netflix reverses dvd/streaming split - Page 4

Do you really think Restoration Hardware should tailor their products to attract Walmart customers? It's all about creating/finding your niche regardless of how small or large it may be. Starting a business over 30 years ago one of my mantra's was... It's more important who you don't do business with than who you do business with.

The erosion of more profitable revenue streams is key to the whole market transformation.

Back before a billion channels of cable and the immediacy of streaming, the allure of owning movies was strong. If you didn't have a movie collection your only alternative was the random couple of things that happened to be on TV that night.

It is my assertion that the days of movie hoarding are largely over. Sure there will be some people with terabytes of rips (legal or illegal). And there will be some bit-rate nazis using blu-ray for a while longer. But the era of typical viewers purchasing a movie library are over. Maybe they'll buy a few kids movies that get watched over and over. Or perhaps a handful of favorites. But they won't be buying dozens, hundreds, or thousands like they did in the past.

The movie industry is scared of this trend because they would prefer to continue selling large quantities of movies. They likely won't make as much via subscription streaming services. Or at least they haven't been making as much money via the current netflix model.

Using myself as an example (despite not being representative of the public)...

I own around 400 DVDs and 5 blu-rays. 2 or 3 of these were watched this year. I stopped buying disks a few years ago because what's the point when I have tons of choices cheaply and immediately available? Netflix and torrents are to blame and Hollywood knows it. They want to resume making money off of people like me. The only way they know how to do that so far is to start jacking licensing fees charged to streaming services like Netflix.

I doubt Netflix will be the only provider but there is no room for both streaming and cable/sat. The distribution method is too radically different. With cable/sat, it's like radio stations only being able to play certain songs. That's what Netflix is trying to do, break the exclusive content model of cable/sat, the studios, and distributors and make it more like the music industry where a radio station can play any music it wants as long as it pays the royalties, except we get to choose the songs! How sweet is that?

Because I am basically cynical towards the entertainment industry, if Netflix cannot succeed, I give it a 50/50 chance that we will end up with a streaming model just like existing cable/sat. The only difference is that we will all get the 10 channels we really want but will pay $100 mo. for them....with commercials....lots of commercials.

That's virtually the same as saying there is no room for media sales and satellite/cable. Streaming will simply be replacing DVD/Blu-ray for the foreseeable future along with a few premium channels. I have read in the past that satellite/cable subscribers with the most expensive packages use Netflix more than all of their other subscribers.

No one is replacing anyone anytime soon. If Netflix wanted to replace satellite/cable they would have to produce their own original content. Which would still leave them lacking the live aspect of programming... the rights to streaming sporting events, etc. Again from my eyes Netflix is only a premium channel competing with all of the others. That's why HBO, Showtime and others stopped providing them content. Other basic subscription channels such as AMC realize they can't replace them are more than happy to sell them their premium content like Mad Men.

Really, let me know when I can watch a new popular release on release day on Netflix. VuDu and others are trying but it seems people still opt for disks.
In the future, yes but that can be 10, 15, 20 years depending on what the studios will allow, cost per title and substantial availability of +7MB internet speed to more regions at reasonable cost.


Is this fact or fiction?
*I see no proof.


Netflix is no where near a premium channel.
It's mearly a cost effective way to view catalog media.
Yes, sometimes they get new titles on release date but those are not block buster/popular titles.

Netflix had their niche but Amazon and others are attempting to provide the same model plus new popular releases for a premium.

I believe Amazon has the most enticing package if they can get a queue setup like Netflix.
Cheap catalog access and new titles if you want to pay for them on a single interface/service.

Blockbuster may be not to far behind since they already offer "ala carte" new titles for single viewings. They just need to add more catalog and charge a base subscription price.

To me, it seems Netflix did the bait and switch and got a lot if subscribers using their low price scheme and hoped they would stay on board with a 60% price increase and splitting services but they gambled and failed.

