Killing The Golden Goose: Is Hollywood To Blame For Netflix's Poorly Thought Out Massive Price Hike?

from the what-blockbuster-and-walmart-couldn't-kill... dept

If you remember back a decade ago, Netflix was definitely the darling of the modern movie rental business, but there was concern everywhere that the "little startup" was about to get killed when bigger competitors entered the market. After all, Walmart itself created a near-identical copycat offering in 2002. In 2004, Amazon started kicking the tires on a Netflix-like offering as well (amusingly, Netflix broke the news of Amazon's impending arrival in the market, effectively deflating some of the hype for Amazon's own announcement). And, of course, all along there was Blockbuster. The king of movie rentals in the 90s was going to destroy Netflix with its own offering, leveraging its brick-and-mortar stores, according to the common wisdom.

Exactly none of that played out the way people expected. Netflix continued to grow, and successfully expanded into video streaming, rather than just DVD rentals, with a very convenient flat-rate program. Walmart gave up on its Netflix-like business in 2005, and actually handed over the keys to Netflix, to let it run Walmart's online movie rental business. Amazon realized it couldn't really compete with DVD rentals and never brought that business to the US. Blockbuster tried over and over again to compete, but never got much traction, went bankrupt, and eventually was bought by Dish Network earlier this year.

Meanwhile, Netflix has continued to thrive, and plenty of people have pointed to its online streaming, which represents a giant chunk of US internet traffic, as an example of how if you provide a convenient, user-friendly and well-priced offering, you can compete with unauthorized file sharing. With Netflix, the company seems to realize that it's that convenience and access that people are paying for, rather than the content itself.

But, of course, as with so many things involving technology and services that make content more valuable, the copyright holders get jealous and start complaining that they're not making enough. With Netflix's growing power, the studios have been on the warpath to cripple Netflix in protest of the current pricing scheme. In some ways, they really hate some of Netflix's early deals, which allowed the company to offer such a convenient and reasonably priced offering. Pretty much all of the later online streaming movie offerings are, instead, forced to play by the big studios' rules, which makes most of those services totally undesirable.

This has also resulted in some fights with studios directly, and some studios even pulling movies from Netflix.

Given all that, it's hardly a surprise that Netflix decided it needed to raise its prices around 60% for many users. AS you've probably heard, they've basically separated the physical DVD rentals and the online streaming, which used to be included with most accounts. Now you have to pay for each separately, so to get what people had before, their bills are going up quite a bit.

The result of this announcement has been all over the internet (including Netflix's blog and Facebook page), and it would be safe to say that everyone hates the new pricing with a passion. It's incredibly aggressive on the pricing front, but it's not difficult to see why Netflix did this. First, the competitive playing field looks a lot clearer today than it did a few years ago. When companies have no real competition, they jack up prices massively.

Second, however, I'd bet that Netflix is currently in a battle to control its destiny behind closed doors with Hollywood. The studios are demanding lots more cash than in the past, and Netflix seems to think that jacking up prices quite a lot is one way to get the necessary revenue. But Hollywood, of course, couldn't care much less if Netflix survives. They still think that their endorsed crappy online services, with their DRM and massive limitations, is legitimate competition.

So while some are blaming Netflix for the giant price hike, I think it makes more sense to look at the studios and their unwillingness to fully embrace Netflix, always worrying that it would "take away" from their existing business lines.

Filed Under: internet, movies, pricing
Companies: mpaa, netflix

Sony Movies Pulled From Netflix Streams; Because Customers Just Love That Kind Of Thing

from the contract-disputes dept

Apparently, Sony Pictures films have been pulled from Netflix. Netflix claims that it's a temporary issue due to a contract dispute between Sony and Starz (a Netflix partner from which it gets many of its streaming movies). Other reports, however, say that there's no contract dispute, but that Starz just pulled the plug on those films. Either way, this kind of thing is never a good idea, because it's treating consumers as pawns. One of the reasons why Netflix has been so damn successful all these years is its focus on making the customer experience top notch. Removing content like this is never a good idea. These companies have to realize that they're still fighting to convince people that these services are worth paying for and that jerking them around by removing content isn't going to convince the people who were on the fence.

Filed Under: movies
Companies: netflix, sony, starz

Why Does The Entertainment Industry Seek To Kill Any Innovation That's Helping It Adapt?

from the it's-all-about-control dept

The LA Times recently had a good article about Hulu's struggles with its corporate parents, the various TV companies. While Hulu itself has been massively successful, the TV companies are suddenly claiming it's a threat (even though they own it) and are seeking to cripple the service in a misguided and shortsighted bid to "protect" their legacy offerings.

