Another View Of The Netflix Price Hike: It's Speeding Up The Shift To Online Streaming
from the killing-the-cash-cows dept
When Netflix dramatically increased its prices for some subscribers, we immediately suggested that the ridiculously high licensing deals that Hollywood has been demanding were to blame, and wondered if Hollywood was killing the golden goose, by strangling it with high fees. I still think there's something to that, but Ken Doctor has an alternative take that's quite compelling. His argument, supported by Netflix CEO Reed Hastings, is that the price hike -- mainly focused on those using the physical DVD rental business, is designed to speed up the shift to online streaming.In other words, the price hike isn't necessarily about the higher fees from Hollywood (though that's still there), but about speeding up the company and its customers' shift from relying on DVDs to digital. In some ways, that's really quite a forward-looking view. Most businesses that deal in having to shift their businesses from analog to digital tend to go in the other direction: seeking to delay the shift as long as possible, continuing to squeeze out the cash cow part of the business for as long as possible. You hear that all the time with people in the music, movie, TV and news business, whenever they say things like "we'll shift when there's a proven revenue stream." That's cop-out talk for "we're going to hang onto our old business until it's too late and others have taken our market."When Netflix shocked everyone by pricing way up DVD-by-mail subscriptions — up to a 60-percent increase — that’s what he was doing: forcing the digital shift. The digital shift is what Hastings wants to happen faster. Right now, 60 percent of his 25 million subscribers are DVD takers, and the majority of the revenue is on that side of the business. He knew when he started the business that he would start with DVDs, but that the long-term business was streaming (“Six Lessons for the News Industry from Reed Hastings“). He just had to wait for the rest of the world to catch up to that vision.
The economics of his business is clear. Charge consumers less (for now) for streaming ($7.99 a month) — and profit more. As he shifts the business, the cost of revenues has already decreased almost two percentage points in a year, from 64.6 percent to 62.8 percent. Lower cost of revenues means higher cross margin, and that’s what investors have loved about the company.
Netflix, on the other hand, may be going in the other direction, actually seeking to be ahead of the curve for many of its customers, and then using the pricing wedge to nudge them forward to going digital only. I'm not sure I fully buy it, but it certainly puts a different spin on things.
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Filed Under: digital, disruption, movies, price hike, streaming
Companies: netflix
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Streaming only? No thanks.
Streaming is all well and good until you go to watch a title, maybe one you've watched already and want to watch again, or a new one, and you get the message:
THIS TITLE IS NO LONGER AVAILABLE
Kind of hard to do with a DVD you insert into a player or computer, eh (assuming the media is OK).
Until the "content providers" quit playing their little games; until 'this title no longer available' or 'this title is out of print' becomes a thing of the past ... a lot of us are sticking with good old plastic discs.
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Re: Streaming only? No thanks.
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Re: Streaming only? No thanks.
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Re: Streaming only? No thanks.
Erm, exactly. While I'm certainly with you on enjoying physical media for a lot of things, I do remember a lot of issues on Netflix equivalents while in the UK - nothing's more annoying than receiving a movie in the mail only for it to be unplayable and have to wait days for a replacement copy. It's also quite possible for titles to go out of print - if the copy you had is the only one they have, you're out of luck (surprisingly common for less popular titles as I understand).
Either way, it's often better to have digital for cult/older titles (nobody has to go to the expense of manufacturing thousands of copies), but there's both advantages and disadvantages to both formats.
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Re: Streaming only? No thanks.
How are you trying to play it if it is no longer available?
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Re: Re: Streaming only? No thanks.
You can tell because the title still shows up in the play lists and catalogs, but is marked as unavailable for streaming. Or, if it's in a recently played list (such as if you've stopped in the middle and are coming back to it), then you get the message when you try to watch it.
Netflix streaming is pretty good, but very far from ideal. In terms of reliability and size of the catalog, it doesn't even come close to replacing the DVD service.
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Re: Re: Streaming only? No thanks.
Also, its not solely the StarzPlay movies. Its other movies as well.
If Netflix really wants to have its customer move to streaming they need to do two things.
