ReelThoughts: September 27, 2011

"The Great Netflix Customer Rebellion"

Commentary by James Berardinelli


When it comes to Netflix's streaming service, the promise is in the premise, not in the execution.

My ideal future movie service would be something that allowed me to box up all my DVDs and not buy another one. I also don't want to have to worry about storing large files on a hard drive, either. What I want is a distant repository of every available movie that I can browse through and access at any time from any location. And I'd be willing to pay a monthly subscription for that. Considering that I pay about $200 per month for my combined cable-and-Internet access, $50 to $100 per month for movies doesn't sound too bad. (I first wrote about it in a January 2009 ReelThoughts.

For a while, it looked like Netflix was headed in that direction. I liked their disc-and-streaming plans. I could work my way down a DVD queue and, while the discs were in the mail, I could stream some lesser-known (or simply lesser) titles. Netflix's decision to split the two halves of their business is understandable in the long run (they claim they need the additional revenue to be able to sign the more lucrative contracts necessary to bolster their streaming library) but it was done so ham-handedly and with so little thought regarding negative consequences that one wonders if they are as far-thinking as they have been given credit for.

Netflix's ultimate goal is to get out of the DVD business. This is well understood and, given the home video landscape, it is the prudent decision. Ten years from now, it's hard to imagine the DVD/Blu-Ray market thriving. Those who buy movies will be downloading them. Discs will be the province of collectors, like LPs are today. Twenty years in the future, many houses won't even have a means to play a DVD or Blu-Ray so, from a long-term survival perspective, phasing out DVD shipping is the way to go. Give Netflix credit for recognizing this.

Give them credit as well for realizing the stream-as-many-as-you-want-for-a-single-monthly-subscription-fee is the customers' preference. But here's the problem: Netflix's selection sucks. It's not just mediocre. It's downright shitty. The subscription price is cheap - about the same cost as a single theater ticket - but considering what they're offering, one could argue it's not worth half of what they're charging. The Netflix streaming library consists primarily of three types of movies: newer, mostly obscure films, many of which never made it into theaters; older films that have been around on DVD for two-to-five years and have exceeded their "sell by" date; and a disappointingly low number of classics. What you won't find there: recent major theatrical releases, foreign and independent films anyone has heard of, Disney animated movies of any vintage, active franchise entries, and anything that might still have a DVD audience.

For fun, I did a little experiment. I checked to see how many titles on my personal Top 10 list are currently available via Netflix's streaming video. All ten, it should be noted, can be rented on DVD from the company. Only one, Patton, can be streamed. If I expand the list to the Top 20, the count gets a little better, with 2001, Raging Bull, and Cinema Paradiso joining the party. Still, four out of 20 isn't good. That's 20%. For a service to be useful, it needs to get closer to 50% and for it to be invaluable, it can't dip much below 100%.

For step two of this thought experiment, I picked 20 "comfort movies" - mostly genre titles I own on DVD and/or Blu-Ray and that I know I will re-watch at some point in the reasonably near future. You know the kind of movies I'm talking about - the Star Treks, Aliens, Star Wars and so forth. I found three of these: Star Trek 2009, The Terminator and Before Sunrise. The 15% here is in line with the 20% for the Top 20.

Final stop: I picked ten movies for which sequels and/or remakes are arriving in the near future (with the idea being that I might want to refresh my memory by re-watching the earlier version/installment before going to the theater to see the new one). I whiffed ten times. Curious note: Conan the Barbarian (the 1982 version) was not available for streaming before the new movie came out. Two weeks after the 2011 debacle bombed, the Schwarzenegger edition became available - an indication that the studio realized they may have overvalued the property.

To be fair, it's not entirely Netflix's fault that they're running at about 20% when it comes to "desirable" titles. A lot of movies are not being offered to them or are being offered at a price that would force them to double or triple the subscription cost. But, while a load of obscure/crappy/old titles is a great add-on to an existing product (the by-mail DVD service), it's a no-go as a stand-alone service. The bottom line is that Netflix should have taken the time to beef-up their streaming catalog before embarking upon this venture.

I spoke to a representative of Paramount Pictures who was willing to go on the record as long as he remained anonymous. We talked about Star Trek since that is viewed by many to be the most valuable property owned by the studio, even if its value has declined in that last ten to fifteen years. I expressed some surprise that Paramount had allowed Netflix to have the 2009 Star Trek movie for streaming but was withholding the original 10.

Regarding the 2009 film, he said that the "primary" home video revenue stream lasted about six months, or until the middle of 2010 (about a year after the theatrical release). At that point, the "secondary" stream kicked in. However, by the end of 2010, Star Trek had grossed about 98% of what it would ever make, so why not give it to Netflix? It would enhance the package and would give the movie wider exposure. New fans might be born this way, which could lead to additional future revenue for a sequel and/or future TV shows.

His views on '80s Trek were different. He first pointed out that those movies had at one time or another been available for Netflix streaming but neither Netflix nor Paramount considered them to be "primary" offerings. The market for them is small and those who want to see them probably already own copies. Paramount would be willing to make them available again but Netflix is balking at meeting the price because their tracking of "hits" on those movies underran expectations.

The story is much the same with other high-profile movies. The studios will not give them up during the 18-24 month primary/secondary revenue period following their releases and, even after that time is over, the titles can still be prohibitively expensive. One of the reasons a number of movies become available for Netflix streaming for a limited period is so the company can assess the cost/benefit ratio. If they're paying a premium for a title, they want to make sure it's a legitimate attraction.

At the moment, I'm paying for both services and I'm not grumbling about the price (at least not too much), but I can understand why some are. Netflix has effectively taken something away from customers and that's always a PR problem. The DVD-by-mail package is now strictly that, with no freebies on the side. The signal-to-noise ratio of the streaming package is distressingly low and there's no fallback to checking the mailbox for the next title on the queue. When married, they were an excellent couple - not perfect, but as near as one could get in this economic/business climate. Divorced, each has a number of glaring flaws.

Perhaps the thing that rankles the most about how Netflix handled this is the decision not to offer discount packages for those who keep both services. If streaming video is $X and direct-mail is $Y, someone who wants both must pay $X+$Y. Why not bundle them and offer a 10% discount? Or, if someone is willing to prepay for a year, a 20% discount? I can't help but think that if Netflix had thought this through and hired a crack PR team, they wouldn't have faced the fallout that's currently occurring and the vultures (Amazon, Blockbuster, etc.) wouldn't be circling as excitedly, sensing an opportunity to steal market share. The simple fact is that Netflix should have kept streaming as "value added" until such time as it was ready to represent true "value" on its own. I guess I'll have to wait a while before boxing up the DVDs.


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