Tag Archives: Netflix

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.

 

Netflix Subscription Plan Change Means unhappy customers

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Netflix announced that they are changing their subscription plans to separate DVD subscriptions and streaming subscriptions.  The net effect of this is a 33-60% increase (depending on the plan the consumer has) in the cost of their subscription prices for consumers if they decide to keep both their DVD and streaming subscriptions.  Here are the numbers:

Plan Old Price (included streaming) New DVD Plan Price Total with Streaming % Increase
1 DVD $9.99 $7.99 $15.98 60%
2 DVDs $14.99 $11.99 $19.98 33% 

To say customers are unhappy about this is to be simply understated.  This seems like a very short sighted increase by Netflix and will serve to only upset their very loyal customer base many of which are threatening to discontinue to their Netflix subscription altogether – but in the past had been huge advocates for the company.

One of Netflix’s biggest problems is how it set expectations to its customers.  Consumers initially signed up for Netflix in order to get DVDs sent to them in the mail.  The price was reasonable especially if you turn over the DVDs quickly – and there were a lot of choices not only in terms of plans, but the amount of content available was tremendous – much more than the brick and mortar video store.  Netflix then added on streaming initially for free then for only a marginal increase for $2/month.  This didn’t seem like much of an increase – even if you didn’t use the streaming service – but it was nice to have the option there and a lot of customers took advantage of the streaming service.  Consumers got used to having the streaming content available along with their DVD subscription at this low price, so this large increase is a huge slap in the face to loyal customers who have been advocating the service for Netflix.

One point of frustration with the price increase is that there are no additional benefits to the new pricing structure for customers – unless you plan on cutting back, of course (which many will do – just look at the comments on the Netflix blog).  Customers don’t get a discount by subscribing to both the DVD and streaming service (I’m thinking Netflix may re-think this move) and no additional content is made available for the higher price.  All of this makes for a very unhappy customer base.

I can understand why Netflix separated out its DVD and streaming business from a pure business strategy point of view.  Costs for licensing content for streaming are going up significantly as content owners have discovered how much content is being consumed (and will be consumed going forward as it is made more accessible) so they are demanding more money for their content.  Netflix wants to license more and more content (especially popular content) and the only way to do this is to charge directly for the streaming content so they can earn more revenue (hopefully) so they can get more content for customers to watch.  Additionally, there are more devices today that can display the streaming content (game consoles, Internet-connected TVs, Roku boxes, smart phones, etc.) so the content can be viewed in more and more places. Netflix and the content owners view this as more valuable to customers since the content is so easily accessible so they feel they can charge more.  Unfortunately, customers have come to expect all of this without the higher or separate price.  Customers like it when they get “free” content or the price gets lowered – not raised.

Netflix eventually wants streaming to become its core business.  It’s a lot cheaper for them to deliver content over the Internet and it’s on demand, so it keeps customers happy and there are less logistics to handle.  So far their streaming business has been very successful already bringing in millions of dollars but it pales in comparison to the DVD business. Customers like the variety of content available on the DVDs (which is significantly more than streaming) so until the same amount of content is available on streaming, many customers won’t switch to a pure a streaming subscription or perhaps subscribe at all.

I am not sure what I will personally do at this point with my Netflix subscription. I subscribe to 1 DVD out a time per month and I rarely stream content.  I like having the option available, but I have yet to get an Internet-connected television (yes, I know, I’m in the business…one of these days) and I don’t like how the content looks through my Wii.   I do occasionally watch on a PC or iPad, but that’s rare.  If I do keep Netflix, it will just be the DVD plan and I’ll stream from Hulu or Fancast or some other site – there are other options.  Lately, I have been getting TV-seasons on DVD, so Netflix has been worth it for that.  If I start getting movies, I’m not sure Netflix will be necessary for me at all, since I can get movies from Redbox at a much cheaper price – especially since I don’t turnover DVDs that quickly.  If Redbox had TV seasons, I’d probably just switch to that (perhaps this is an opportunity for Redbox?).  I think as Redbox increases its variety that is going to be a viable option for me – and many others – while streaming content from other competitors to Netflix.

I do hope that Netflix figures this out.  To date it has been a great company with a business model that really worked for consumers.  I can only hope this change is a small glitch.

Can Netflix Compete with Pay TV Operators?

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In March 2011 Netflix announced that it acquired the distribution rights to the series House of Cards, outbidding HBO.  The series is based on a BBC mini-series and stars Kevin Spacey.  It is the type of show that would typically air on a pay TV network, like HBO or Showtime.  Some speculate that Netflix paid as much as $100 million for these rights.   This may be the start of a strategy for Netflix to distribute original content and compete directly with channels like HBO or Showtime or even with Pay TV Operators, as it is distributing both old content and new content.

