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Monday, October 10, 2011

Netf***ed : Can the online DVD rental company stop its free fall? - UPDATED 10/23/2011

It seems like Netflix can do no right these days.  The same company that single-handedly took down the behemoth, Blockbuster, (with some help from the clueless execs at Blockbuster, of course) has quickly taken dragged its name through the dirt.  As recently as last year, just about everybody who used the service loved Netflix.  Its unique approach to video rental provided movie fans a new experience,  no more video store trips, no more late fees - instead we received DVDs at our house to be viewed as long as we would like.  It was a new approach to an old business and it took the industry by storm.

But all good things must come to an end and right about now it looks like the Netflix's good thing may.  In just a matter of months the company has gone through some drastic changes due to increased competition and increased operating costs.

For those of you unfamiliar with the changes, here is a brief history of some of the changes that started the backlash:

1) Delayed Release:  In an attempt to increase slumping DVD sales several studios delay delivery of new releases to Netflix up to four weeks.  If you want the latest film the day it comes out, either buy it, go to Blockbuster or set your computer date back several weeks and pretend the film has not been released yet.  You got us good studios, I guess I will start buying DVDs again.

2) The Biggie:.  Instead of free streaming with just about every subscription, there would no longer be free streaming with ANY subscription.  In order to stream you need to pay and additional $8 a month, in some cases a 60% increase.  People loved the idea.

3) Loss of  Starz: Netflix's streaming service had one huge complaint, the films were not the newest releases.  That changed when they partnered with Starz, the cable movie network.  Suddenly, streaming was not just for fans of old TV shows and indy films, it was for everyone.  As of last month, plans for the end of that partnership have been announced.  As of next year, no more Starz streaming.  Starz wanted too much money for the rights - they have since walked away from the bargaining table.  Starz will soon go off to being the pay movie channel no one has ever heard of, again.

These changes to their system, some their choice others forced up upon them, has lead to increasing resentment from the once faithful users.  Ultimately this led to this: 

4) THE Letter:  an email was sent apologizing for the recent, let's say less than popular changes to service.  Oh yeah, and by the way, we also breaking the company in two, a streaming company (Netflix) and a DVD company (Quickster).  This means two accounts, two queues, two bills.  Too much??  I personally thought it was a joke.  Apparently, so do many people out there.

Though many may, it is not fair to pin this entirely on Netflix.  The biggest catalyst for the unpopular changes pf service was the studios that supply the content finally seeing the light.  The light being Netflix's untra-successful/profitable approach to rentals and streaming.  The studios got wind of the massive profits associated with creating a easy to use, non-traditional approach to video rental and now want the money for themselves.  Like the music industry which allowed Apple to steal the power to distribute right from under their feet, the movie industry has been sitting back for years enjoying the money, continuing to offer the same antiquated delivery system.  When they realized the Netflix stock was going for close to $300 as they were struggling to survive, it was time to come collecting.  Netflix built a successful system, but if it wanted to keep it going as is it would need to pay more for content to the lazy studios.  The same geniuses that put out Paul Blart: Mall Cop still have the power, they still have the content.

These next few months are going to make or break Netflix.  The company once seen as a video rental messiah - freeing us from late fees, offering us a wider selection than ever before and allowing us to watch what we wanted when we wanted (on our phones, Xboxs, Wiis, etc.) is facing its toughest days.  Now, as so often happens, the loyal will stay and weather the changes and others will leave and bitch endlessly on the way out.  The free lunch has come to an end, it is time to start paying up or time to starve.  Thanks Netflix, it WAS delicious while it lasted.

UPDATE 10/10/2011 Goodbye Qwikster, We Hardly New You: 
According to the New York Times the plans for a split in the streaming and DVD-by-mail services has been cancelled after an overwhelming negative consumer reaction which cost them millions of subscribers.  The company admitted it moved too fast when it tried to spin-off the old-fashioned DVD service into a new company called Qwikster. 

“We underestimated the appeal of the single web site and a single service,” Steve Swasey, a Netflix spokesman, said in a telephone interview. He quickly added: “We greatly underestimated it.”

Netflix tried to be crystal-clear about it, issuing a press release that was titled “DVDs Will Be Staying At Netflix.com” and sending e-mails to subscribers about the news.
Well it seems that someone has come to their senses.  Unlike some companies that are too proud to admit their mistakes (i.e. Apple with their buttonless mouse) Netflixand loss of millions of subscribers and billions in stock value.

On top of the cancelled split service new partnerships have recently been announced for their streaming service, Dreamworks and AMCShrek and others to be part of your updated queue as early as next year.

