Netflix Isn't Doomed
online.wsj.com
online.wsj.com
The problem I think is rooted in piracy, at least as it is practiced in first-world countries where convenience is worth more than price. Piracy has several built-in practical issues, because it is frankly inconvenient to be conducting illegal business, and DRM provides another inconvenience. But despite these endemic problems with piracy, it does offer a huge convenience: universality. The legal movie market is fragmented and therefore a pain to deal with, where the black market is very universal, with mirrors of content on all the major distribution channels (torrents, rapidshare/HTTP sites, and USENET are the big three).
The interesting thing to me is that all three of these distribution channels have successful paid services springing up around them. There are private VPN services you can pay for to torrent from a foreign IP. Almost every HTTP distribution site such as rapidshare has a premium service you can pay for to get more volume. And USENET has several news servers that retain data for years and offer direct encrypted downloads. So it is clear to me that people are willing to pay for the benefits these services offer.
If you line up the pros and cons, I would say that legal services win out on almost every count except two: price and universality. The success of grey market services and nearly-universal services in other industries (iTunes, Steam) tells me that price is not the real blocker, if only movie studios would get their act together and let distributors license everything in the world.
I would love to see a world where cable TV providers, digital streaming services and physical retail services all had access to the entire catalog of movies and competed on price and convenience. The current world where services compete with content catalogs and exclusivity just seems unsustainable because it is worse for consumers in the long run.
I think you're overestimating the effect of piracy, because you tend to hang out with young, tech-savvy folks. The average Netflix customer would have no idea how or where to pirate a movie even if they did want to (not to mention there are some people in the world who aren't completely amoral and as such wouldn't).
You're implying that everyone follows the same code of ethics. You might not agree with it but for some people it's not in the slightest bit amoral to pirate a movie.
The only one scared by this is the content industry, aka the publishers, and the unfortunate people who believe their propaganda and lies. Free culture is a good thing. The internet, for the first time in human history, has made the dream of unlimited sharing possible. Creators will not die out because the industry that imposed copyright on them in the first place is no longer needed.
"[...] in which all the stuff we want comes from one source at one price.
Forget about it. That world isn't coming. The hidden lesson of Netflix's fall from grace is that content markets will remain fragmented."
As you point out, that's simply not true, thanks to piracy. Not only can I find "all the stuff [I] want [...] from one source at one price", but that price is free (with the exception of site donations I guess). Not having to deal with DRM and the resulting uncertainty of ownership and crippled access from all devices, incomplete libraries, poor/uncertain quality and unreasonable prices are all icing on the cake.
Netflix could be to movies and tv shows what iTunes is to music and Steam is to games, but the content owners are fighting that every step of the way. Sadly, Netflix doesn't seem to have the power to push the content owners around like Apple does.
What I think these companies need to realize is that they're completely wasting their money not capitalizing on revenue streams. For new movies, sure, theaters only. For newly released DVDs, sure, stores and/or rentals only. But 6 months to a year after release, I expect every company to put their content online so that it's convenient for people to watch instead of relying on the $5 bargain bin for revenue. That's what makes sense to me yet it doesn't happen. They pull content left and right for what? So Netflix can't be the sole provider of the content? What makes sense to me is AMC putting the first several seasons of "Breaking Bad" on Netflix so that all can watch it to catch up to the current season on air. Do other programs expect people to purchase DVDs for a single view to catch up?
Ideally for me there should be company B and company C to compete with Netflix, each with its own set of exclusives from different companies, each with a ~$10/month no contract charge for viewership. I'll end up with ~$30/month cancel anytime for all content and stream it all off of a single convenient box. That sounds better to the status quo to me.
I have a Roku box that gets both, though I usually stick to Netflix. I got an episode that glitched the other day, so I flipped over to Amazon Prime, which turned out to have it, so I watched it there. I then flipped around a little bit to see what was new.
The great thing about Amazon is that their streaming library is way, way more comprehensive. Want something that isn't a part of a Prime subscription? Just pay a rental or purchase fee and watch it right away, without waiting for a disk, running down to Redbox, or whatever. Don't have a Prime subscription at all? Try it for cash for a few times and see whether the subscription fee is worth paying. And since it's Amazon, they probably already have your credit card on file, so there's not much to fiddle with.
If they can get the Kindle Fire in a lot of people's hands (and apparently they can, if the rumors are true), this could be a huge opportunity for them to leapfrog Netflix and Apple.
But, UX-wise, Amazon has a lot of issues.
With their streaming movies, if you leave a program half-way and come back later, you have to search for it all over again to find it and resume the program. There isn't a "recently viewed" section or any of that.
