Netflix doubles-down on the derp

@Irishk,

The thing about netflix stock price is that today management admitted that they dont know what the **** they are doing....this is going to scare any stock owner given how easy it to have someone come in and steal the business. Neflix is now gravely wounded, a lot of folks who 6 months go would of dream of trying to take on Netflix are now I am sure seriously considering throwing in some big money to try to take over the business model. In a way this is like what happened with Tiger, once they mystique was gone, once people felt in their bones that Tiger can be beaten, they went after him with a vengeance. Tiger is not losing now only because he is not playing as well, he is also losing because his opposition is playing better against him now that they no longer are in awe of him.

Netflix has a lot to worry about due to their recent bungling.

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@engineer,

engineer wrote:

Try Blockbuster.

Thanks. But I checked their site and they don't offer any type of monthly unlimited downloading.

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@hawkeye10,

hawkeye10 wrote:

Quote:
Who are the other streaming leaders right now?
That is not the issue...If Google or Microsoft wants to do it they can buy content and have set up in 30 days the computer system to run it just as well as netflix does. It is very easy to type in a new internet address and type in my credit card info and thus change providers. There is nothing that Netflix brings to the table that many other companies could not very rapidly also do if they wanted to, there are no patent or expertise issues that blocks out other companies.

Then why isn't anyone else doing it yet? Is it not a profitable offering? It's the only type of service (unlimited download for a monthly fee) that I would be interested in, and I'm probably not the only person who wants that type of service.

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@rosborne979,

Because the technology is new, as is the business model...as late as three years ago blockbuster and hollywood video were saying that streaming was never going to amount to much. The bar now is that a decent sized library is required but it is expensive to rent content, but some companies have both the money anf the hosting ability to do it...Google could right now buy Hulu and do a deal with Starz and then Netflix would be sunk. I give it 6 weeks before we hear of this deal or one like it.

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@hawkeye10,

hawkeye10 wrote:

Because the technology is new, as is the business model...as late as three years ago blockbuster and hollywood video were saying that streaming was never going to amount to much. The bar now is that a decent sized library is required but it is expensive to rent content, but some companies have both the money anf the hosting ability to do it...Google could right now buy Hulu and do a deal with Starz and then Netflix would be sunk. I give it 6 weeks before we hear of this deal or one like it.

I hope you're right and multiple providers do get into it. I have no particular allegiance to NetFlix and I'll stick with whoever has the best content at the best price, but the only type of service I'm interested in buying is a flat fee for unlimited streaming. I'll be anxious to see if anyone else offers this. If it's so easy to do, it's a little bit perplexing that nobody else has done it yet.

I would also like to see multiple service vendors of this type of content be funneled through my Apple TV box because its interface is so convenient. I guess I'll have to wait for Apple to step up to the plate on that front.

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The stock was down again today....the stock has now lost almost 2/3 of its value in 3 months, rubbing out about $10 billion of paper wealth.

OOPS!

They are going to have an almost impossible job of raising enough money to buy content now.

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Evil Netflix! Bring back the good old days of $5 rentals, and $3/day late fees!

I'm sad that customer anger is holding Netflix's progress back. They need to ditch the DVD business soon and they need to negotiate content new content deals where they will have to pay more to content owners. They are in a tough spot trying to fight for much cheaper distribution for all of us (the main reason their streamable content is sparse is because content owners are clinging to much more expensive content distribution mediums such as DVD sales).

I would gladly pay many times what Netflix charges for more content. If I could get pretty much any TV show or movie there I think it would be an absolute steal at any price under $60/month (if you compare it to cable and ala cart movie rentals a la carte it's cheaper than the predominant mediums of today). I hope they can nail down the content contracts they need to at the prices they are at but it is not going to be easy.

Here's to excruciatingly-slow progress anyway though, hope they can make it work.

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@rosborne979,

You might be interested in a Roku, its like Apple TV, costs $60, and does Netflix, Hulu and Amazon Prime. Right now that is pretty much the entire streaming marketplace worth speaking of.

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@Robert Gentel,

Quote:

I'm sad that customer anger is holding Netflix's progress back.

Netflix management is holding Netflix back. This business has almost no cost other than content, like with texting which the phone companies once got away will charging us 30 cents for even though it cost them a fraction of a cent to deliver we are now with it enough to know when we are being taken for a ride. I think that the I-tunes movie pricing model of $3 or $4 for one movie, of which surely about 99% is profit, is outrageous. In a recession/depression we are not going to stand being held up for ransom like that, these boys are going to have to pass up some of the gravy they think they have coming to them.

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@hawkeye10,

hawkeye10 wrote:

This business has almost no cost other than content,

They have datacenters spread all over the country (perhaps the world).

That's how they deliver content so quickly; they're not limited to one Internet connection, and the movie your streaming is probably coming from your region.

And the content providers are not selling all of their content. They think people will do things like pay $60 to rent Thor in between the theatrical and DVD release windows.