One bit of bad news for people that want it all, but do not want to pay for it - the recently announced price increase will remain in effect.  This explains the aforementioned improvements to the streaming catalog.

UPDATE 10/23/2011  - Oh oh.
According to The Wall Street Journal, more bad news for Netflix, "The movie-rental company's shares sank 26% in after-hours trading.
Netflix reported 21.45 million streaming subscriptions at the end of the third quarter and 13.9 million subscribers to its DVD-by-mail business, with a good bit of overlap between them. The company said total U.S. subscriber base by the end of its third quarter was 23.79 million—below expectations of roughly 24 million. Netflix lost 810,000 subscribers between the second and third quarters."

800K lost subscribers is nothing to laugh at.  Wall Street is nervous, the name Netflix has become synonymous with sneaky corporation instead entertainment - that is bad news.  Once you gain a reputation it is hard to restore your name, just ask the class whore at your school.  See you just thought of someone in your head.

Netflix is going to need to pull out some big guns soon or the slope will become even more slippery.  The competition is not offering a helping hand either, more like a kick to the stomach while they are down.


9 comments:

Michael P said...

It's a damn shame they had to split the company in two now to "clarify" their new strategy. What they should have done was to raise the rates for the same service $2 a month, instead of trying to get people to double their monthly fees in order to keep the service they have grown to love.

Another idea for how they could please the studios and still please the customers would be to offer "New" as in the first 30 days a movie is out for an extra charge. For instance, want to see a movie online that just came out on DVD, pay 50 cents to view that movie. Sure not many people would do it, but if they really wanted to see that movie when it comes out, it would be another reasonable revenue stream.

Whatever happened to the TV set top box? Did the streaming age pass that before it had a chance? I have a hunch, people would prefer that for their streaming movies instead of watching it on computer monitors and having to worry about internet lag.

Either way, I hope Netflix pulls through this mess, but I am not very optimistic that they come through half as strong as they used to be. They are going to have a lot of buttering up to the customer to gain that trust again.

BK said...

Good opinion, but what's the solution? Right now, I feel that for strictly movies, Video on Demand is a legitimate threat to Netflix. I don't have to go to a Red Box, everything is at my fingertips whenever I want it.

It's a little more expensive, but it's also more convenient. Like you said, they got screwed when the studios decided that new releases would be delayed even longer.

I haven't updated my netflix cue in about a month, because the "new releases" are movies that came out months ago, that I know will be on one of the pay cable services soon. I canceled my streaming portion, because like Michael said -I don't EVER watch movies on my computer. I only kept it for this long because it didn't cost me any extra, and was for strictly for catching up on old TV episodes.

It's too bad. I like Netflix. But if it gets more complicated, or more costly, the service won't be worth it to me.

wpoe247 said...

These idiots at Netflix are committing suicide. They have forgotten to listen to the customer. Without us there is no Netflix....I mean Quickster. hahahaha

Anonymous said...

I wasn't too upset about the change in pricing. To me it makes sense. I tend to use instant view more often then having dvd's shipped to me. So I was considering dropping the DVD portion. But since they are also adding video game rental to the dvd shipping as an added cost extra... maybe I'll keep it.

Anonymous said...

The pricing changes make sense, and maybe even the split of the company (although why not share the queues, since both are owned by the same company?). However my biggest concern is the way they seem to be dumping the DVD rental business (Qwikster??? What kind of stupid name is that??), since I rely completely on the DVD due to my hard-of-hearing and their streaming do an awful job of captioning, not to mention the poor selection. If they're going to rely on streaming as their future, they're going to definitely fail, as it's nowhere ready for prime time.

dogma said...

So true. Are our ratings going to transfer between accounts? I have over 3000 rated films. Do I have to manually transfer those from one account to another? It sounds like a mess.

ClaesBandage said...

This feels like the usual content owner drive to kill off all other ways of distributions than disk sales and TV.

II think that when (if ever) the board band connections get better worldwide, the contents owner has to reconsider having a internet based distribution.

In Sweden (where I live) almost everybody has access (or can have access) to ISP that provides enough bandwidth for VOD:ing. But if you have a good broadband, but reasonable pay-service for movies, only torrents remain if you are lazy and want your movie now.

I strongly believe that you should pay for content, but quite frankly the lack of any good service in this domain 2011 makes me mad.

Anonymous said...

I was upset by the drastic rate increase, yet opted to keep both streaming and DVD. However, having to deal with 2 queues (and presumably 2 websites/companies) is more hassle than the handful of DVD's I watch per month. Sorry Qwikster, I'll just drop by the local Redbox when I'm looking for something, especially new stuff.

dogma said...

Netflix streaming is awesome. Breaking Bad is coming soon. It is about time.

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