Monthly Archives: September 2011

Netflix – Qwikster – I’m confused

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I have to admit – I’m really confused about Netflix.  I have been a customer of theirs for a long time.  I didn’t understand their large price increase announced 2 months ago (that just went into effect Sept. 1) and now I definitely don’t understand why the company is splitting its DVD and streaming services into 2 companies, announced in Reed Hastings post yesterday (http://blog.netflix.com/2011/09/explanation-and-some-reflections.html).  I guess the new “Qwikster” is for its antiquated DVD customers (I’m one of them) which doesn’t exactly make me feel special – or even like a customer Netflix wants anymore.  I get that streaming is the future, but DVD isn’t dead yet.

I am also confused by Reed Hasting’s apology.  It didn’t really seem like an apology at all – other than admitting that he should have explained sooner why Netflix raised their prices.  But he didn’t really do anything about it and the apology seemed half-hearted.  Why did it take so long?  He’s a smart guy.  There are lots of smart people at Netflix.  He admitted that Netflix made a bunch of mistakes but he didn’t correct any of them.  He could have bundled the DVD and streaming services for a bit of a discount – but he didn’t.  Then the announcement of the new Qwikster brand for the DVD service just seemed even more out of place.

I am just confused.

When Netflix decided to raise its prices and charge separately for their DVD and streaming subscriptions, I debated what I was going to do.  I finally decided to just go with the DVD service.  I realize that I write a lot about online video services and have even developed strategies for companies around it but despite that the Netflix service doesn’t have enough content to (yet) justify $7.99 per month – for me.  I like watching new movies and old seasons of TV shows and these aren’t available on the streaming service.  I guess this just makes me a Qwikster customer, but now I feel a bit abandoned by the brand of which I have been loyal (and even evangelized) for several years.

I realize that Netflix has significantly more streaming customers than DVD customers (21.8 million vs 14.2 million expected in Q3 2011) but both are interested in subscribing to content.  They just happen to like consuming content different ways.  Many DVD customers are likely to switch over to streaming as Netflix licenses more content they want.  I know I will – or I’ll go to some streaming service.  I love the fact that it’s available through my Internet-connected Wii, on my computer, and on my iPhone.  I just haven’t been hooked (yet) on the content.  I think a lot of consumers will subscribe to streaming in general as more content becomes available.

This new strategy of separating out the DVD and streaming service is alienating many of the customers that got Netflix where it is today.  One key difference between now and when Netflix started is there are more options – especially for streaming.  Amazon and Hulu are getting in the game as I’m sure will others.  Microsoft announced Xbox 360 TV, so a subscription service isn’t out of the question for them.  While Netflix certainly is ahead of their competitors, others can quickly take their place.  Netflix displaced Blockbuster.  Couldn’t someone do that to Netflix?

Reed Hastings talked about how he has been afraid that Netflix would end up like AOL or Borders as the business transitioned from DVD to streaming.  That fear is very fair as that has happened to many companies as they transitioned from one technology or business model to another – but the strategy of spinning off the legacy service to an unknown brand name just doesn’t make sense.  Does that means Borders should have created a e-book reader, called it Borders, then changed the name of the bricks and mortar bookstore?  Changing a name doesn’t make a company.  It’s the service that does.

I do get that streaming is the future and Netflix should put a lot of resources towards it as consumers do want that in the long run.  It is the future of content consumption.  I just can’t get past the new branding.

I also don’t get why there are going to be two separate websites for Netflix and Qwikster.  This means that people who have both services have to go to both sites to look for content – and rate content.  One of Netflix’s most valuable features has been its recommendation engine which helps consumers discover new content.  Is a customer on the DVD service that much different than a customer on the streaming service?  Just because people watch content differently – and on different platforms – doesn’t mean their content choices are going to be different.  Integrating the sites makes sense – especially if Netflix wants to convince their DVD customers to migrate to streaming in the future.

Netflix has long been a respected brand.  That now appears to be changing a bit as their management team develops strategies that just don’t make sense to consumers.  Consumers understand that prices go up but they don’t understand when their loyalty is not rewarded and that branding changes dramatically.  Netflix has a lot going for it – a deep catalog of DVD content, significant streaming deals, a newly launched kid’s area, international streaming services, and a well-known brand.  I hope they figure out their mistakes and listen to their customers before someone else takes advantage and displaces them.

 

Xbox TV – Microsoft is positioned to succeed

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Microsoft announced last week that it is going to launch Xbox TV later this year.  While there is no guarantee of success, Microsoft is well positioned – much more so than others – to succeed where others have failed.

