The Watchtower of Destruction: The Ferrett's Journal - Netflix: What The Fuck, Man?
September 19th, 2011
11:52 am

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Netflix: What The Fuck, Man?

In discussing my twelve-year marriage, I referred to it as “The best decision I ever made” and “nothing can derail us but for an external force.”  So it’s kind of funny to look over at NetFlix and see a separation that appears to be the result of bad decisions and derailings a-plenty.

If you’re not familiar with Netflix’s new separation announcement into NetFlix and Qwikster and Chapter 13, I think Blergeatkitty sums up my initial reaction pretty damned well.  Why the fuck is splitting into two separate companies somehow better?

One suspects that Netflix is not quite as dumb as this, or at least one hopes; I know the movie companies (who hate this “intarwebz” thing and are doing their damndest to destroy any legal usage of it) are all pissy at Netflix for being better at it than they are, and I wouldn’t be surprised at all to discover that there was some complex set of hidden pressures that’s forcing Netflix to separate into two companies or subtly have their business model destroyed.

But if that’s the case, then Netflix can never say anything about it, because in the end when they moved to streaming video, they became dependent on the good will of the movie studios.  When they were sending out physical DVDs, they could say, “Yeah, Starz, go fuck yourselves.  See that?  We’re buying 10,000 of your DVDs through Ingram, so take your profit and eat a big one.”  Now they have to cultivate relationships to ask, “Please, sir, may I stream the latest Michael Bay movie today?” and the movie companies can tell them to eat a big one themselves.

That means whatever elephant dung they get handed by the studios, they have to smile and pretend it’s candy.  And never mention how badly they’re screwing themselves.  Kind of like Apple and iTunes.

It’s a weird business model, one that none of us fully understands (and, one suspects, neither does NetFlix themselves).  There were probably some rather heated behind-the-scenes meetings that I’d love to hear, because this separation of business models can’t be easy, and they must have been forced into by something.  Lord knows what.

In the meantime, a Tweet from Wonderella sums it up for me: I just got an email from Netflix’s CEO telling me to – and I’m paraphrasing – “Please start torrenting.”

Your predictions as to how long NetFlix lasts start…. Now.

Cross-posted from Ferrett's Real Blog.

This entry has also been posted at http://theferrett.dreamwidth.org/149801.html. You can comment here, or comment there; makes no never-mind by me.

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(60 shouts of denial | Tell me I'm full of it)

Comments
 
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From:bart_calendar
Date:September 19th, 2011 04:06 pm (UTC)
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I suspect this is all related to recent changes in how the FTC enforces recurrent billing plans. NetFlix was on a recurrent billing plan and pretty much any company that has recurrent billing is suddenly restructuring in order to avoid FTC bullshit.

One of the things they'll get you for is if you change your pricing structure in the recurrent billing plan and have it set up as an opt-out (i.e. if you raise the prices on your recurrent billing you can't have it be a default action where you make the charges unless the customer says "I cancel my subscription. You have to make them opt-in and agree to the new billing plan.)

One way around this is you get an exception if you are a "new" company - even if the new company is handling the "old" company's customers.

And, the FTC isn't fucking around on this at all. My main client was operating 188 websites. To comply with the law he tried to change his recurrent billing system into the new standard of compliance but his programmers forgot about three of his minor sites - which didn't really bring in much income so nobody at the company thought about them.

The FTC noticed, however, and froze all of his personal and business assets on Wednesday and are now making him jump through a billion legal hoops - even though he is more than willing to fix the sites or shut them down or refund every single person who got billed accidentally on those three or four sites.
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From:theferrett
Date:September 19th, 2011 04:19 pm (UTC)
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I didn't know that. That's kind of scary.
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From:mariadkins
Date:September 19th, 2011 04:08 pm (UTC)
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wow
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From:aiela
Date:September 19th, 2011 04:08 pm (UTC)
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I fully expect that the plan is to sell off the DVD-shipping Quick/k/x/ster and go streaming only. I used to follow a girl on LJ years ago who worked for them, and when streaming started, she basically said that they've planned to be streaming-only right from the start, they just had to get into the DVD shipping business until tech caught up.

I don't see how streaming-only can keep them in business, though.
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From:theferrett
Date:September 19th, 2011 04:20 pm (UTC)
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Nor do I. It's a much tetchier business model. You have to appease a lot more people, that seems to lead inexorably to an HBO/Showtime-style split.
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From:fengi
Date:September 19th, 2011 04:09 pm (UTC)
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Think about it. Netflix is a victim of its own success.

When it drove all other rental companies out of business and signed up thousands of suscribers who ceased buying any DVDs, it also undermined the market which supported affordable production of its supply.

As Netflix is only a service, not a retailer, which means being a monopoly isn't necessarily good for its bottom line. It also meant they couldn't ignore streaming which was also drying up their DVD supply.

