Despite the recent downward spiral of NFLX, I'd agree that Netflix isn't doomed - it just has to seriously re-evaluate its branding and messaging. Their success as a company will hinge on their success in shifting the meaning of the Netflix brand (Qwickster was clearly one attempt at that).
Netflix is down, but not out, and I wouldn't be surprised to see it bounce back (maybe not to quite the same peak, but still much higher than it is now).
The problem is content. Netflix doesn't have much in the way of IP for streaming video. Their streaming service has always been lacking, but it used to be the only viable option to watch videos. Starting next year, they'll have even less content, when they lose the rights to all the Starz content.
Netflix took the risk of establishing a new video business model. They proved streaming video works, now will have to compete against a host of future players for content rights. It seems like studios have more to gain by going it alone and cutting out the middle man (netflix).
Netflix has to weather a storm, and hope for some breaks along the way. I see the major studios trying their own thing first. Aggregation might be key, I'm not sure I'd want to have accounts with several movie studios to watch their movies. But I think it will take some time to get to the point where that's obvious to all the major players. It's not clear that Netflix will still be around by then, and even if they are, it's not clear that the studios will find them the most appealing option. It's very possible that the major studios would get together (a la hulu) and cut out Netflix altogether.
Netflix has their brand and their recommendation engine. The brand has taken a hit with all their recent missteps. I'm not sure that their recommendation engine will get them through. It's not trivial to replicate, but can be done.
1. Netflix is at the mercy of media companies that control the content. Media companies can basically charge whatever they want for their content on Netflix. If Netflix can't afford it, they'll let their contracts expire and people will no longer get to see the movies and shows they want to watch. Unfortunately, the pricing hikes made consumers realize that it was extremely expensive to spend $16 a month to rent 1 DVD a week with streaming, whereas before at $10 they could justify the cost.
2. Netflix is in a crowded market with Amazon, Hulu, Apple, Google, and the media companies themselves. Sooner or later Starz, HBO, Warner Bros, and all these other media companies may decide to start their own version of "Netflix" and cancel all their existing contracts entirely. This would be more profitable for them, and would essentially kill Netflix.
3. Poor customer relations. The Qwikster snafu significantly hurt their brand, and a lot of customers (800k so far) have already left their service. Not only are they going to have to convince their existing customer base to stay, they need to convince more customers to join, as to drive revenue growth.
4. Netflix is predicting that its combined loss of customers and European launch will push it into the red next year where it may stay for all of 2012, according to a letter to its shareholders. http://goo.gl/3VdED
I doubt that anybody 'doubled up' and now pays for both the DVD and streaming option. The reason for the DVD service to exist at all is to do with Hollywood accounting and the way the licenses are counted - the idiocy of this has been discussed here before.
The studios can't start their own streaming service simply because they do not have the branding they think they have. This isn't the 1950s, nobody thinks "I must sign up for MGM's service they have all the best action movies".
HBO and BBC might manage to make separate pay-for services but are more likely to simply agree an extra cost deal with Netflix in the same way they sell an extra cost package to cable. Does HBO really want to get into the writing and supporting software player business?
Then the studios have a problem that they are in direct competition to their main customers - the cable companies that would be delivering these shows over IP. Can we say serious throttling?
Sooner or later somebody in Hollywood is going to manage to get the childproof top off their Lithium tablets and realize that iTunes hasn't quite destroyed the music industry.
Isn't HBO already in the "writing and supporting software player" business with its HBO Go apps? It's already circumventing business like Netflix today.
Kinda. In order to get HBO Go you need to be a subscriber, through your cable company. And not ever cable network is providing access to HBO Go, though I hear Time Warner Cable, is close to doing so.
Me too. As the WSJ column says, the streaming catalog just isn't adequate yet.
I tried it for a few weeks, but then gave in. But I mostly hang out on the long tail; almost nothing I wanted to watch was available for streaming. My wife, on the other hand, streams a lot.
Have you used HBO Go? It works. Its awesome. You can watch almost every HBO show, every episode from every season along with the newest episodes when they air. The catch, you have to have a subscription to a supported cable provider. Thus I no longer have it.