Combine that with our recent story about the record labels crippling Spotify and the Hollywood studios seeking to cripple Netflix, and you've got a pattern. Any time a new service comes along that helps drag the content industries into the present, the industry's hit back by trying to kill off or cripple the golden goose.

The simplistic answer is that the entertainment industry is all about control, and they freak out about these success stories (that make them money) because they realize they're losing control. I think it's a little more complex than that, but not too much. The established entertainment business, for many, many years, has operated under the principle of being the gatekeeper to their industry. They've (incorrectly) believed that their value and the key to their business is in being the gatekeeper. But the amazing thing about the internet is that it knocks down fences and walls with ease.

Gatekeepers don't make much sense.

If you view yourself as an enabler, then these new services seem great and wonderful and a huge opportunity. If you see yourself as a gatekeeper, you see these other services as a path to route around your gate. The mistake is in thinking that the answer is to shut down or limit that alternative. That's because, the alternatives (generally) are not really gatekeepers themselves. Of course, to the existing gatekeepers they look like gatekeepers, which leads to this reaction. But the reality is quite different. In a world where there are no real walls or fences, you don't need gates, and thus you don't need gatekeepers.

Instead, you need enablers: the curators, aggregators and filters who help you make sense of the wide open world. That's what Spotify, Hulu and Netflix all do, in a legal fashion. But it's also what various unauthorized sites and services do in an often less than legal fashion. But none of that changes the fact that the gates are no longer needed and the fences are down. Spotify, Hulu and Netflix aren't the new gatekeepers. They're compelling enablers who have built the new hotspot that people want to go to, because of the additional value they provide. Knocking them down doesn't bring back the need for the gates. Those are gone forever. It just takes away one of the more useful services -- which actually does pay the copyright holders -- and drives people to the many other (perhaps unauthorized) sources.

Filed Under: control, entertainment industry, gatekeepers, innovation, movies, music
Companies: hulu, netflix, spotify

DailyDirt: The Field Of Open Innovation Is Still Wide Open...

from the urls-we-dig-up dept

Over the years, we've been really interested in various platforms for engaging folks to participate in all sorts of projects. We've pointed out cool prize contests such as the Netflix Prize, and generally, when there's a really interesting concept that seems to catch on, there are plenty of copycats ready to try their hand at reproducing success. Here are a bunch of open innovation marketplaces that have the same basic idea -- and there are plenty others -- but we're still waiting on one player to really stand out.

• Innocentive was spun out of Eli Lilly as a way to get some chemistry R&D answers from an open market. It still has a lot of chemistry-based challenges, but it's slowly expanding into other areas. [url]
• ChallengePost is aimed at software developers -- who want to create apps that help others out. These are the folks behind Challenge.gov. [url]
• Hypios is yet another chemistry-heavy market for R&D solutions. Chemistry is hard, apparently... [url]
• To discover more interesting challenges, check out what's currently floating around the StumbleUpon universe. [url]  

By the way, StumbleUpon can recommend some good Techdirt articles, too.

Filed Under: challenges, open innovation, prizes
Companies: challengepost, hypios, innocentive, netflix

Hollywood Continues Its Plan To Kill Netflix

from the jealousy-is-no-strategy-for-business-success dept

It's really kind of amusing (and frustrating) to watch the entertainment industry look to kill every golden goose that comes its way. Any time a new offering is successful, the entertainment industry gets greedy and either tries to demand a much larger cut, more control... or it tries to kill off the offering because it has "too much power." We saw it with the labels, when they turned on iTunes (though Apple's been able to hold that together pretty strongly) and music video games. It's part of what's been driving the record labels to give Spotify such a hard time in signing a deal to bring the (rather successful in Europe) service to the US. And it's not just the recording industry. We've noted that Hollywood has now decided that Netflix has been too successful for them, and it's time to put the company in its proper place.

Thus, we're starting to see Netflix partners push back and start to limit what Netflix can stream. First it was Showtime pulling back from streaming its content via Netflix, and now it's Starz that's pulling back in a big way. That's pretty significant, because it was the original deal between Netflix and Starz that really jumpstarted Netflix's ability in the streaming space. The big studios have been complaining about the Starz deal for years, and it's not hard to see their hands in the company's decision to scale back its relationship.