People opt for discs over Vudu/VOD (in the majority of cases) because Vudu is still priced high ($3.99 for SD and on up through $5.99 for HDX). A lot higher than disc rental prices. Netflix has gotten new releases day of (or within a few weeks), but it's rare and not usually the blockbusters. Like Kevin Smith's Red State was just released day-of, but of course that wasn't really a blockbuster.


I agree that the combo buffet + new releases at a premium is enticing. However, most people currently enjoying streaming have those options already (for example, I can stream unlimited from Netflix or Amazon or Hulu+ and rent a new release at a premium from Vudu, PSN, Zune, Amazon, FiOS, etc). I'd be hard pressed to find a streaming device that didn't offer a similar plethora of options. Yeah, it's not from the same all-in-one provider, but I'm not sure how much that matters to your average person. Perhaps more than I think based on the Qwikster fiasco where people were so upset about having to pay 41 bills a month instead of 40. (I personally wasn't). The "nice" thing about the combo is being able to maintain queues in one place.

As you point out, those others have a ways to go to catch up if they want to take over the Netflix crown. They can't continue to offer a subset of the Netflix titles, at (roughly) the same price, on fewer devices, and hope to catch up. But it's nice to see people trying, as I really don't want the buffet model to die, and I'm afraid if the Netflix model dies, that dies with it.


I hate to point this out because you're so seemingly jumping for joy that Netflix lost 800,000 subscribers in one quarter, but you do know that's out of ~25 million, right? That's about 3% and just slightly higher than they had predicted (depending on which news article you read). And a good bit of remaining people are paying the higher prices. I know the kneejerk reactions of the media and stock market kindof made that out to be a big deal, but it's not like they lost 10, 20, 30 or 40%. They've had quarters where they've gained more than twice as many subscribers as they lost. Not saying that will continue to happen, but losses in a single quarter (that can be directly attributed to hopefully one-time changes), is hardly a trend.

I'm just not convinced it's as big of a deal as others seem to think. I still predict they'll gain back most of those subscriber numbers in Q4, barring another PR disaster. Now, if they continue losing subscribers over the next couple of quarters and it becomes an ongoing trend, then it's a bigger problem/trend. As it is right now, it's too early to say what the long-term effects and the loss is simply an expected result.

I'm just saying a bit of reality check is in order here.

Replacing isn't duplicating. There is a big difference.


Fact. Based on what I read.


It's always can happen, could happen, should happen, will happen that makes Netflix not the best. Unfortunately, those don't exist.


The sun might not come up tomorrow too. More of the above.


Streaming prices (which we are discussing) actually went down.

There will always be sales. The issue is streaming vs. passive watching, and, no, DVR's are not the solution. They are only a temporary solution. Just like when CD's came along in music and DVD's came along in video, streaming is so far superior for watching content that there is no room for both streaming and the current cable/sat model. I just don't know what kind of streaming will become the norm, either buffet or ala carte or a combination.

I would welcome the cable companies moving to all streaming but they seem unwilling or unable to except in very limited ways, and they, in my mind, were always the logical choice to lead in this transition. Satellite would lose in this scenario but they could fill the niche of all local broadcasting and live sports and news. So, in my perfect world, I would have a big pipe for streaming entertainment and a small satellite dish for local and live programming.

Another reference to this...

They weren’t alone in their mistakes. Both All Things Digital and Time reported that 36% of Netflix “users” were likely to downgrade or cancel service. First, this has nothing to do with Netlix users in general, just those that use the Netflix streaming service. Big difference. Second, the data spoke to downgrade proclivities as defined above, not cancellation, which was surveyed as a separate behavior altogether. True, I did mention that the “Netflix effect” is now becoming manifest and in its ultimate expression will mean both more downgrades and cancellation, but as TDG has long stated, in the short term this is about service downgrades; cancellations will begin much later in this cycle, when full-fledge PayTV replacement services are available that are capable of competing with more robust PayTV offerings.

This is not to suggest that Netflix Streamers are no more likely to cancel their service this year than last, only that no such data was presented in the release, and certainly no data suggesting Netflix would “kill” PayTV revenue—that’s a misnomer.