The site is also very static (pretty lame content discovery). Not nearly as compelling as the actual Amazon stores, oddly. It's as if it isn't hooked into your search history or viewing preferences. At. All. The experience is painfully mimicking the store experience, but without the typical Amazon recommendations. It's disappointing, to say the least.
I've been using Amazon since they had Amazon Unbox (which was a horrendous abomination of a program.) Back then I had to futz with the software, wait for it to download and then only watch it on that computer.
For me now, I watch Netflix on my iPad, multiple laptops, desktop, Apple TV, and Roku. I pause a show on one device and resume it on another. That is the way video should be.
If Amazon can do this, great, then I don't need Netflix anymore. The Amazon Prime library is getting closer and closer to Netflix by the day. Perhaps the larger open question s will Apple attempt to lock Amazon out of their platform.
I have no problem subscribing to multiple services (right now I've got Netflix, Amazon Prime, Hulu, CrunchyRoll.) I pay for video content on Amazon & Apple too. The reason I use Netflix for 90% of my video is because it works on 100% of my devices.
But if that happens then piracy will kill the industry and nothing will be able to save them. This doesn't mean that they can survive only if there is a single company you can buy from -- I believe there is space for a number of different companies much like there is Spotify, Last.fm, iTunes store, etc each with a different model for how to provide value to customers -- but that each company must have all, or substantially all, the movies people want.
Because as long as it is easier for people to find what they want on a torrent site or on rapidshare or on usenet they will do that. The movie industry is in competition with the pirates and have no way to beat them on price so they will have to fight on the basis of convenience (which is a battle they can will, as illustrated by iTunes).
If they don't, they are doomed.
And if anybody out there is looking for a new startup, may I suggest that you make a recommendation engine like netflix has but for tv series. The channels (and especially the bundles of channels) belong to the past. But there is good value in recommending good quality tv shows to people who may be interested in them. If Netflix had focused massively on that, they would be in much stronger position against the rights holders.
Might we see a major transformation of what we consider 'movies' (both in form and in content) due to delivery constraints, IP issues and such?
1. Netflix is at the mercy of media companies that control the content. Media companies can basically charge whatever they want for their content on Netflix. If Netflix can't afford it, they'll let their contracts expire and people will no longer get to see the movies and shows they want to watch. Unfortunately, the pricing hikes made consumers realize that it was extremely expensive to spend $16 a month to rent 1 DVD a week with streaming, whereas before at $10 they could justify the cost.
2. Netflix is in a crowded market with Amazon, Hulu, Apple, Google, and the media companies themselves. Sooner or later Starz, HBO, Warner Bros, and all these other media companies may decide to start their own version of "Netflix" and cancel all their existing contracts entirely. This would be more profitable for them, and would essentially kill Netflix.
3. Poor customer relations. The Qwikster snafu significantly hurt their brand, and a lot of customers (800k so far) have already left their service. Not only are they going to have to convince their existing customer base to stay, they need to convince more customers to join, as to drive revenue growth.
4. Netflix is predicting that its combined loss of customers and European launch will push it into the red next year where it may stay for all of 2012, according to a letter to its shareholders. http://goo.gl/3VdED
The studios can't start their own streaming service simply because they do not have the branding they think they have. This isn't the 1950s, nobody thinks "I must sign up for MGM's service they have all the best action movies". HBO and BBC might manage to make separate pay-for services but are more likely to simply agree an extra cost deal with Netflix in the same way they sell an extra cost package to cable. Does HBO really want to get into the writing and supporting software player business?
Then the studios have a problem that they are in direct competition to their main customers - the cable companies that would be delivering these shows over IP. Can we say serious throttling?
Sooner or later somebody in Hollywood is going to manage to get the childproof top off their Lithium tablets and realize that iTunes hasn't quite destroyed the music industry.
I did/do.
I think HBO has a very realistic shot of hitting it out of the ballpark. They have already proven they are capable of doing it. In a few years I expect most people will just subscribe directly to HBO.
As for Dreamworks, 20th Century Fox, MGM, Paramount, and every other movie studio having their own service, the economics won't work. They will make more per subscriber than they would from an aggregater deal, but they will have less subscribers.
A few other providers might be able to do what HBO can do. Niche providers, like Crunchyroll, will likely do very well.
I expect all of the movie & cable players will make moves on their subscription services. A handful will do a really good job and make out well, the rest will get to sell their libraries to Netflix, Amazon, and may be Google, and return back to what they do best.
Doomed to be TBS/FX instead of the cable giants that they were initially pitted against? Quite possibly.
Distribution eventually gets commoditized, content is king.
Netflix is down, but not out, and I wouldn't be surprised to see it bounce back (maybe not to quite the same peak, but still much higher than it is now).