In order for a strategy that includes the distribution of original content to help Netflix compete effectively, they will need to produce, or license, a significant amount of new “hit” programming, and that will probably take a lot of cash and luck.  Netflix has a significant amount of cash but licensing “hit” content isn’t the only part of its business – and they need some of that for deals with other libraries, such as Starz and Epix.  Additionally, there is no guarantee that any piece of content will be a hit so they would need a breadth of content to ensure some hits.  Netflix does have the advantage that they know exactly what DVDs people are renting and what content people are streaming so they can market a piece of content directly to users – but, marketing alone does not ensure a hit show.

Netflix licensed content from Starz in 2008 to stream 2,500+ movies over a period of 3 years for $30 million.  That deal expires in late 2011 and Netflix is not likely to get similar terms.  Future content deals are likely to cost much more, so some of Netflix’s cash needs to be allocated to that deal and others for already produced, popular, content.

Content owners may already be starting to rebel against Netflix’s potential strategy because they don’t want Netflix to be a direct competitor.  Current Showtime shows will only be available through the Showtime Anytime broadband service. Starz recently changed their policy such that original Starz programming will be available on Netflix 90 days after it premiers on the channel instead of 24 hours after it premiers.  These changes could affect how some users use Netflix if they want the content more quickly.  Users may end up going to other sources for this content.

If Netflix decides to go for an original content strategy, it’s possible that the company will have to raise its subscription prices, which it may have to do anyway as content deals from Starz and others gets more expensive.  It is unknown how much more consumers would be willing to pay to stream for content on Netflix.  One potential option is that Netflix goes to a tiered model with different content available at different levels but that could be more complicated than Netflix wants, though they do have a tiered strategy for DVDs.  Also, typically to date, much of the content on Netflix Watch Instantly has been “library” content, so studios have just been thrilled to have a new distributor for this content that they may not have sold anyway.  If Netflix becomes a direct competitor, content owners may decide to look elsewhere (perhaps to Amazon?) to license their content.

Is Facebook the next Netflix or Hulu?

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Over the past year Facebook has been slowly entering the world of online video.  First, the site began offering live video streaming through two partners – Livestream and Ustream in August 2010.  This partnership enables companies or individuals to stream live content directly to viewers while still in Facebook.  Several popular events have been streamed this way including Facebook announcements and concerts.  MLB is streaming some its 2011 pre-season games through Facebook as a way to promote their MLB.tv online subscription.  Live streaming within Facebook keeps people within the website and getting the content that they want.

Facebook has also started allowing content owners to offer movies for rent in March 2011.  Warner Bros. was the first studio to start offering content through Facebook. Users can rent The Dark Knight directly from the movie’s fan page for 48 hours.  The cost is 30 Facebook Credits (or $3).  The selection was expanded to another 5 movies ranging in price from 30-40 Facebook Credits ($3-$4).  Before a user can rent, though, the user has to agree to allow a “watch app” to install itself into her Facebook account.  This grants Warner Bros. access to the user’s name, profile picture, gender, list of friends, any public information shared, and other information.  This is a great deal for the studio as they get direct information about the people watching their content.  It isn’t clear, though, if consumers will agree to this, as that is more information than they would normally have to give to a studio – or even a retailer – if they were going to the theater or renting on another site, such as Amazon or Movielink – or through their cable company (though admittedly the cable company, or even another website knows a lot about their consumers’ viewing habits).

Facebook hasn’t yet released any plans about becoming a video aggregator, but they seem to be putting their toe in the water to see if consumers will consume video on their site – and pay for it.  According to Nielsen NetRatings, the site had 130.8 million unique visitors in the United States in February 2011 who spent an average of 6 hours and 36 minutes on the site over the month.   One strategy to increase these numbers even more – especially the amount of time on the site – is to add video so that the visitors will stay to watch content.

Facebook has the capital to invest in a video strategy – if that want.  People are already discussing movies and television shows on the site and sharing recommendations.  Distributing large amounts to the video to the site, though, may not make sense.  Facebook would have to develop a method for user’s to discover content in a way like they do on Netflix or Hulu and they’d have to host the content.  Of course, they’d have to manage all of that as well and develop a content acquisition team to handle – and then develop all of those content relationships.  Yes, they already have many of the relationships and clearly the company has scaled up as they grew but content distribution is not the same as social media.

My expectation is that Facebook won’t compete with the existing content aggregators but rather will complement them.  There is a rumor that Netflix and Facebook are working together to develop a closer relationship.  It would likely allow people to share their comments about content on Facebook and then watch on Netflix Watch Instantly, if available and they are a subscriber, or direct the user to sign-up for Netflix.  Netflix and Facebook had a previous relationship where Netflix users could rate content and comment on it on Netflix then post that comment to Facebook.  That feature was removed last year, but will likely come back bigger and better – and help both companies.  It makes sense for Facebook to develop features like this for many video sites and focus on their social networking expertise.