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David Poland

By David Poland

DUH!™: Netflix Losing Subscriptions

However… I would still argue that the spin being put on this… that it is a pricing issue… is bullshit.

This is a content issue. The curtain has been drawn back on Netflix and while it is much more beautiful than Frank Morgan, people are conscious, for the first time really, that Netflix streaming is not everything everywhere, but a small slice of content that is getting smaller. The spell has been broken.

Yes, there is a big chunk of Netflix customers who just wanted everything to stay the same. And many of them are surely frustrated, because it’s not just pricing, but it’s corporate emphasis. You wanna bet that they have fewer copies of films and that waits for the hot titles are getting longer every month? You wanna bet that service is a touch weaker?

But the biggest thing is that Netflix made the decision to make a complete paradigm shift. The media was too busy licking Hastings’ ass to notice. Plus, The Media loves change and the added subscribers and having a story to write every time a new deal got done. But Netflix was in a business that was based on a retail product being turned into a subscription concept. After that, they did a great job of maximizing the opportunity. But streaming is not the same thing at all… at least not after 2010. Netflix doesn’t have automatic access to everything, their only barrier to access being the cost of one DVD over another. And they set the bar so high on the prices they paid for 3rd window, not-permanent streaming that studios flocked to empty the company’s pockets. Now they are in a content race that they cannot win.

This is not to say that Netflix is dead. It’s not. But this iteration of Netflix will not survive. By 2014, we will see Netflix 3.0 and it will be a business that promises less and delivers more.

In the meanwhile, while all the journos were praising Hastings to high heaven and getting sucked into the absurd notion that the MPAA companies saw Netflix as a threat (HA!!!), the studios were, as I have written before, sucking every dime out of Netflix, completely aware that, like the mob buying to your bar in The Sopranos or a Scorsese movie, when things go bad, they will start a fire to collect the insurance money.

Fire’s coming.

And then, Reed Hastings, who is quite brilliant, will rise again from the ashes.

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26 Responses to “DUH!™: Netflix Losing Subscriptions”

  1. It is absolutely a pricing issue. The typical consumer isn’t looking at it from your perspective, so no, the curtain has not been drawn back so much that streaming is the thing. They see a price hike and they bolt. Simple as that.

  2. David Poland says:

    But, in fact, the price hike doesn’t affect a large percentage of their base. Streamers are paying less. But they are also getting less content.

    You and I arguing over what the “average consumer” thinks is silly, really.

    That said, price increases in cable haven’t sent customers running. Same with movie tickets.

    If people really want something, incremental increases do not send people fleeing… a very small percentage.

    What does send people fleeing is changing their mind about how they value the product. And that is the fundamental thing that Netflix has fucked with.

    For a decade, it’s been, “Pay the price of 3 rentals a month and get all the rentals you want, no muss, no fuss, and every title is available.”

    Now it’s, “Pay $8 a month, stream what we offer, which is pretty limited – though you could never watch all of it in your lifetime – and we really don’t want to send you discs because the margins are too narrow.”

    Meanwhile, HBO is opening up its library for free with a subscription on most cable systems… and Cinemax… and Hulu is still out there with free content on your computer… etc.

    The “typical consumer” will pay $3 for a cup of coffee and $150 for a pair of $75 Ray Bans, etc, etc, etc. If Netflix was able to offer what they used to offer, plus streaming it all (or most of it), people would line up to pay $20 a month… because it would be a huge bargain compared to HBO or Showtime or whatever you’re paying $9 a month for on your cable/satellite bill.

    But they don’t.

    They are offering less and less. And if you don’t think “typical consumers” don’t start with what they want and then consider price point after, we’ll just disagree. It’s both.

    Even given Netflix’s large churn rate, the choice to stop using a service requires a sense that the service can be replaced for less or can be improved on for the same price. And that’s the content issue.

  3. With cable and movie tickets there aren’t exactly alternatives. There are other ways to bring a DVD home — RedBox, purchase, brick and mortar, etc.

    I agree, though, that confusing the business philosophy plays a big role in turning off your customers.

  4. Paul MD (Stella's Boy) says:

    Canceled cable and purchased an Apple TV a few weeks ago. Couldn’t be happier. Streaming lots of great stuff from Netflix: Buried, Bronson, FNL Season 1, and many more in recent weeks, with tons more waiting in the queue.

  5. Storymark says:

    Less and less…?

    Okay, by my queue gets bigger and bigger.

  6. palmtree says:

    At some point, Netflix will be competing with cable, because essentially their streaming will be about a premium alternative to free broadcast. I have already suggested to people I know that they should cancel their cable and go with Netflix and Hulu subscriptions. They’d be saving money and getting more programs they want when they want them without excessive commercials.

    As long as Netflix has enough of the stuff I want to watch, they are still a better deal than having a lot of stuff I don’t care much for.