I think HBO has a very realistic shot of hitting it out of the ballpark. They have already proven they are capable of doing it. In a few years I expect most people will just subscribe directly to HBO.
As for Dreamworks, 20th Century Fox, MGM, Paramount, and every other movie studio having their own service, the economics won't work. They will make more per subscriber than they would from an aggregater deal, but they will have less subscribers.
A few other providers might be able to do what HBO can do. Niche providers, like Crunchyroll, will likely do very well.
I expect all of the movie & cable players will make moves on their subscription services. A handful will do a really good job and make out well, the rest will get to sell their libraries to Netflix, Amazon, and may be Google, and return back to what they do best.
Look for Netflix to start pumping out quality original content. Just like HBO did. It's one of the best ways for them to stay competitive and differentiate themselves.
The fact that media companies are unwilling to let any one company have a full listing of all movies is one of the major failings of the industry. The videogame industry has the same fundamental problem but the near monopoly of the Steam service actually does them some good in my opinion.
The problem I think is rooted in piracy, at least as it is practiced in first-world countries where convenience is worth more than price. Piracy has several built-in practical issues, because it is frankly inconvenient to be conducting illegal business, and DRM provides another inconvenience. But despite these endemic problems with piracy, it does offer a huge convenience: universality. The legal movie market is fragmented and therefore a pain to deal with, where the black market is very universal, with mirrors of content on all the major distribution channels (torrents, rapidshare/HTTP sites, and USENET are the big three).
The interesting thing to me is that all three of these distribution channels have successful paid services springing up around them. There are private VPN services you can pay for to torrent from a foreign IP. Almost every HTTP distribution site such as rapidshare has a premium service you can pay for to get more volume. And USENET has several news servers that retain data for years and offer direct encrypted downloads. So it is clear to me that people are willing to pay for the benefits these services offer.
If you line up the pros and cons, I would say that legal services win out on almost every count except two: price and universality. The success of grey market services and nearly-universal services in other industries (iTunes, Steam) tells me that price is not the real blocker, if only movie studios would get their act together and let distributors license everything in the world.
I would love to see a world where cable TV providers, digital streaming services and physical retail services all had access to the entire catalog of movies and competed on price and convenience. The current world where services compete with content catalogs and exclusivity just seems unsustainable because it is worse for consumers in the long run.
The problem I think is rooted in piracy, at least as it is practiced in first-world countries where convenience is worth more than price. Piracy has several built-in practical issues, because it is frankly inconvenient to be conducting illegal business, and DRM provides another inconvenience. But despite these endemic problems with piracy, it does offer a huge convenience: universality. The legal movie market is fragmented and therefore a pain to deal with, where the black market is very universal, with mirrors of content on all the major distribution channels (torrents, rapidshare/HTTP sites, and USENET are the big three).
I think you're overestimating the effect of piracy, because you tend to hang out with young, tech-savvy folks. The average Netflix customer would have no idea how or where to pirate a movie even if they did want to (not to mention there are some people in the world who aren't completely amoral and as such wouldn't).
>(not to mention there are some people in the world who aren't completely amoral and as such wouldn't)
You're implying that everyone follows the same code of ethics. You might not agree with it but for some people it's not in the slightest bit amoral to pirate a movie.
This is the long term problem for content creators. The current generation of sub-30 year olds have grown up/will grow up in a culture of free things. That idea is flourishing and is what really should scare content creators.
>That idea is flourishing and is what really should scare content creators.
The only one scared by this is the content industry, aka the publishers, and the unfortunate people who believe their propaganda and lies. Free culture is a good thing. The internet, for the first time in human history, has made the dream of unlimited sharing possible. Creators will not die out because the industry that imposed copyright on them in the first place is no longer needed.
Thanks yes true creators well be fine. Its the content publishers and packagers that will feel the pressure as consumers find ways around them to the source.
I know a lot of non-tech-savvy young folks who know how to pirate effectively. The convenience to watch anything you want at any time is a big enough carrot that they're willing to learn the procedures to follow.
"[...] in which all the stuff we want comes from one source at one price.
Forget about it. That world isn't coming. The hidden lesson of Netflix's fall from grace is that content markets will remain fragmented."