1. Expand their streaming library, its a fraction of their DVD selection.
2. Never takes something off the streaming list.
I'm a Netflix customer, and most likely will be switching to streaming only as that is all I use it for right now, even though having the option for discs was nice.
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Re: Re: Re: Streaming only? No thanks.
First of all, I'm very sure that Netflix themselves would love to offer a list that nothing ever gets removed from and consists of everything possible. They're not allowed to do so. Blame the studios and licensing for that.
Past that, everyone whining about "they have more on DVD" or "I can get more TV on Hulu" is missing Netflix's ongoing strategy. They're clearly moving for global expansion, which is prohibitively expensive and a logistical nightmare for physical product. With digital streaming, all they need to have is enough local infrastructure to guarantee decent quality, and a reasonable enough amount of content.
For those of us who currently have no equivalent to their service, nor access to Redbox, Hulu and the like, even the streaming service would be a godsend. Going forward, they're streamlining their services, which might mean that you get a less valuable service than you want or are used to, but globally I have no doubt that it's the right way forward for Netflix as a company.
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Re: Streaming only? No thanks.
I am personally glad that a company has the guts to try this. It is different from the government using taxes or incentives to accomplish some social engineering. Netflix is a private company and will live or die by it's decision. I personally will be with them.
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Re: Streaming only? No thanks.
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Re: Streaming only? No thanks.
But you have to HAVE THE PLASTIC DISC. When I rent a DVD from Netflix, I have wait for it to be available in my queue, wait for it to come in the mail, watch it, send it back, etc. If I want to watch it again, I have to repeat this again; for low-availability DVDs, this can be an arduous process.
Who cares if I want to watch something again? If I want to watch it that badly, I'll find a cheap DVD somewhere. As long as Netflix has a LOT of what I want to watch (not necessarily most, even), right the damn now, I'm not going to begrudge them circulating some titles out, on occasion.
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Yes, but ..
I don't Torrent - I just stop watching shows because I can't watch them when I want to. I guess that's an alternative model.
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Re: Yes, but ..
As it is, I'm probably canceling my Netflix account instead of paying monthly for a limited selection of movies and shows. Congratulations Netflix, you went from receiving my money monthly to not at all...good things you raised your rates to compensate for the lost income.
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Go further, they can replace warehouses and processing centers with a building full of servers and fat fibre. Long term costs for physical plant shrinks as well.
Netflix is being the canary in the coal mine here for the idea of online streaming as a business. It's taken them a long, long time to get here (how many years have they been pushing their stuff into set top boxes and TVs?), and now they will show that there is either a real demand, or that it's just another channel that won't overtake everything else.
Notice they are smart enough to keep a foot on each side as well. They aren't ditching one business for the other, they are working them in parallel and seeing if it really pans out.
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Plastic Disc? No Thanks
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It's almost poetic in a way. Netflix is moving forward, leaving Hollywood behind. Ari Emmanuel says that the movie business's model is centered around the DVDs. There's going to be a rude awakening as Netflix gives it to them with a sign saying "Here you go".
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Streaming sucks though
Best I can get is a 5M DSL connection. This is barely enough to handle "standard def/stereo" streaming.
No, streaming is still in the infancy and boy does it suck right now.
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Re: Streaming sucks though
I don't think streaming is in its "infancy" just because some areas don't have options for quality streaming. If it reaches me and my neighbors are trees, it can't be too rare to have a decent connection in the U.S.
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Re: Re: Streaming sucks though
Such speeds are not available anywhere in my state, let alone my town, as near as I can tell.
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Re: Streaming sucks though
Streaming isn't in its infancy, but you certainly need proper broadband to use it fully.
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Bandwidth caps anyone?
I can certainly believe that Hastings is thinking along these lines, but he's not looking at the big picture. ISPs all over are tightening up their bandwidth caps and throttling/shaping all kinds of traffic. I'll bet that watching several streamed movies/episodes a week will get you to those un-advertised caps pretty quickly... and then the ISPs will either throttle you way down, or charge you per gigabyte (or some scale) for the rest of the month! People are not going to be thrilled to get a $300 bill from their ISP because they didn't realize those streaming movies over Netflix had pushed them into a $/per gigabyte tier.
