between $10 and $30/mo, depending on your plan, which is comparable to the cost of a few premium channels on cable, which is a cost their customers are accustomed to paying.
4) Price as value. If Netflix is more expensive, it does nothing to help you, it just costs more. If Match.com is more expensive, then the people on the site are likely to treat it a bit more seriously, which can make it a better product for some.
And besides making users happy (which is important), at its heart, it's a technology company, and it shines through when they're able to leap from platform to platform to deliver the movies.
Shameless plug: we're hiring good hackers. Check out http://netflix.com/Jobs
Why would Silverlight be chosen on its technical merits in an engineering-driven company? I don't see many other companies making that choice and I certainly wouldn't.
I happen to know that Microsoft is very interested in persuading big web sites to use Silverlight. I always assumed someone at Netflix was bribed^Wpersuaded with an XBox integration deal, or some other licencing/partnership deal.
Silverlight was chosen LONG ago (fall 2008). It was and is FAR better than the shitty windows media player version of streaming.
Perhaps netflix has found other methods of DRM that the studios approve of since fall 2008?
The alternative would be flash (which is a steaming pile of shit for osx and linux) and DRM for flash is shockingly expensive.
With silverlight, I can watch a 720p video on my mbp and use less than one core. I can not say the same for flash.
A 720p video from Netflix? That definitely wasn't the case for me last time I tried, maybe 2 months ago.
edit: to clarify, it's not even possible to stream 720p from Netflix on a Mac, regardless of how many cores it might take.
I'm still not happy about needing to install Silverlight, but at least the quality is now comparable to what I get on my Xbox 360 and PS3.
Can we expect to see HTML5 video support for the Mac anytime soon? It pains me that Netflix HD streams on my iPad look better than on my 1080p projector hooked up to a Mac mini.
Also, just to clarify -- there's not really any such thing as HTML5 video. There's an HTML5 video tag, and browser vendors can decide what kinds of video the tag should handle in their browser on a given OS.
How the video looks on your iPad or projector depends on the compression/decompression algorithm ("codec") and how efficiently the playback software and hardware can decompress and render frames of video to your screen.
Silverlight and Flash both support the H.264 codec, meaning a given frame of video in either technology should look the same.
In desktop Safari, the HTML5 video tag ties into any media the installed version of QuickTime can play, including video compressed with H.264. The HTML5 video tag on iPad and iPhone 3G and later supports H.264 Baseline profile 3.1, while earlier versions of iPhone support H.264 Baseline profile 3.0.
Given that Silverlight, Flash, and QuickTime all play back an H.264 encoded video, the exact same file, differences stem from other things besides the video, like excessive CPU usage causing frame drops.
For example, Flash 10.0 didn't access hardware acceleration for decompression of H.264, so 720p or higher content would generally drop frames and stutter badly. Flash 10.1 can, with certain video cards, use the video card to decompress the video, letting the video play more smoothly.
Safari 5 and QuickTime also can access hardware acceleration.
Meanwhile, Silverlight 3 was much more efficient at decompressing and rendering 720p size video on a Mac than Flash 10.0, while also supporting DRM encryption/decryption, making the Silverlight player a natural choice for Netflix. (As of Flash 10.1, on compatible Macs, the situation has somewhat reversed.)
On the back end, Silverlight streaming servers and Apple adaptive HTTP servers are close enough that an IIS Media Services server can stream to iPhones/iPads. H.264 video encoded for Silverlight Smooth Streaming or for Apple adaptive HTTP streaming uses generally similar techniques, helping an investment in Silverlight pay off in reaching the Apple iDevice ecosystem.
Let me rephrase my original question: is there any chance we'll see a native or browser-based application for the Mac that doesn't require Flash or Silverlight, ala the iPad app? Presumably whatever sort of DRM the iPad app is using could be implemented on the Mac, as well.
By the way, you could have skipped the patronizing bits in your response about HTML5 tags and the definition of the word "codec." The term "HTML5 video" is used colloquially to refer to native browser support for H.264 or WebM video. I thought that was clear enough, but perhaps I should have been more precise.
You didn't really answer my question about a native Mac app, but that may be because you can't talk about anything that may or may not be in development, which is understandable. In any case, just to re-iterate, my customer feedback is that I'd be much happier with Netflix streaming on my Mac if there were a native Mac app that incorporated the iPad implementation of PlayReady, without the need for installing Silverlight. On the bright side, I'm definitely happier with Mac streaming since learning from elq that Netflix supports "HD" streams on the Mac since May. I guess I should have subscribed to the official Netflix blog, as I'd have heard about it before yesterday.
p.s. Also in that article is this gem:
In addition, Netflix founder and CEO Reed Hastings sits on the Microsoft board.
I guess we've hashed this to death already, and you've made good points about the technical merits of Silverlight (version 3, at least, which was not available to the public when Mac streaming was originally released), but given the relationship between Netflix's CEO and Microsoft, you can probably understand why people would be skeptical that the choice to use Silverlight was an engineering-driven decision, which was staunch's point in his original post, I think.
At any rate, I think you and elq have made a good argument that as of v3, it's probably a better technical solution than Flash, at least.
Distribution for NFLX is strong - but given the move for most new hardware devices to include "Apps" integration, distribution is going to be a waning advantage.
It's going to be an interesting battle, for instance what does the paperwork look like in Netflix' studio agreements - can they sell to Apple?
Unfortunately, the studios are still trying to protect what they view as their major customers: Retail chains (WalMart and Blockbuster) and cable companies. They understand those business, they've made money with them, and file sharing and secondary markets are negligible in those environments.
I've never thought about Netflix's agreements with third party distributors. That's a good question. Originally, I assumed some money was changing hands but maybe not. Maybe Netflix looks at it as a form of loss leader and a strategic advantage in the long run.
It seems like every company that comes out with a set top or mobile device now eventually includes Netflix. For consumers, Netflix is becoming a feature that's just not anticipated, it's expected.
They seem to be making headway in expanding their catalog - e.g., the $1 billion deal with Epix (Paramount, Lionsgate, and MGM) to increase the size of their "Watch Instantly" portfolio. From what I've read, this is a big deal, as they're paying a bit more (relative to the premium cable channels) for the same rights.
More info on the Epix deal:
Distribution involves an endpoint: me+device. Netflix has me, and millions like me. On any device. I watch on my PC, my Mac, my Wii, my iPad. My 5 yr browses for shows on the Wii and the iPad. So Netflix has the advantage of customers and devices.
I spend $20/month on netflix. I have spent a total of $10 for TV shows on iTunes.
Turned out there are only certain categories of film (i.e. the ones that would be on daytime tv..) you can watch on "freeplay" and anything good you have to wait for a DVD in the post.
No wonder its cheap. Was still better than the adverts every 8 mins while watching Rambo on a cable channel though.
I'll certainly never sign up for cable tv.
I realize their "Instant" offering is still not as large as their DVD offering, but it's growing all the time. I currently have over 100 items in my "play it now" queue. I routinely switch items from my DVD queue to the "play it now" queue, so it appears that they are continually adding more content.
Mind you there are existing similar services.
Hopefully the Netflix service in Canada nails it.