As you point out, that's simply not true, thanks to piracy. Not only can I find "all the stuff [I] want [...] from one source at one price", but that price is free (with the exception of site donations I guess). Not having to deal with DRM and the resulting uncertainty of ownership and crippled access from all devices, incomplete libraries, poor/uncertain quality and unreasonable prices are all icing on the cake.
Netflix could be to movies and tv shows what iTunes is to music and Steam is to games, but the content owners are fighting that every step of the way. Sadly, Netflix doesn't seem to have the power to push the content owners around like Apple does.
What I think these companies need to realize is that they're completely wasting their money not capitalizing on revenue streams. For new movies, sure, theaters only. For newly released DVDs, sure, stores and/or rentals only.
But 6 months to a year after release, I expect every company to put their content online so that it's convenient for people to watch instead of relying on the $5 bargain bin for revenue. That's what makes sense to me yet it doesn't happen. They pull content left and right for what? So Netflix can't be the sole provider of the content? What makes sense to me is AMC putting the first several seasons of "Breaking Bad" on Netflix so that all can watch it to catch up to the current season on air. Do other programs expect people to purchase DVDs for a single view to catch up?
Ideally for me there should be company B and company C to compete with Netflix, each with its own set of exclusives from different companies, each with a ~$10/month no contract charge for viewership. I'll end up with ~$30/month cancel anytime for all content and stream it all off of a single convenient box. That sounds better to the status quo to me.
Honestly, Amazon may have the best streaming solution right now.
I have a Roku box that gets both, though I usually stick to Netflix. I got an episode that glitched the other day, so I flipped over to Amazon Prime, which turned out to have it, so I watched it there. I then flipped around a little bit to see what was new.
The great thing about Amazon is that their streaming library is way, way more comprehensive. Want something that isn't a part of a Prime subscription? Just pay a rental or purchase fee and watch it right away, without waiting for a disk, running down to Redbox, or whatever. Don't have a Prime subscription at all? Try it for cash for a few times and see whether the subscription fee is worth paying. And since it's Amazon, they probably already have your credit card on file, so there's not much to fiddle with.
If they can get the Kindle Fire in a lot of people's hands (and apparently they can, if the rumors are true), this could be a huge opportunity for them to leapfrog Netflix and Apple.
Another good thing about Amazon is that, via Prime, you also get awesome shipping. So for the cost, it is hard to beat.
But, UX-wise, Amazon has a lot of issues.
With their streaming movies, if you leave a program half-way and come back later, you have to search for it all over again to find it and resume the program. There isn't a "recently viewed" section or any of that.
The site is also very static (pretty lame content discovery). Not nearly as compelling as the actual Amazon stores, oddly. It's as if it isn't hooked into your search history or viewing preferences. At. All. The experience is painfully mimicking the store experience, but without the typical Amazon recommendations. It's disappointing, to say the least.
I couldn't agree more. The current experience of watching movies on Amazon is horrible. They basically bolted a substandard YouTube like player onto the existing Amazon storefront UI. It's a horrible combination for watching movies and I tend to avoid it when possible. I'll check Netflix and see if they have what I want before I ever go to Amazon.
I just became a paying Prime member, so I got the streaming included now. I agree, it doesn't feel like a "premium" service. Your description of bolting a crappy player to the storefront is dead on. If it wasn't included with my Prime membership, I don't know if I'd pay for access at any level. Hopefully that experience gets better, having more players in this field sure wouldn't hurt.
I agree that Amazon's site is pretty terrible at finding what you want or discovering new content, the player isn't too bad itself though. I especially like the pop-out feature which lets me resize the video window exactly how I want it.
What I really like most about Netflix is that it works on nearly all devices. It seemed really strange Hulu was going out of their way to block devices while Netflix was going out of their way to do the opposite.
I've been using Amazon since they had Amazon Unbox (which was a horrendous abomination of a program.) Back then I had to futz with the software, wait for it to download and then only watch it on that computer.
For me now, I watch Netflix on my iPad, multiple laptops, desktop, Apple TV, and Roku. I pause a show on one device and resume it on another. That is the way video should be.