The much later cycle isn't even foreseeable to my eyes.

In a "perfect world" you wouldn't need two delivery systems just to be able to view different things. The technology doesn't need to affect what is available.

Local and live programming is a perfect application for streaming. The hold up isn't the technology used to deliver the programming, but rather business decisions by the companies involved.

Extracted from the page 10 of the Netflix October 24, 2011 letter to shareholders

Q4 2011 Guidance

Domestic Streaming:
Subscriptions......... 20.0 m to 21.5 m
Revenue............... $462 m to $477 m
Contribution Profit... $ 30 m to $ 42 m

Domestic DVD:
Subscriptions ........ 10.3 m to 11.3 m
Revenue............... $354 m to $368 m
Contribution Profit... $177 m to $192 m

A bit of MY arithmetic:
Approximate profit contribution per subscriber for the quarter

Domestic Streaming... $1.50 to $2.00 ($0.50 to $0.67 per month)
Domestic DVD........... about $17.00 ($5.60 per month)

Why such a desire for lots and lots of new subscribers who don't bring much profit? While reducing DVD/BD service (28 day delay, "rental only", etc.) to profitable subscribers....

I think the key word up there is "domestic." They're expanding into other markets besides the US, where they are unable to provide a disc service. They are also looking further ahead than next week, next year, or even a couple years from now. Long term visions with many many competitors (today) entering the streaming arena. If they want to be around 10 years from now, they need to be stepping up the streaming game NOW.....not waiting while others pass them by. Right now, everyone is playing catch-up to Netflix. If they stood still and focused on discs for the short-term gains, they'd be the ones playing catch up as the industry passes them by.


You are confusing Netflix wanting delays and rental only versions with the studios forcing both those on them. Neither of those are Netflix decisions. Rental versions are commonplace across the rental industry, and so are delays. In fact, just announced today Warner is now imposing 28 day delays on Blockbuster, the sole holdout of day-and-date rentals. Other studios are sure to follow IMO, and by the end of the year (or very shortly thereafter) being able to rent a physical disc the same time it hits retail will be a thing of the past.

If you think there'd be no 28 day delay if Netflix hadn't negotiated a deal with the studios, I believe you are sorely mistaken. Instead, there would be a 28 day delay, and Netflix would have gotten nothing in return. I've pointed it out before, but Redbox was the studios' first target for delays. They tried to fight it. They lost. They have a 28 day delay and get NOTHING in return. It's obvious Netflix was the next target now that the precedent had been set. Netflix was just a bit pro-active and managed to negotiate so they'd get something out of it. The delay was coming regardless. Rental companies can't stop that train.

International (Streaming):
Subscriptions................... 1.6 m to 2.0 m
Revenue......................... $25 m to $30 m
Contribution Profit/(Loss)... ($70 m) to ($60m)

It looks like a good deal of cash will be needed for international expansion. Maybe they'll have to keep DVD/BD going a while longer....

They don't have any plans to get rid of it, so yeah, they'll be keeping it.

Smart minds think alike...

I can understand losses when starting up a new business, such as the Netflix international expansion. At 20 million subscribers, domestic streaming would seem to be well past that phase. But at $7.99 it's not generating very much profit. Netflix would need to substantially raise that price to get the same profit margin that they now have with discs. It will be interesting to see what they do over the next few years.

You could stream local TV and live sports and news, but you don't really need to. OTA broadcasting is more than sufficient. Currently, satellite can reach places that high-speed broadband will not reach for many, many years. It's too elegant a solution to not keep it. Where I live, there are too many trees and hills to get good local broadcast signals for some stations (I can't get NBC at all). I wish everything local would just switch to satellite. It would free up bandwidth for streaming in general and it would also free up the broadcast spectrum that the wireless people are so keen on taking.

Just read a story that Redbox is increasing their rental prices 20% (from $1.00 to $1.20 for DVD's.) I'm not certain what BD goes for, but it may be similar.

