The Flailure of Netflix
“If I could turn back time…”
No one wants to see Reed Hastings in a Cher costume. But he has gone from The Best Owner In Sports to the guy trying to explain why there might be a strike because the billionaires and the millionaires can’t agree how to split this year’s giant pile of money.
Truth is, he’s not the villain in all of this. He’s a victim, in my eyes, of believing – for a split second – that he had more control of the market than he ever did.
It still comes down to the first Big Lie… that consumers could have it all for virtually nothing.
The lie started as a truth. Turning the DVD rental model, which was wildly overpriced in a market of ever-lowering sell-thru pricing, into a subscription model was brilliant. I don’t think anyone disagrees on that.
But the move to streaming, an interesting added benefit at first, became a monster. It assumed a false premise, on the Netflix side, that was true on the DVD-by-mail side… that Netflix had control of barriers to competition. That being first and bringing along a base of 15 million subscribers would insure domination.
But when a gimmick became The Future, the game was flipped.
There was no way that on purchase… of $8, $9, or $20 could ever pay enough content providers enough money for them to be satisfied in a streaming-replacing-DVD universe. Even on the grandest level, one company could gather 100 million subscribers and gross $24 billion a year. The industry wants that to be $50 billion. And why would the content owners give anyone else that kind of control over that kind of money?
Netflix was in more trouble than it could handle – as defined by the company’s image – the minute it did its first big content deal with Relativity. That set the pricing bar. And the math has been problematic ever since.
Every domestic move – perceived as bad moves – they have made since has been driven by the math. But as I keep saying, every responsive move has been trying to put a Band-Aid on the small problem. They can’t address the real problem. It’s not the price point. As many have noted, Netflix is actually cheaper for the many people who now primarily stream and for those who don’t stream at all. The problem is the perception of Netflix’s content.
Quickster is just another example of the perception problem. Yes, many people were upset and potentially inconvenienced by a split of the business into two completely separate divisions. But the heart of the problem was that the illusion that you could get any movie available in Home Entertainment from Netflix, one way or another. (This was never true.. but that’s really irrelevant. People felt it was true.)
So now they have “fixed” that problem. But the big problem remains… no matter how much Netflix remains a bargain at its pricing for people who use it regularly, it is still a business whose premise was offering you everything now giving you less and less content every month. It”s not going to get better, no matter how they cherry pick content (like The Walking Dead). Netflix is moving towards being all the things that media has been saying about Hulu… aside from owned by 3 studios.
There’s no way to project the future of Netflix. It will very much be based on strategic choices. If Lionsgate and Summit could ever get together, using some of Summit’s cash to buy Netflix would make perfect sense. They could be the first distributor to go fully streaming, maximize the massive Lionsgate library, and quickly become a central streaming space for the entire indie universe.
OR Netflix could hold out, chasing subscribers worldwide, and slowly become its own marginalized player.
OR Netflix could give partial ownership to a couple of majors – say, Paramount and Sony – and trendset as a completionist streaming site for those two majors and whatever other content could be leased.
There are variation on those three notions and many others. But the idea of Netflix as a cultural guerrilla hero bringing truth, justice, and endless cheap content to the masses… that’s over.
It will be fascinating to see how long it takes Hastings & Co to move off of the Big Lie and Band-Aids to the truth. The problem is, the more they spin, the more trust is eroded, the harder it will be for their customer base to accept the Band-Aid being pulled off. The truth isn’t that bad. It is the reality of the future. Netflix is now and forever becoming a programming service, not unlike HBO or Showtime or Starz. It is, as a streaming business, more expansive in its content than those pay-tv businesses. But the others will expand as Netflix continues to contract (all the while betting on a single new series while HBO launches a half dozen new ones a year while milking the veteran shows). And at some point, the advantage of having a hard-wired cable berth and not just a wi-fi dependent stream will clearly/publicly shift to the pay-tvers… just as everything around theatrical distribution (including the revenue) continues to be the prime differentiator of studio movies from all but a handful of indies, direct-to-dvd or direct-to-streaming content.
And so it goes…
I guess I’m less interested in a question of “will there or won’t there be a Netflix tomorrow” than I am in the bigger picture regarding the shape of things to come. I don’t care who streams entertainment into my home, as long as it’s one-stop shopping and at a reasonable price. It seems to me there has to be a middle man. Some kind of department store because I’m not going from studio to studio to pick my content. If that’s true, then I don’t see any reason why it couldn’t wind up being Netflix if they can hang on long enough for the dust to settle. That seems to be their overriding strategy. It’s a big game of musical chairs.