If Amazon can do this, great, then I don't need Netflix anymore. The Amazon Prime library is getting closer and closer to Netflix by the day. Perhaps the larger open question s will Apple attempt to lock Amazon out of their platform.
I have no problem subscribing to multiple services (right now I've got Netflix, Amazon Prime, Hulu, CrunchyRoll.) I pay for video content on Amazon & Apple too. The reason I use Netflix for 90% of my video is because it works on 100% of my devices.
He may be right that no company will get all the movies/series/etc and the market will continue to be fragmented.
But if that happens then piracy will kill the industry and nothing will be able to save them. This doesn't mean that they can survive only if there is a single company you can buy from -- I believe there is space for a number of different companies much like there is Spotify, Last.fm, iTunes store, etc each with a different model for how to provide value to customers -- but that each company must have all, or substantially all, the movies people want.
Because as long as it is easier for people to find what they want on a torrent site or on rapidshare or on usenet they will do that. The movie industry is in competition with the pirates and have no way to beat them on price so they will have to fight on the basis of convenience (which is a battle they can will, as illustrated by iTunes).
If they don't, they are doomed.
And if anybody out there is looking for a new startup, may I suggest that you make a recommendation engine like netflix has but for tv series. The channels (and especially the bundles of channels) belong to the past. But there is good value in recommending good quality tv shows to people who may be interested in them. If Netflix had focused massively on that, they would be in much stronger position against the rights holders.
A bit OT, but what about the concept of "movies" in general going away? This is something that we've only had for around 100 years - as part of mainstream society's expectations, it's only a few generations old.
Might we see a major transformation of what we consider 'movies' (both in form and in content) due to delivery constraints, IP issues and such?
I'd like to see a live comparison of content available on Amazon Prime (free streaming) versus Netflix, Hulu and any other subscription services. Has anyone built such an interface? Am I just describing something that Boxee/XBMC arleady does?
Netflix's biggest issue in my mind is it's content licensing costs. They have gone from under $200M to nearly $2B in just a year. These costs will become a greater proportion of their overall cost structure, especially as competitors vie for the same digital content. The real winners here are the Sony's and Warner's of the world.
Distribution eventually gets commoditized, content is king.
37 comments
[ 4.8 ms ] story [ 84.4 ms ] threadNetflix is down, but not out, and I wouldn't be surprised to see it bounce back (maybe not to quite the same peak, but still much higher than it is now).
Netflix took the risk of establishing a new video business model. They proved streaming video works, now will have to compete against a host of future players for content rights. It seems like studios have more to gain by going it alone and cutting out the middle man (netflix).
Netflix has to weather a storm, and hope for some breaks along the way. I see the major studios trying their own thing first. Aggregation might be key, I'm not sure I'd want to have accounts with several movie studios to watch their movies. But I think it will take some time to get to the point where that's obvious to all the major players. It's not clear that Netflix will still be around by then, and even if they are, it's not clear that the studios will find them the most appealing option. It's very possible that the major studios would get together (a la hulu) and cut out Netflix altogether.
Netflix has their brand and their recommendation engine. The brand has taken a hit with all their recent missteps. I'm not sure that their recommendation engine will get them through. It's not trivial to replicate, but can be done.
1. Netflix is at the mercy of media companies that control the content. Media companies can basically charge whatever they want for their content on Netflix. If Netflix can't afford it, they'll let their contracts expire and people will no longer get to see the movies and shows they want to watch. Unfortunately, the pricing hikes made consumers realize that it was extremely expensive to spend $16 a month to rent 1 DVD a week with streaming, whereas before at $10 they could justify the cost.
2. Netflix is in a crowded market with Amazon, Hulu, Apple, Google, and the media companies themselves. Sooner or later Starz, HBO, Warner Bros, and all these other media companies may decide to start their own version of "Netflix" and cancel all their existing contracts entirely. This would be more profitable for them, and would essentially kill Netflix.
3. Poor customer relations. The Qwikster snafu significantly hurt their brand, and a lot of customers (800k so far) have already left their service. Not only are they going to have to convince their existing customer base to stay, they need to convince more customers to join, as to drive revenue growth.