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Re: Bandwidth caps anyone?
The more Netflix goes away from discs, the more Hollywood gets to dictate the licensing terms for Netflix content.
We've already seen that they really don't have any interest in the success of Netflix and actually see themselves as benefiting from its demise. This is not a partner you want.
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Re: Bandwidth caps anyone?
Enough of those 300$ bills and people will demand that the ISPs start investing in infrastructure and stop with the retarded caps (I understand that unlimited internet is currently not possible, but that should dealt with by throttling over x limit, not caps that are meant to be exceeded to pad profits.)
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Re: Re: Bandwidth caps anyone?
Where did you hear such lies?
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Re: Bandwidth caps anyone?
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Re: Bandwidth caps anyone?
Pressure to remove data caps will escalate. ISPs that fail to adjust will see their customer base shrink as those providing fiber solutions expand.
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It's still terrible communication
If this was really Netflix's intent, they should have just said this. Then at least customers would know why their rates went up. And I would be saying, "Hey that's great. It's not for me. But I hope it works out." Instead the message they sent was vague and sudden. And what most consumers heard was "Surprise! Rate hike!"
It may or may not be an effective business strategy. But it's a terrible customer service strategy.
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Re: Yes, but ..
About halfway through the first season there's a DVD-only episode. now I have to order the DVD and wait for it in the mail. I think that's their way of "slowing down" how many shows you can stream.
Also, High-speed internet is not available everywhere. If you can't stream a movie, you have no choice but to get the DVD.
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Re: Re: Yes, but ..
Netflix and streaming are good things, they just need time to develop and looser reins from Hollywood. It's why I still find the DVD service useful—aside from backing up my own DVD's to my external drive, I also do so for DVD's I rent from Netflix. That way I'm able to watch them anytime, online or off, from my 360. I prefer to be in control of my media, is all, rather than a third party.
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Stupid Netflix. You would think they would have figured out how to rip a DVD by now.
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"There is a pretty good selection, yes, but a lot of stuff that people want to watch are not yet on streaming."
Because the studios are still living in hope that if they stop you from streaming it as long as possible, you'll end up buying a full priced DVD.
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I do see an issue looming its ugly head soon though. Here in the US we pay a premium for crappy services. We're used to it from a consumer standpoint, particularly when it comes to bandwidth / internet / cable / phone services. The excuse that the providers give are many and varied and... completely bogus. Because we as consumers pay whatever they charge, there's no real competition, and they control the actual legislation that matters through various means we're sinking lower and lower in quality vs. cost comparisons as their bottom lines get fatter.
Not only that, virtually every pipe provider bold faced LIES about what they're actually providing you. If you're with a major company like Comcast / X-finity / Verizon / FIOS / Frontier / or any other mainstream subsidy and you actually monitor the bandwidth you're getting you'll see that not only is it capped... but it's NOT what they say they're providing, lol.
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I am not sad about this.
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This is what our price increase is paying for? I was a happy customer even with the plan change. I've been a customer for almost a decade. This is not good.
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Had the opposite effect on me
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Re: Had the opposite effect on me
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Digital
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Re: Digital
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If you really want to get pedantic about it we could bring it to the subatomic level and argue until we're both way out of the zone wherein we know what we're talking about. And given the nature of quantum mechanics, we could end up both being right and wrong at the same time.
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NetFlix digital shift
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Streaming is not the golden goose, yet.
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And with smartphones, AFTER AT&T decided to go to tiered data plans to charge us out the ass more, NOW they are throttling the data flow!!!
Thanks to corporations like AT&T, the U.S. is falling behind the rest of the world pitifully in Internet broadband access. Does anyone else find it pathetic that North Korea makes the entire US look like it's still using 1200baud modems?!?!
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Right now we have so many choke points on technology, that it is a wonder anything gets created.
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But, you're right.
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A very stupid decision on the part of Netflix.