I see a department store model, call it Netflix or call it iTunes or Amazon or maybe all three where the latest movies and TV shows are offered individually at a certain price point, then things get cheaper as they age until finally they become catalog titles available streaming in bulk for a monthly subscription price.
I’m interested in the question of: Where do I mail back this copy of Cannibal Holocaust I rented that’s been collecting dust in a Netflix sleeve since April 2009?
Like if you have discs from Netflix from 2 years ago, and the physical disc section of Netflix is extinct, where do you mail them? Are they yours now? Do they sue you for never having returned them when they existed? I also got a copy of Repulsion I HIRED in July of 2010.
God, did ANYONE ever actually stay on top of watching the physical discs? At least with Blockbuster or Ma and Pop shops, you had a ticking countdown REASON to watch whatever boring bullshit you never ended up feeling like sitting through.
You can always send two discs back into one disc sleeve.
Or just keep it, they probably accept that they will lose tons of money on breakage for DVDs that are lost, stolen, or damaged.
Lex, you’ve probably already been charged for that movie. It’s your’s. That aside, David, I get you keep hammering on the lie and everything, but you do know that it’s not a lie to most people from a certain point of view? You get that right? The perception to most people is that there is a lot of stuff there, there is a lot of stuff there, and that’s enough for MILLIONS AND MILLIONS OF PEOPLE. Hammering it over and over again, ignores that you are in the minority of Netflix subscribers who feel this way.
That point aside, you’ve made the best point about how Netflix should be sustained in the future by partial studio ownership. It just makes the most sense to make this happen but if it doesn’t happen, then get ready for the NETFLIX NETWORK! Seriously, they should turn themselves into a premium cable channel, that just happens to have a vast library. That’s the future after all. They might as well do it if they have the visionary balls to do so.
OK, let me ask this: How many of you folks (including you, David) have found on more than one occasion — on too damn many occasions — that when you want to take at a second(or even first) look at a movie to prepare for an interview, or to write a feature story, that the number of movies available for instant streaming on Netflix (or Amazon, or anywhere else for that matter) has been vastly overestimated? I’m sure this will change over the next few years. But right now, I can’t help feeling that the end of DVD rental as a financially viable enterprise may be a lot further off than many people think.
Streaming, not cable, is the future.
1. IO… you don’t know what “most people” feel any more than I do. And my point is not that we are at the point where Netflix is closing its doors… I am projecting an ongoing sense on ennui in place of former unbridled enthusiasm… it changes a lot.
Plus, the issue for Netflix is about growing their subscriber roles in an increasingly competitive environment. I think the 28-day window between some VOD and Netflix is kinda stupid, as a marketing tool. But wait until you see an ad for a company that offers twice (or three times) as many of last year’s top 100 grossing movies as Netflix has…
I believe we will see some sort of subscriber system that will include Netflix as one of a half-dozen or so major providers/outlets. But not as leader of the pack. They are still too reliant on other people’s owned material as a streaming business.
2. Joe – We are in the middle right now. Don’t count on being able to find every DVD out there either. Doing comprehensive pieces on Kubrick and Lumet a few months back, even our high-end video stores didn’t carry complete collections. I had to use multiple outlets to find everything.
By 2015, everything will be available for some form of paid streaming.
3. Palmy – Don’t be surprised if hybrid systems are implemented. There are advantages to wires, just as there are disadvantages.
“Palmy”?
Dunno about streaming being the future – certainly not globally (currently) since unless you’re in the US, Japan or Korea you’ll break your monthly datacap in a week.
i’m not really sure why i was referenced in this conversation. i think you meant JS Partisan.
Sorry Anghus.. you’re right.
I wonder if the new Kindle Fire will have a Netflix app? I am surprised on how often I use that App..
On an unrelated note, Does anyone know when Season three of Sons of Anarchy is going to be streaming?
“Don’t count on being able to find every DVD out there either. Doing comprehensive pieces on Kubrick and Lumet a few months back, even our high-end video stores didn’t carry complete collections. I had to use multiple outlets to find everything. ”
Hey, you know where I still find damned near anything Im looking for on disk – Netflix.
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You’re missing one component though, the big Facebook deal. Hastings went from being concerned over it to now actually needing it to be successful.