4. Netflix is predicting that its combined loss of customers and European launch will push it into the red next year where it may stay for all of 2012, according to a letter to its shareholders. http://goo.gl/3VdED
The studios can't start their own streaming service simply because they do not have the branding they think they have. This isn't the 1950s, nobody thinks "I must sign up for MGM's service they have all the best action movies". HBO and BBC might manage to make separate pay-for services but are more likely to simply agree an extra cost deal with Netflix in the same way they sell an extra cost package to cable. Does HBO really want to get into the writing and supporting software player business?
Then the studios have a problem that they are in direct competition to their main customers - the cable companies that would be delivering these shows over IP. Can we say serious throttling?
Sooner or later somebody in Hollywood is going to manage to get the childproof top off their Lithium tablets and realize that iTunes hasn't quite destroyed the music industry.
I did/do.
I think HBO has a very realistic shot of hitting it out of the ballpark. They have already proven they are capable of doing it. In a few years I expect most people will just subscribe directly to HBO.
As for Dreamworks, 20th Century Fox, MGM, Paramount, and every other movie studio having their own service, the economics won't work. They will make more per subscriber than they would from an aggregater deal, but they will have less subscribers.
A few other providers might be able to do what HBO can do. Niche providers, like Crunchyroll, will likely do very well.
I expect all of the movie & cable players will make moves on their subscription services. A handful will do a really good job and make out well, the rest will get to sell their libraries to Netflix, Amazon, and may be Google, and return back to what they do best.
Doomed to be TBS/FX instead of the cable giants that they were initially pitted against? Quite possibly.
The problem I think is rooted in piracy, at least as it is practiced in first-world countries where convenience is worth more than price. Piracy has several built-in practical issues, because it is frankly inconvenient to be conducting illegal business, and DRM provides another inconvenience. But despite these endemic problems with piracy, it does offer a huge convenience: universality. The legal movie market is fragmented and therefore a pain to deal with, where the black market is very universal, with mirrors of content on all the major distribution channels (torrents, rapidshare/HTTP sites, and USENET are the big three).
The interesting thing to me is that all three of these distribution channels have successful paid services springing up around them. There are private VPN services you can pay for to torrent from a foreign IP. Almost every HTTP distribution site such as rapidshare has a premium service you can pay for to get more volume. And USENET has several news servers that retain data for years and offer direct encrypted downloads. So it is clear to me that people are willing to pay for the benefits these services offer.
If you line up the pros and cons, I would say that legal services win out on almost every count except two: price and universality. The success of grey market services and nearly-universal services in other industries (iTunes, Steam) tells me that price is not the real blocker, if only movie studios would get their act together and let distributors license everything in the world.
I would love to see a world where cable TV providers, digital streaming services and physical retail services all had access to the entire catalog of movies and competed on price and convenience. The current world where services compete with content catalogs and exclusivity just seems unsustainable because it is worse for consumers in the long run.
I think you're overestimating the effect of piracy, because you tend to hang out with young, tech-savvy folks. The average Netflix customer would have no idea how or where to pirate a movie even if they did want to (not to mention there are some people in the world who aren't completely amoral and as such wouldn't).
You're implying that everyone follows the same code of ethics. You might not agree with it but for some people it's not in the slightest bit amoral to pirate a movie.
The only one scared by this is the content industry, aka the publishers, and the unfortunate people who believe their propaganda and lies. Free culture is a good thing. The internet, for the first time in human history, has made the dream of unlimited sharing possible. Creators will not die out because the industry that imposed copyright on them in the first place is no longer needed.
"[...] in which all the stuff we want comes from one source at one price.
Forget about it. That world isn't coming. The hidden lesson of Netflix's fall from grace is that content markets will remain fragmented."
As you point out, that's simply not true, thanks to piracy. Not only can I find "all the stuff [I] want [...] from one source at one price", but that price is free (with the exception of site donations I guess). Not having to deal with DRM and the resulting uncertainty of ownership and crippled access from all devices, incomplete libraries, poor/uncertain quality and unreasonable prices are all icing on the cake.