Apple TV, Google, and even Microsoft (with its Windows Media Center) did not succeed in getting consumers to watch Internet-delivered content on their televisions – at least not in mass quantities that many expected.  The biggest challenge for these players is that consumers had to purchase ANOTHER set-top box in their home for another specific purpose.  Many consumers already have a cable or satellite set-top box, DVD player, and likely a game console.  They don’t want another box in their entertainment system just for watching Internet-delivered content.  Consumers would rather use an existing set-top box for that purpose.  Google smartly integrated their service into televisions, but consumers are not likely to buy a new television simply to get the Google TV service – unless they were already ready to buy a new TV.

Microsoft has sold 55.9 million Xbox 360 consoles worldwide of which 33 million are in the United States, according to VGChartz.com.  This is a large installed base that Microsoft already has – positioning it to at least come out of the gate ahead of other competitors.

Microsoft’s plan is to include video-on-demand (which it has already) as well as live television on its Xbox 360 game console.  The announcement didn’t include other business models (like subscription VOD) but my guess is that this will be included in some way.  The company also didn’t yet announce content partners, but Microsoft has deep relationships with all of the major content owners, so it is likely that many deals are already in the works.

Another option for Microsoft is to become the “TV Everywhere” extension for cable and satellite providers.  Many have already rolled out their plans (e.g. Dish, Comcast) but many have that.  Microsoft could include the Internet-delivered content on the Xbox 360 and also make it available through their other outlets like the Zune Marketplace, which is available on a Windows 7 PC (of course that software could be extended to other platforms).

Live television will be a difficult proposition for Microsoft if it is done separately from a TV Everywhere strategy of a cable or satellite company.  It might be possible for broadcast channels, but for cable channels that would be much more difficult as cable and satellite providers may threaten to drop channels that are offered an a la carte offering through Xbox 360.  Cable programmers like to package channels together and sell those packages to customers.  A la carte offerings on other platforms would threaten that.  Since cable channels are the bulk of a cable channel’s revenue base, it’s unlikely that would leave that large revenue stream.

One way to help ensure success with Xbox 360 is to make the content available on the console available on other platforms as well.  This strategy has served competitors like Netflix and VUDU really well.  Their content is easily accessible on everything from set-top boxes to computers to mobile devices.  Consumers like to use the same service in multiple places – and don’t want to pay to access content just because it’s on a different platform.

Despite the challenges, Microsoft is in a position to be successful with an Internet-connected television service with Xbox 360.  Customers flocked to the service when Netflix was made available on the console, so it’s clear that there is demand for content on the console.  As long as Microsoft has a significant amount of content with multiple revenue models that appeal to a broad customer base and makes content discovery easy and organic (like Netflix does with its recommendation engine) then it will do very well.

Vudu – Why is Everyone Surprised at Their Success?

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In late August 2011, Screen Digest/IHS announced that Vudu now has 5.3% market share of the online movie market in the U.S. – up from just 1% in the first half of 2010.  What surprises me is that everyone is so surprised.

Vudu has a lot going for it.  It is now owned by Walmart, who purchased it in February 2010. Walmart has a significant number of eyeballs that come across its in-store marketing and on walmart.com, all of which are opportunities for Vudu and ones Vudu (and Walmart) have taken advantage of.  The company easily introduced its millions of customers to the brand and get them to purchase movies.  Second, Walmart has developed a very smart device strategy.  They have integrated the service into a number of televisions and set-top boxes, making the content easily available to the consumer – where they want it – on televisions.  They have also smartly ensured that the service is easily available on computers and mobile devices.

Part of people’s surprise of Walmart’s success with Vudu is that the company wasn’t very successful before when it tried to launch an entertainment portal before.  People just didn’t go to Walmart for content.  A lot has changed since then.  People in general are buying more digital content and are now used to looking for it beyond the typical locations of a video store or their cable or satellite provide.  Initially it was the technically savvy and die hard movie buffs buying digital content.  It has now expanded to the general U.S. audience, which is exactly the customers that Walmart already has.  Additionally, the great focus on devices positions Vudu in front of consumers so they can easily buy.  Additionally, Walmart can develop marketing campaigns that link DVDs purchased at their store to downloads on Vudu.  They have already experimented this to encourage trial of Vudu.  Walmart is the number one retailer for DVD sales, so marketing an extension of a DVD to a digital download makes logical sense – and Walmart is the only retailer – currently – that can do this.

It will be very hard for Walmart to overtake Apple and their movie store, which as 65.8 percent of the online movie market. Apple has a well-integrated store and device system that is difficult to outmatch.  That said, Walmart caters to a different audience – many of which do not have Apple TVs and Mac computers (though they do have iPods).  They do have PCs and a growing number have connected TVs.  They know and trust Walmart, so they will trust Walmart to deliver content digitally as well.