And who can blame them when the latest movie Netflix has in its streaming catalog is dated at 1802? Yes, I'm being facetious, but only to a point because it's well known the movie catalog Netflix offers isn't worth the streaming price by itself. Many had the DVD option with it.
Now that Netflix has forced the hands of its consumers, I can almost see the writing on the wall my subscription service to streaming will come to an end because few will support it.
I wouldn't have minded the change had the online catalog included everything the DVD catalog had, but sadly, at $16 million per movie, not only was the request unrealistic, but shows the issues Netflix has before it when trying to support its online services against an industry grasping on the DVD with a firm grip, afraid to let go.
I told myself I'll get through the summer and if Netflix shows no signs of improvement with its streaming services, I will cancel my membership until it has restored my faith it's more than 80s movies and TV shows.
Until then, I'll just do without because, well, to hell with an industry trying to rape my walled of $25 movies most aren't even worth pirating.
I hope Netflix corrects this situation... and fast.
With walled gardens going up by others, it's just a matter of time before we're all screwed into "special deals" at $99/mo. for "unlimited, but restricted bandwidth, streams".
Throw in copyright issues, and well... another great idea ruined by capitalism's inability to stifle greed.
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Streaming's unintended consequenses
No matter how you dice it the all you can eat internet for $39.95 is soon to be a thing of the past...
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Re: Streaming's unintended consequenses
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I thought this was obvious...
I'd suspect that, when the time is right, Netflix will end DVD by mail distrbution and either a) Buy out RedBox or b) create a RedBox competitor. This consolidates their DVD shipping costs while getting people the new releases they want in HD formats (like BluRay). This will happen, it is inevitable.
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I would be shocked if more than a tiny percentage of Netflix customers would consider streaming an adequate substitute for their disc selection. And by tiny I mean 5% would be generous. I think that number needs to be at least 20% - 25% before this sort of move makes sense from a customer retention perspective.
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This was my first thought as well.
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Netflix streaming isn't ready even if catalog was bigger
The quality issues, in addition to the too-small catalog, is forcing me to go back to the DVD-only option. If Netflix decides to eliminate their DVD-by-mail operation, then so be it, then I'll look for other options. Streaming just doesn't cut it if you actually want a decent viewing and listening experience for your money.
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Netflix Streaming What?
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Consider yourself lucky if you get those speeds. In SoCal, if I want that type of speed, I need to sign up for a Business level plan (expensive as hell.) Right now, the fastest I can get is 5-8mb down and 1mb up with Time Warner. I REFUSE to sign up with AT&T for ANYTHING.
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Didn't Work
Although they did kick me in pants with the iPad app. I went to use it the other night only to have an error box pop up that said, "This app is now only functional for customers who have chosen the streaming service."
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I don't buy it (yet)
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Economics 101: Carrots and sticks
Also, Mr. Hasting's "big picture" sounds very short-sighted: Netflix achieved market dominance because of the huge barrier to entry of building a DVD collection and distribution center. When it comes to streaming, the only barrier to entry is a license fee, and the studios are likely to give everyone the same price, so incumbents will have almost no advantage, size will not matter, and cost will be key. In other words, it will be a commodity market, and margins will be negligible.
I agree that streaming is where the market is going, but it is not in Netflix's interest to push it there!
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I did the exact opposite, and canceled OR rather declined the unlimited streaming option. Now I only have DVDs by mail, which is perfectly fine to me.
As it stands, there really is absolutely nothing of value for me or my family on Netflix's streaming service. About the only use we got out of it, was streaming some children cartoons. However, I also have Video on Demand from my cable provider so I can live without streaming Netflix.
Until Netflix's streaming library equals their DVD library in size, then I am not paying for it.
I am also not going to pay for them to slowly build the library to a size that I deem worthy, as I am obviously not getting my value during this "building process".
I however will go back to their streaming service once the value equals the quality, but not anytime sooner!!!
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Netflix price hikes
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HD Streams w/out Issues?
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+1 for streaming sucks
If this is a move to encourage streaming, Netflix has made a huge miscalculation. If this were my subscription, I'd drop the streaming and stick with the DVDs. Perhaps I'm not their target market.
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Backfiring
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