Netflix could be to movies and tv shows what iTunes is to music and Steam is to games, but the content owners are fighting that every step of the way. Sadly, Netflix doesn't seem to have the power to push the content owners around like Apple does.
What I think these companies need to realize is that they're completely wasting their money not capitalizing on revenue streams. For new movies, sure, theaters only. For newly released DVDs, sure, stores and/or rentals only. But 6 months to a year after release, I expect every company to put their content online so that it's convenient for people to watch instead of relying on the $5 bargain bin for revenue. That's what makes sense to me yet it doesn't happen. They pull content left and right for what? So Netflix can't be the sole provider of the content? What makes sense to me is AMC putting the first several seasons of "Breaking Bad" on Netflix so that all can watch it to catch up to the current season on air. Do other programs expect people to purchase DVDs for a single view to catch up?
Ideally for me there should be company B and company C to compete with Netflix, each with its own set of exclusives from different companies, each with a ~$10/month no contract charge for viewership. I'll end up with ~$30/month cancel anytime for all content and stream it all off of a single convenient box. That sounds better to the status quo to me.
I have a Roku box that gets both, though I usually stick to Netflix. I got an episode that glitched the other day, so I flipped over to Amazon Prime, which turned out to have it, so I watched it there. I then flipped around a little bit to see what was new.
The great thing about Amazon is that their streaming library is way, way more comprehensive. Want something that isn't a part of a Prime subscription? Just pay a rental or purchase fee and watch it right away, without waiting for a disk, running down to Redbox, or whatever. Don't have a Prime subscription at all? Try it for cash for a few times and see whether the subscription fee is worth paying. And since it's Amazon, they probably already have your credit card on file, so there's not much to fiddle with.
If they can get the Kindle Fire in a lot of people's hands (and apparently they can, if the rumors are true), this could be a huge opportunity for them to leapfrog Netflix and Apple.
But, UX-wise, Amazon has a lot of issues.
With their streaming movies, if you leave a program half-way and come back later, you have to search for it all over again to find it and resume the program. There isn't a "recently viewed" section or any of that.
The site is also very static (pretty lame content discovery). Not nearly as compelling as the actual Amazon stores, oddly. It's as if it isn't hooked into your search history or viewing preferences. At. All. The experience is painfully mimicking the store experience, but without the typical Amazon recommendations. It's disappointing, to say the least.
I've been using Amazon since they had Amazon Unbox (which was a horrendous abomination of a program.) Back then I had to futz with the software, wait for it to download and then only watch it on that computer.
For me now, I watch Netflix on my iPad, multiple laptops, desktop, Apple TV, and Roku. I pause a show on one device and resume it on another. That is the way video should be.
If Amazon can do this, great, then I don't need Netflix anymore. The Amazon Prime library is getting closer and closer to Netflix by the day. Perhaps the larger open question s will Apple attempt to lock Amazon out of their platform.
I have no problem subscribing to multiple services (right now I've got Netflix, Amazon Prime, Hulu, CrunchyRoll.) I pay for video content on Amazon & Apple too. The reason I use Netflix for 90% of my video is because it works on 100% of my devices.
But if that happens then piracy will kill the industry and nothing will be able to save them. This doesn't mean that they can survive only if there is a single company you can buy from -- I believe there is space for a number of different companies much like there is Spotify, Last.fm, iTunes store, etc each with a different model for how to provide value to customers -- but that each company must have all, or substantially all, the movies people want.
Because as long as it is easier for people to find what they want on a torrent site or on rapidshare or on usenet they will do that. The movie industry is in competition with the pirates and have no way to beat them on price so they will have to fight on the basis of convenience (which is a battle they can will, as illustrated by iTunes).
If they don't, they are doomed.
And if anybody out there is looking for a new startup, may I suggest that you make a recommendation engine like netflix has but for tv series. The channels (and especially the bundles of channels) belong to the past. But there is good value in recommending good quality tv shows to people who may be interested in them. If Netflix had focused massively on that, they would be in much stronger position against the rights holders.
Might we see a major transformation of what we consider 'movies' (both in form and in content) due to delivery constraints, IP issues and such?
Distribution eventually gets commoditized, content is king.