BD is remaining the same price.

http://m.hollywoodreporter.com/news/...l-price-254288

Derail trains much?

The point wasn't that any technology is better, which would be a rather deep rabbit hole. But rather that it would be optimal to not need multiple connection types simply because programming was limited to one delivery method.

The relevancy to this discussion is that for the majority of people in the future, streaming will be sufficient as a the method to watch programming. Hollywood knows this and that's why they're hesitant to help Netflix get too entrenched. Copyright owners will drag their feet until theyre sure that they can succeed in the developing market. It doesn't help at there is overlap between cable companies and the companies that own the content. Netflix has an uphill battle there.

dflier,

Agreed, but leveraging existing technology can sometimes ease the pain of transition and satellite is not suited to streaming at all. Given the current battle for the broadcast spectrum from the wireless industry, it would be very cost effective for the government to put up a few satellites and have all local broadcasters replace their towers with uplink dishes to rebroadcast locally via satellite and it would still be free. Not sure if this is even technically feasible so take this as just some random thoughts.

Yeah, I just got an email from Redbox about that, too. While I don't like paying more for things as the next guy, 20 cents is tolerable and still a good deal. And at least it wasn't the $2 DVD rumors I heard awhile back.

There is nothing cost effective about putting satellites in orbit and then installing tens of millions of dishes and tuners and new premisis wiring in order to replace the existing OTA system.

Your current satellite based streaming issues are real and I'm not trying to belittle them. However they aren't what is driving the market or current strategic decisions. The cable-tv, sat-tv and blu-ray industries are still scared of netlfix because it is recognozed that streaming will eventually destroy their current business model... For most people that is.

Edit: and to bring us back on topic... This is what is driving the Netflix price increases and business strategies.

The one thing that confuses me about Netflix's strategy of pushing streaming so hard is that, honestly, Netflix has reliability issues when it comes to streaming. Even without splitting the company in half, pushing a lot of folks to "Streaming Only" and then having those folks have issues tarnishes the company reputation.

In periods of heavy usage (and sometimes for no reason at all), the streaming service frequently goes down. In some cases, it doesn't go down completely, but becomes limited in availability. There are other times when folks with plenty of available bandwidth get throttled down to low-quality streams due to some sort of bottleneck in Netflix's infrastructure, but Netflix always insists that there's nothing wrong on their end, even though customers can plainly see that the Netflix streaming client is using just a fraction of their available network capacity. Does Netflix really have the network capacity and reliability to make their vision of limitless streaming a success? At least at the moment, it doesn't seem like it.

Hey, at least they give you a $.10-.25 credit for ruining your night of entertainment.

The internet as we know it was never designed for streaming video. There is a mountain of info on how the internet works so there is no need to rehash it here. Don’t look for things to get much better till copper is replaced with fiber in the last mile and I would not hold my breath waiting for that to happen.

You can bet the problem lies between your house and your ISP's connection to the internet. The telcos and cable companies are notorious for oversubscribing access.

I finally decided to get rid of Netflix streaming. I still need Cable--and I subscribe to HBO and Showtime so there is really no point to have Netflix streaming too. I still get one disc at home since I like to watch the Blu Ray of movies I don't buy--but even that option is on the table to get rid of and just go with iTunes or Amazon to rent movies I don't buy. I like current content and I'm willing to pay for it--but I don't need both.

Netflix contracts (third-parties) servers and bandwidth and as such there is no governor per se. However growing pains are certainly expected which aren't exclusive to Netflix. Take for example NFL streaming on the PS3 this year... To me capacity will meet demand going forward it's more of a artificial bandwidth issue as in will Interent providers throttle usage to increase revenues and to what degree when they do.

Right now Internet providers during primetime hours must feel like McDonalds at lunch time. The demand for video has exponentially increased their need for bandwidth and it will take time before they can satisfy the demand. However recently I had AT&T DSL and Comcast Internet and both performed as advertised 24/7. Actually, Comcast provided twice the bandwidth speed at 24Mbps with my 12Mbps plan.