  7. hcat says:

    They increase prices by 60% and lose 4% of their clientele? Name me any company that would not be happy with that equation. More and more complete series of television shows continue to be added (Breaking Bad just appeared last week), and they have an exhaustive catalogue in which to choose from, and that is the content that the streaming model will live and die on. Prior to streaming they said that half their business was tv on dvd, I can only imagine that has increased greatly via streaming.

    Just as the rise of Netflix was overheralded by the media (hasn’t everyone been saying for years that the stock was way overvalued? This correction was inevitable), the demise will be equally overdone.

    The Starz deal was not worth the value so Netflix walked away. For years you have been saying that they pay too much for content and now when they draw a line in the sand you critisize them for not taking it. The Encore content will be replaced with deals from Fox and Uni for older content as well as the Paramount and UA back catalog that plays on Epix. As for Starz, Disney titles are rather unique in that if you are going to watch them, you will not wait the 8 months for them to appear on cable. Families will have already rented or bought them if they have any interest at all. SPC fans can be placated with all the IFC, Magnolia, Music Box, Oscilloscope, Zeitgeist releases that often drop same day as dvd. And while the bigger columbia titles will also be missed (and are being missed, Sony content has been AWOL for the last few months), the nearly as fresh Epix content will help ease the blow.

    You keep saying that everyone expects there to be everything streaming and I really don’t think that is the case. Sure Friends and the Simpsons would be nice to have as well, but people can make a rational value decision and no one is going to say, hell no I am not paying 10 bucks a month if they don’t have access to the 17 billion hours of programming from every film and television studio has ever produced.

  8. hcat says:

    And while I am sure it had no actual bearing on the deal, the picture still forms in my mind of a Starz executive saying “Look the price is $400 million annually or no Bucky Larson for you” just before the line goes dead.

  9. David Poland says:

    but that’s an illusion, hcat. one class of customer saw a price raise… if they kept that service. most people are paying less now, not more.

    as for the demise being overdone, I have been consistent on this for a long time now. and specifically on STARZ, I was the ONLY person out here saying that the deal would never get done and why over a year ago, while people kept explaining how Hetflix had the upper hand.

    simple fact is, as of february, netflix will have ONE major studio providing streaming product, as things stand now. 1 of 6.

    you may not care about sony and disney, but the fact is that the perception of EVERYTHING is now a sliver.

    reading your thoughts, you seem to see netflix as a post-window catalog play. i don’t necessarily disagree. but they didn’t get to over 20 million subscribers on old library content.

  10. Eric says:

    I think people were satisfied with the streaming selection as long as there was always a disc available as backup if they wanted something in particular. The price increase was sharp enough to make people actually consider their options and ask if they would be satisfied without that disc safety net.

    If your business is based on subscriptions, the last thing you want to do is remind people about the recurring bill on their credit card statement each month. The price increase was a big enough story to make that happen for a lot of people.

  11. Bitplayer says:

    Eric is dead on. I had the streaming/dvd. I didn’t cost them much with dvds, about one a week, sometimes less. But they hiked my prices and I downgraded. I never looked for “new” movies on streaming but I liked quirky stuff. Heck they could probably carve out a business just streaming kids programming. Now I’m trying out Blockbuster’s service, which includes games.. I’ll keep the streaming for now but it’s on life support. It’s totally a cost issue, 100 percent.

  12. Jason says:

    It’s fustrating to wait for titles and the price increase didn’t help. Redbox is cheaper, and yeah, you still have to wait for films at Redbox, but then you aren’t paying as much. I agree with the streaming issue (i.e., not enough non-tv titles).

    What they had before is perfect: streaming with dvds in the mail. They should have kept that and raised that price $1-2 instead of making people pay for streaming and dvds.

  13. Sideshow Bill says:

    I know this doesn’t encompass the entire issue but, for me, $20 a month for 2 dvds at a time and unlimited streaming is still a great fucking deal. Will it be in March? We’ll see but I suspect it will remain worth it for me.

  14. movieman says:

    Netflix remains a “can’t live with it, can’t live without it” proposition for me.
    I’ve been waiting to see Julie Taymor’s “Tempest” since….??? Too damn long.
    Much to my surprise, news of the (FINALLY!) dvd release date this past week didn’t make it to Netflix corporate headquarters.
    According to N-flix, the release date is still TBD. (?!?)
    Guess I’ll have to order it as a PPV on cable or via Amazon.
    And how can a upcoming DVD release (e.g., “A Serbian Film”) be listed as “unavailable” a month and a half before street date?

  15. movieman says:

    ….”an upcoming DVD release”……

  16. Sideshow Bill says:

    Yea, I will concede that point movieman. My “unavailable” list is a puzzler sometimes. Even with the “30 days after BB/RB” thing they should know when, say, Green Lantern will be available. Why their street date updates are so far behind is a mystery.

