Netflix shoots itself in the foot... aka no more free streaming

I love Netflix, but they're going to dig themselves into the ground with this constant denial of what's going on. "600,000 cancelled customers? We're fine! In fact, we're more than fine, we're going to be better than fine! We're going to make even MORE money this way! Stay the course!".

 

^Mission accomplished!

It really is the PR of it. Netflix could have explained why they had to do this. Instead they made it seem like they were doing us a favour.

 

Exactly, and they seem content with the poor PR they're generating.

 

I was driving by my local Family Video the other day when I saw this:



I loled.

 

Where do you live Broccoli?

I don't know how widespread those Family Videos are, but I know there's a couple 'round Lake County Illinois.

 

I don't know where Broccoli lives, but we have 3 in SW Ohio alone. They seem to be a rather decent chain.

 

It's too late for brick & mortar video stores in SF. They're all out of business, except for a few specialty stores with a loyal local following.

 

Family Video is actually expanding. When all the other stores around are closing down, Family Video is opening new locations.

 

I just saw a news report that claims Netflix lost one million customers this quarter due to the price changes in their membership plans for DVDs and streaming.

http://money.cnn.com/2011/09/15/technology/netflix/index.htm

 

Wow. What's funny (read: sad) is in that same article, where Netflix lost Starz and their answer was essentially that losing Starz wasn't a big deal. Maybe not to some movie watchers, but the more studios Netflix loses, the less believable they are when they say that all is well, and the fewer studios will come to them to play their content. All is not well in Mudville, regardless of what the Mighty Casey says.

 

While I think yeah, it's probably not wise to let Starz get away, I don't know that I agree its all doom and gloom already from here on out.

 

Well, it's not just the Starz issue, it's the fact that big studios are starting to get a little stand-offish with Netflix, because when Netflix stock goes up, "it's great!". When it goes down, "it's great!". A PR team who absolutely utterly sucks at their job, because I love Netflix and even I can see they're saying a bunch of bullshit no one really believes. The dumb thing? The CEO says that losing Starz isn't a big deal. Now, if I were a studio, I'd wonder why a business like that is willing to tell a major provider, within earshot of everyone else, that they don't need them. I'd start looking elsewhere, because it means most likely said company isn't going to play ball, and the PR team makes it all the worse.

While they're not doomed, the current trend is that they will be if they stick to this course of deny and divide. Their shares are dropping, studios are walking away, they've lost a million customers due to bad PR and a 160% price jump, yet they forecast a major increase in subscribers in the face of all of that. Unless they pull their collective heads out of their asses, they're going to make the old Blockbuster stores look like an efficient business model.

 

Wow. Losing 600,000+ customers is OK. Losing Starz is OK.

I need this kind of strong weed. Serious mind altering shit, that.

Even Dish Network has backed off their usual stupid crap to actually keep existing customers.

 

From the link:

So, their subscriber base dropped by less than 2.5%, and their revenue increased by between $10 and $15 million. I've got to say: that really doesn't sound all that bad for such a major pricing change.

 

It won't happen of course, but part of me would love to see Netflix go out of business, if only for the symbolism. It has been destructive to so many businesses and jobs in the video rental and sales arena, that it would give a bit of satisfaction. It won't stop the tide of course, but I'm sure it'll make some former Blockbuster employees on the unemployment line crack a smile.

Except remember that this is a world where a 1% change in anything is considered a "civilization ender". The only reason the revenue went up is presumably due to prices being raised or some extra revenue going in. And this also assumes the bleed stops at 2.5%. It's not something they'll be able to ignore if it becomes 5% and goes north from there.

Thing is, price changes are great if you have a monopoly. As noted, Netflix no longer has a monopoly, plus there's still a huge number of potential customers who will simply keep downloading for free through the various channels, and what's happening with Netflix isn't really giving them incentive to change their evil ways.

Alex

 

This has been rectionary as I see it by a good number of subscribers. I doubt the media will track what happens next, as I see it, but people will slowly start to return. Not all of course but a good portion will realize it's still a fair value and you can't get all the options at Redbox, Blockbuster Online and/or Amazon that you do with Netflix currently.

I would bet on them not only regaining a substantial portion of those 600K but also gaining new customers over the 4th Q to finish out the year.

 

The Starz situation was a difficult one to avoid, though. Starz wanted Netflix to introduce tiered membership for any Netflix subscribers who also wanted content from the Starz deal, but Netflix didn't want to introduce a Starz-specific tier in addition to their own subscription plans. Just imagine how angry people would have been if Netflix had gone ahead with a Starz tier to keep the content deal in place.

 

^^^
Exactly. It would have created a precedent. Suddenly HBO, Showtime and maybe even media conglomerates like NBC/Sci-Fi and their host of channels would've have insisted on a unique pricing structure for their product.

Netflix is going to survive in the long run. The worst is already out of the way. I fully expect to see their membership going back up now over the rest of '11.

 

Even if Netflix goes out of business, something else would take its place and do essentially the same thing. The video stores that have gone under can't be saved.

There is a larger wave of change in business that is causing disruption and chaos, destroying some businesses and making opportunities for others. The trend is summarized like this: any business that is in the information business is going to see its products pushed into the digital realm (bits, not atoms) and the marginal cost of its products will be pushed downwards towards being free, by competition pressures. Which isn't fatal, if you can ramp up in the number of customers. That's how digital pennies can become far more profitable than analog dollars.

This is the same phenomenon that is elevating free online companies like Google and Facebook. Netflix is generally correct in trying to get on the same bandwagon. Starz, and Hollywood in general, is dragging their heels because they're afraid to lose their analog dollars, or they're deluded enough to think that they could make digital dollars instead of digital pennies.

Hollywood is going to learn the same lesson the music industry already has. You're in the information business; you're going digital; and there's no such thing as digital dollars.

However, restructuring Netflix streaming into some kind of points pricing structure might be a good idea. Just price Starz' content at a premium - two points vs one point for other content - and let the customers decide if it's really a premium. We might be seeing customer ire directed at Starz rather than Netflix now, as customers deliberately boycott Starz product to punish them for their hubris in thinking their content is so much more valuable (because frankly, it isn't - non-premium cable channels like FX and AMC are doing much better at producing great stuff). If they make less profit because of customer anger, that would send a chilling lesson to HBO, Showtime, et al, not to get a swelled head.

 

You know, I'm not even sure what content on Netflix belongs to Starz. I just flip through the titles and watch what looks interesting. What kind of titles are we talking about?