Never mind that very few people are actually willing to pay that; that's what they think they should be paid, so that's what they charge.

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@DrewDad,

http://www.techdirt.com/articles/20111007/02570316246/no-one-wanted-to-pay-30-in-home-movie-rentals-so-now-universal-will-try-60.shtml

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@DrewDad,

DrewDad wrote:

hawkeye10 wrote:
This business has almost no cost other than content,

They have datacenters spread all over the country (perhaps the world).

That's how they deliver content so quickly; they're not limited to one Internet connection, and the movie your streaming is probably coming from your region.

And the content providers are not selling all of their content. They think people will do things like pay $60 to rent Thor in between the theatrical and DVD release windows.

Never mind that very few people are actually willing to pay that; that's what they think they should be paid, so that's what they charge.

From 2009, and since then many of the costs should have gone down

Quote:

Based on the three cents per GB assumption, that means it would cost Netflix about $0.06 to deliver one SD movie and $0.09 to deliver one HD movie

http://seekingalpha.com/article/126523-detailing-netflix-s-streaming-costs

from 2010

Quote:

But despite a huge increase in the amount of video streams it’s serving up through Watch Instantly, Netflix’s streaming costs haven’t increased proportionally. In the second quarter, the company said costs associated with delivery over third-party CDN networks only increased by $1 million versus the previous quarter. Netflix is benefiting from bandwidth costs continuing to fall exponentially as it grows its streaming business.

So the real cost of running its streaming business is in acquiring the content, not delivering it.

http://gigaom.com/video/the-real-cost-of-netflix-streaming-is-the-movie-not-the-bandwidth/

from 2011

Quote:

Two years ago, Netflix paid about five cents to stream a movie and today, pays about two and half cents

http://blog.streamingmedia.com/the_business_of_online_vi/2011/03/netflixs-streaming-costs-drop-50-from-2009-expected-to-spend-50m-in-2011.html

Care to try again Drewdad to justify Netflix's streaming prices?

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@DrewDad,

DrewDad wrote:

hawkeye10 wrote:
This business has almost no cost other than content,

They have datacenters spread all over the country (perhaps the world).

I know they use Amazon's servers in multiple availability zones (not sure if they've used any of the non-US zones yet, but it would make sense now that they just launched in Latin America to) but the real deal on infrastructure costs for them must be bandwidth. During prime time, up to 20% of total US non-mobile downstream bandwidth is taken up by Netflix streaming.

And if ISPs are allowed to violate network neutrality that can be a cost that kills them, because cable companies are what their medium is making obsolete, and cable companies happen to be the owners of many of the pipes they stream through as well as the ones who can currently afford the most to pay for content. They not only have the most motivation to kill Netflix but they are very well positioned to do so. It's a very delicate tug of war game that let's them peacefully co-exist but the rights holders and cable companies are going to come into the modern world kicking and screaming while they fight it every step of the way. They absolutely do not want to turn the entire TV industry revenue over to Netflix, this is a war over many more eyeballs than the entire Internet has right now.

With the business world that Netflix operates in, it always amazes me that they exist at all. I am rooting for them, and willing to pay what this very awesome service is worth because the distribution medium is infinitely more convenient to the end-user than television.

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@hawkeye10,

hawkeye10 wrote:

Care to try again Drewdad to justify Netflix's streaming prices?

What do you mean? Their prices are very low. You are absolutely right that their infrastructure costs are not their major costs in the streaming business but that does not mean that they have huge profit margins. I've read it reported as around 7% and those details reflect previous prices for content. The content owners now want a lot more for the rights and Netflix has been losing content this year. They tried to adjust price to reflect the content world they were living in but lost subscribers instead, and scale that they need to make that profit margin.

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@hawkeye10,

hawkeye10 wrote:

Care to try again Drewdad to justify Netflix's streaming prices?

Is that what I'm doing?

Actually, I was pointing out that there are significant costs other than content. Small in a relative terms to what they pay for content, but still significant.

The low marginal cost for delivering content means that they need economy of scale to make up for their high fixed costs.

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@hawkeye10,

I think you fundamentally don't understand that they are held hostage by content rights-holders and have no say at all in it and that they are simply change agents in a painful paradigm shift for the content distribution industries.

Right now content owners still make more money from broadcast TV rights (which often require exclusivity periods) and DVD sales (which need exclusivity to make sense at all) of their content, and this revenue stream is directly cannibalized by the fundamentally less profitable streaming model (for the price of one DVD you can watch all day long, every day, while a couple others in your household could as well, there's no way to make the economics of that make sense compared to the old mediums they were gate-keepers of).

The fundamental business model of unlimited streaming for a handful of dollars a month means they will lose on this revenue forever. It will not ever be the same because the distribution of content is democratized. So they are basically going to hang on as long as they can, and try to screw Netflix over as much as they can while still hedging their bets with Netflix with the content they don't care about.