It really is amazing. Some new service comes along that drags these industries -- often kicking and screaming -- into the modern era, and then starts making them lots of money. And suddenly the industry turns on them (and fans and consumers) claiming that these services are simply too successful and need to be cut down to size. It's really a case of the entertainment companies overvaluing the content over the service. They think that all the value is in the content, and if the services are making money and getting users, it's because they're somehow "exploiting" the content in unfair ways. On top of that, I really think there's a psychological issue, where the entertainment industry bosses still think that if anyone else is making a lot of money, it's "unfair" -- even if they're making plenty of money themselves.

Of course, these moves will backfire. It'll just make people on Netflix watch less of these companies' content... or seek it out from alternative sources that Hollywood probably likes even less.

Filed Under: digital distribution, movies
Companies: netflix, showtime, starz

Dear Hollywood: It's Time To Realize Artificial Scarcity Is Gone... And That's A Good Thing

from the it'll-make-this-all-much-easier dept

If you haven't yet, you really should read Greg Sandoval's excellent report from Hollywood on how the major studios are feeling about Netflix these days. The whole thing is quite enlightening, but can basically be summed up thusly:

The prevailing feeling among the studio managers I spoke with is that Netflix's streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.

Yeah. Good luck with that. But the statement I wanted to focus on was one that preceded that, and which explains why the movie studio execs think the above is even possible:

Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service's commercial-free films and shows anytime they want.

Notice that this is said as if this is a bad thing. And that, right there, is a one sentence summary of all of the industry's problems. It still looks upon scarcity as a good thing, and is seeking ways to bring back scarcity where there is none. This shows a rather confused understanding of economics -- one that doesn't recognize that abundance increases market size and opportunity, while scarcity decreases consumer value and market potential. Abundance is what leads to economic growth. It may require different strategies to capture pieces of that economic growth, but it inevitably leads to greater economic opportunity.

And part of the way that you capture that economic opportunity is to focus on adding value to consumers not taking it away. Yet what these studio execs appear to be doing is exactly the opposite. Consumers like Netflix's setup because it takes away scarcity. They see that as a good thing. They're actually paying for that. And the studios' reaction is that this has to go away? It's incredible. What kind of execs actually look at what consumers like and are willing to pay for... and decide "that has to be shoved aside"? If the studios are flopping it's because of thinking like this.

Filed Under: abundance, business models, movies, scarcity
Companies: netflix

'Consumer' Group Wants Netflix To Tax Customers To Give To Telcos?

from the really? dept

This one's a bit bizarre. We were just talking about the ridiculous boondoggle called the Universal Service Fund, which is one of those "taxes" on your phone bill that's supposed to go towards having the big telcos supply service to rural areas. Of course, since there's no oversight, it seems like most of the money just goes into the telcos coffers. There are all sorts of ways to deal with this, but one idea that makes no sense at all has been put forth by the Consumer Federation of America... who thinks that Netflix should be "taxed" to provide money for the USF. Why? Um, that's not clear. Basically CFA seems to think that big internet companies should now pay up just because:

"The Internet is not an infant industry anymore. It can certainly bear the burden of making sure that wires and the communications mediums are there."

So, really, what this "consumer" group is suggesting is that Netflix raise its prices on consumers, to give telcos more money that they just use to pay for operations, rather than actually investing in infrastructure for the disconnected. How does that possibly help "consumers"?

Filed Under: broadband, consumers, tax, usf
Companies: consumer federation of america, netflix

Netflix Shows Which ISPs Actually Perform Well... And Which Don't

from the ah,-data dept

It's always fun to discover some data that reveals some useful info -- and the folks over at Netflix have apparently realized that they're sitting on a treasure trove of data concerning the performance levels of various ISPs, based on all that content Netflix is streaming. Rather than just keep it all internally, Netflix is starting to publish the data, showing how well certain ISPs perform, and highlighting how you generally get better performance out of cable than DSL. This is smart on Netflix's part, as it actually does a nice job encouraging ISPs to improve their quality, knowing that they can tout these kinds of "independent" rankings to show their overall quality.