  17. Mike says:

    Totally a pricing issue.

  18. Krillian says:

    I dropped the DVD half of my Netflix due to the price hike. So far, Redbox is serving that aspect of my rental needs just fine, and about every third month I’ll do Blockbuster Online.

  19. hcat says:

    David you were right my math was way off. However, even with 10 million dropping the discs and 3-4 million dropping the streaming, that is still 12 million at increased prices and 14 million staying the same. It is still a decent increase in revenue.

    And yes Eric makes a great point of having the disc in hand, I started to use the streaming as a backup between mailing dates or if I had to wait to watch something with my wife (as for redbox, eh, their selection is not nearly as deep and before i got distracted by streaming, say putting off watching the disc of biutiful to watch 5 episodes of South Park, I could turnaround the discs in a decent time frame where it evened out to a buck a movie)

    And I know I pipe in everytime you post anything about Netflix and I bitch about how Starz is screwing themselves over the deal (what did they walk away from 300 mil? an increase from 30? As the third ranked premium cable channel you can easily walk away from that).

    But the split in pricing represents a split in business strategy. The mail service is for movie fans and is meant to compete with Redbox and video stores, the Streaming service is meant for television fans and is meant to compete with cable. Choose one or the other based on preference. Cable still survives because of sports and appointment viewing. “Hey did you see Breaking Bad last night” “No I wait a year”.

  20. anghus says:

    i dropped the DVD portion of Netflix and now do streaming only.

  21. Krillian says:

    Did you notice in Breaking Bad how Walter is becoming really unlikeable this season? Now that he’s embraced his inner Heisenberg and even showing a flash of it to the wife, he’s become more careless and narcissistic and being a tool to everyone around him. Cranston’s bravely going to seed this year, and I wouldn’t mind it (and I could see them doing this) if Walter gets killed halfway through next season.

    I find myself fearing this season is going to end with Walter killing Jesse. I think Aaron Paul’s being allowed to go to deeper and more fertile territory than he did on his Emmy-winning season last year. I loved the Gus-centric episode too.

  22. kbx says:

    maybe it is just me but I never understand what is wrong with a character being unlikeable; a lot of people mention that as a bad thing (nobody to root for,etc…)

    i for one have never found it relevant to my view of a film/tv show whether or not i thought the character was likeable/or not–or whether i cared for him or not

  23. Paul MD (Stella's Boy) says:

    Walter’s transformation has been fascinating and completely believable. Cranston is incredible and deserves all the awards, praise, etc. Last season and this season, I’ve been ever more impressed with Aaron Paul’s work. He has absolutely crushed me. I want to hug him. How many other TV shows have been this suspenseful?

  24. Desslar says:

    “But the split in pricing represents a split in business strategy. The mail service is for movie fans and is meant to compete with Redbox and video stores, the Streaming service is meant for television fans and is meant to compete with cable.”

    Streaming meant to compete with cable? I’m pretty sure your Comcasts and Verizons are going to lay down some pricey data caps if streaming starts eating a big hole in their TV audiences.

  25. palmtree says:

    Just got an email that looks as though Charter and Netflix are in some partnership…

  26. Foamy Squirrel says:

    Actually… no.

    Here’s the data from the Quarterly report:
    June 30 2011 DVD+Streaming Subscribers = 18,856,000
    June 30 2011 Streaming-only Subscribers = 5,738,000 (6,705,000 including international)

    Sept 30 2011 DVD-Only Subscriber Guidance = 2,200,000
    Sept 30 2011 DVD+Streaming Subscriber Guidance = 12,000,000
    Sept 30 2011 Streaming-only Subscriber Guidance = 9,800,000 (I’m assuming this is domestic)

    So streaming is up 4mil (+70%, and only 0.2mil less than the expected 10mil total), 2.2mil decided to cut back to DVD-only, and 1mil DVD+Streaming subscribers vanished – the segment most hit by the price increase.

    Still want to push “this is a streaming content issue”?

    ETA – And to answer an earlier question, this will push up revenues by approximately $54.5mil per month

    Old Combo Subscribers 18.856mil x $9.99 = $188mil
    Old Streaming-only Subscribers 5.738mil x $7.99 = $45mil
    Old Total Monthly Revenue (approx.) = $233mil

    New DVD-Only Subscribers 2.2mil x $7.99 = $17.5mil
    New Combo Subscribers 12mil x $15.98 = $191.7
    New Streaming-only Subscribers 9.8 x $7.99 = $78.3mil
    New Total Monthly Revenue (approx.) = $287.5mil

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It shows how out of it I was in trying to be in it, acknowledging that I was out of it to myself, and then thinking, “Okay, how do I stop being out of it? Well, I get some legitimate illogical narrative ideas” — some novel, you know?

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