They will do this because if Netflix becomes THE place for this, like iTunes has the majority of the digital music market, they will be able to dictate more favorable terms, like iTunes has been able to do for music for some time in an example they want to avoid (but they are still not able to for TV, movies and Books, even though Steve Jobs shared your opinion that the price was exorbitant and tried to get them to try lower pricing in the last year before he died). If they move too quickly to become THE place themselves, then they hasten the demise of these revenue streams. So what they do, is become the obstructionists, just trying to stem the bleeding on their watch. They also started HULU themselves but aren't doing very well at it with the whole shooting yourself in the foot thing they have going on if you look at it long-term.

So until some streaming service gets enough clout to break this grid lock, we'll just have to wait for old mediums to die off more slowly. That is why you are silly for blaming Netflix management as they really just need to try to inch their way forward and survice, they have little other choice. And you really ought to cheer for them if you want a better service as they've done nothing but advance your cause. What they provide is a fundamentally more convenient and fundamentally cheaper service than the people who are obstructing them.

Edit: and if you think that HULU is a great buy, remember that the content owners that started it are backing out of it and will guarantee the content rights in a sale for something like 5 years. That only means you have bought a license to the content for 5 years, as that is all the entire company is worth. If they don't plan to play nice (and with YOU) after that then you could be the proprietor of an expensive lemon.

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@Robert Gentel,

Quote:

I think you fundamentally don't understand that they are held hostage by content rights-holder

I do get it, and they will need to take less gravy then they think they have coming to them. I think content owners look to streaming to be windfall profits, but I also think that the massive price increases that they mean to force onto the market during a recession/depression is going to very quickly make the end consumers think that we are dealing with another round of price gouging like we put up with for years with pay per view. I think that consumers are more wise about the price providers demand verses their costs, will see immediately that almost all of the price is profit, and in this economy we will refuse to pay it.

Does pay per view even work for sports anymore?? I think that that model is dead, because customers refuse to pay the freight. "Hollywood" seriously needs to get a 2x4 upside the head, now compounding their failure to provide decent movies year after year and to a lessor extend good television they are moving to suck a fist full of Jackson's out of our pockets every year to watch this mediocre content on streaming, a medium that is almost pure profit. I think they will meet with stiff resistance, that they assault on Netflix over the last few months for trying to raise prices like the content owners want to see is just the beginning of the rebellion. The Music companies also long took for granted the American consumers willingness to pay more though nose every year for their product, and look where they ended up....eventually we get to ENOUGH!

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From a CSMontitor article/list of 5 Netflix alternatives:

Quote:

5. Getting a life

Seriously, how much of your time on Earth do you want to spend staring blankly at a glowing rectangle? Here you are doing it right now, hoping to discover a service that will let you do it some more. How about just canceling your Netflix subscription using the money to do something else? Phone up an old friend, play a board game, go out for ice cream, or save up for a trip somewhere.

http://www.csmonitor.com/USA/Society/2011/1010/How-Netflix-went-wrong-Qwikster-was-good-for-company-not-the-customer

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@hawkeye10,

If you truly get it, you wouldn't be blaming Netflix and would recognize that it's the intransigence of the rights-holders that is holding this service back and dictating price increases. The Starz licence expires February next year. Netflix paid $30 million for it the first time, offerred $300 million the second time but Starz turned them down. The content-rights holders, and current distribution gate keepers are the ones who do not want Netflix to succeed. They want scarcity for their product. They do not want you to have an all-you-can-eat buffet. They didn't even want the DVD mailing to work, but Netflix can just buy the DVDs.

Netflix had a bad PR year, but they aren't the ones bungling this. The situation sucks because the old world is clinging on to profit streams that are going to go away. Raising the price in the recession is not going to go over well, but if they didn't the alternative would be to just reduce the service (much less content) or perhaps even going under. As it stands, even with the price increase they aren't able to keep the biggest content license that they had and none of this is their fault. If it were up to them, you'd pay a low fixed price for all the content that is out there whenever you want and it doesn't make sense to blame them for this rough year, all Reed Hastings is guilty of is not following his gut. Because his gut is right.

But when the customers went apeshit (and remember, the price for unlimited streaming is only $8/month, this is a GREAT deal) the stock tanked, and then the major investors in Netflix went apeshit and called him to a meeting where he said he felt he might need taste testers and they insisted that he backtrack. Too bad, because stock prices are very transitive and his gut was right. This is all a step backwards for the end-user and I wish the customers had a longer memory than this:

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@Robert Gentel,

Also, for people who don't get what Quikster was about. They want out of the DVD mailing business. It has huge infrastructure costs to them (I've read that it can cost them close to a dollar sometimes to mail and receive 1 DVD from some customers) and is an old, archaic, and utterly inefficient distribution medium compared to the internet.

They wanted to start separating it out because it's not something they will be doing for much longer, and that is still the case. They'll merely keep it bundled till then (till they sell or kill that service) but the only thing that changed was timing.

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Netflix doubles-down on the derp

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