Filed Under: bandwidth, cable, dsl, internet
Companies: netflix

Will Hollywood Kill The Golden Goose By Squeezing Netflix Dry?

from the watch-those-numbers... dept

Back in December, we did a little back-of-the-envelope calculating to show how much more expensive it is for Netflix to license movies for streaming, as compared to just buying DVDs and shipping them out. The differences are staggering. And apparently it's only getting more expensive. The Hollywood Reporter has an in-depth article highlighting the love-hate affair that Hollywood has with Netflix, including details on the sorts of prices that the various players are demanding (and often getting) from Netflix. What's not surprising is that they keep asking for more and more (and some are still complaining that Netflix doesn't pay enough). But the numbers being thrown about are simply staggering. And at the rate they're going up, it will make it increasingly difficult for Netflix to actually afford all of those deals. Once again, it seems like a situation where the content providers are overvaluing their content, and undervaluing the services that make that content more valuable. That is, they look at how Netflix is succeeding (especially as they're failing to adapt themselves online), and they start to get jealous, and assume that Netflix really should be paying them more money. Basically, they don't think Netflix deserves to profit at all, since it's really all "their content." What they ignore, of course, is that (despite multiple weak attempts) they were the ones who failed to provide a compelling streaming service themselves. Either way, if Hollywood keeps pushing those numbers up, they may discover that they end up killing the golden goose.

Filed Under: content, licensing, movies, streaming, value
Companies: netflix

Paul Allen Files Amended Patent Lawsuit; Shows It's Even More Ridiculous Than We Originally Thought

from the related-items? dept

Back in August, many people were surprised that Paul Allen had suddenly decided to go full on patent troll, using a bunch of patents he had received as part of his complete business failure, Interval Research, during the 90s. Interval was supposed to be kind of like Xerox PARC, a research center focused on inventing the future, but the plan was to actually commercialize what came out of the labs. However, in the end, Interval did little of anything and, after spending many of Allen's Microsoft millions, shut down. Yet, years later, he suddenly starts suing a ton of companies over incredibly broad patents? In this initial lawsuit (apparently more are planned), he sued Google (and separately, YouTube), Apple, AOL, eBay, Facebook, Netflix, Yahoo, Office Depot, OfficeMax and Staples. Earlier this month, we noted that the lawsuit had been dismissed due to the failure by Allen to actually explain how these companies violated his patents. Of course, as mentioned at the time, he was free to try again, and everyone knew he would. He has now filed that amended complaint, complete with the "details" of what each of these companies has done that's infringing, and it's even more ridiculous than we originally thought.

As a reminder, here are the patents he's suing over:

• 6,263,507: "Browser for use in navigating a body of information, with particular application to browsing information represented by audio data."
• 6,034,652 & 6,788,314 (really the same patent, involving continuations): "Attention manager for occupying the peripheral attention of a person in the vicinity of a display device"
• 6,757,682: "Alerting users to items of current interest"

We have the full amended filing embedded below, but his claims of what's infringing are ridiculously broad. For the first patent (the '507 patent), he basically seems to be claiming that any website that offers a listing of "related items" or uses any kind of spam filter is infringing. Basically, that's a huge percentage of content-based websites out there. Does anyone really (honestly, now) believe that without such a patent, the idea of "related content" or spam filters would never have been developed?

Then there's the next two (related) patents ('652 and '314), about "peripheral attention." According to Allen, the use of products that pop up a little notifier in the corner of your screen window violate this patent: so AOL, Google and Yahoo all violate this because of the little instant messenger/email pop up tools they offer. Apple supposedly violates this because of the Apple Dashboard and related widgets that pop up information such as sports scores and weather. Really, Paul? You want to claim ownership of any system that pops up information in the corner of your screen? That's sickeningly broad.

Finally, the last patent (the '682 patent), he appears to be claiming that it covers making recommendations to users on things they might like. So, the fact that AOL will alert you to products you might like? Infringing. Same with all the other companies, who all offer basic recommendations of one form or another because offering recommendations is one of the most obvious things out there.

To say that Allen's interpretation of what these patents cover is extraordinarily broad would be to downplay the concept of broad interpretations of patents. Allen's interpretations are so broad as to make a mockery of the entire patent system, and how ridiculous concepts put forth in a patent can (years later) cover a significant number of all websites out there, all doing obvious things to make their websites useful to users. Honestly, reading through the details makes me wonder if the conspiracy theory that some have put forth -- that Allen is doing this just to demonstrate how silly patents have become -- seems somewhat more plausible. I still don't really believe that, but either way, this lawsuit certainly represents the madness of the patent system.

Filed Under: patents, paul allen
Companies: aol, apple, ebay, facebook, google, interval research, netflix, office depot, officemax, staples, yahoo