It also made itself a target for content providers, given them more reason to cultivate formats and business plans which Netflix couldn't dominate.

What Netflix did do is become a near monopoly then shift customers from a pay per use model to a subscription model, leaving them more subject to price hikes and changes in terms. Hollywood would have eventually forced a move from DVDs to streaming, but Netflix accelerated it.

Netflix was a corner dealer who thought he was a kingpin, when he was really just building up the addicts until the cartels step in.

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From:theferrett
Date:September 19th, 2011 04:22 pm (UTC)
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I'm not sure if it's so much the Blockbuster-killer that the sales of physical DVDs are down. Blockbuster was a great model when you couldn't just buy it for $9.99. Then you could. And now that you can stream it, why buy anything?

Don't get me wrong, the elimination of the competition didn't help, but if the video SALES market was as strong as ever, then the whole thing would have still worked.
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From:asim
Date:September 19th, 2011 04:13 pm (UTC)
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The best explanation I've read are that mailing DVDs is a slowly dying business; still a money-maker, but doomed to a niche at some point. With their stock price falling like a stone. NetFlix needed to jettison their DVD section with a quickness, and this was the fastest way to do it.

And you forget NetFlix is at the mercy of the movie studios for DVDs, as well. There's been a number of recent cases where DVD releases have been held up or otherwise screwed with to dodge the NetFlix juggernaut. So no, having DVDs to rent isn't the leverage you imply. Either way, NetFlix has to deal with the studios and their desires, and at least streaming is high-profit/low-risk for NetFlix, compared to DVD rental.

It may not be "better". But from the POV of a company that needs a stock boost and to improve long-term profitability, the split makes some sense, given trends in the industry.
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From:theferrett
Date:September 19th, 2011 04:24 pm (UTC)
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There have been those shuffles, but there's also been some pushback on that as well. It would have led to a bigger showdown about that, IF streaming wasn't the future, and IF they didn't need cooperation on streaming.

It's probably a kind-of decent maneuver for survivability. We'll see how it works in the end.
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From:xforge
Date:September 19th, 2011 04:14 pm (UTC)
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Well, I refuse to pay for premium channels (I want to be rid of cable altogether but that's not happening yet) but there's still no ETA on Netflix ever having "Game of Thrones," so...
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From:andrewducker
Date:September 19th, 2011 04:20 pm (UTC)
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It's not out on DVD yet. They've not even announced a release date for it. I suspect it will ship on DVD a month or so before season two starts on TV.
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From:lysystratae
Date:September 19th, 2011 04:25 pm (UTC)
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I think Netflix is going to hang around, getting more and more tattered, like that flag the old lady down the street hung back in '73 when she was still young enough to climb the ladder, and she's too mean to hire anyone to climb up and take it down for her now.

I also think there's a very good chance Amazon is going to quietly sidle in and steal what little business they'll have left. You did know Amazon has a streaming vid department, didn't you?
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From:theferrett
Date:September 19th, 2011 05:19 pm (UTC)
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I do know. I'm watching them with great interest now, though for me the strength is having streaming NetFlix on the X-Box. Or, as my girlfriend calls it, the Flix-Box.
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From:badnoodles
Date:September 19th, 2011 04:29 pm (UTC)
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I predict that they are going to hemorrhage customers. I know I'm going to be one, because the integration of the streaming and disc-based content has always seemed such a bonus for me.

See a movie you want to rent, but can watch now? Stream that shit!
Get a movie on instant streaming that doesn't have caption support and you can't understand? Add it to your queue!

You'd think that a company founded on the premise of easily renting movies would realize that two websites is a bad idea. Two websites, with separate recommendation databases. Separate, and probably less effective (fewere data points apiece). No way to check item duplication. And two different billing accounts to handle and remember.

Unless the point is that they secretly really don't care at all about the disc-based subscribers and don't care if they lose them. I just find it really amusing that the better deal for renting DVDs is to go back to brick & mortar.
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From:merle_
Date:September 19th, 2011 04:32 pm (UTC)
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Separate recommendations and queues -- the new DVD company isn't porting over any of your current list from what I read. (they are porting over your credit card details, though.. yay!)
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From:argonel
Date:September 19th, 2011 04:30 pm (UTC)
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This seems like an awfully dumb decision from very smart business. As much as I dislike paying more separating streaming and discs makes sense so revenue and expenses can be tracked. Separating the businesses into separet websites and independent businesses does not make sense. With this announcement my wife and I will seriously discuss dropping part of our plan instead of paying the higher price.
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From:theinfamousmom
Date:September 19th, 2011 05:06 pm (UTC)
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Yeah, I got that groveling email today too. "Qwikster"?? Sounds like a nickname for the Qwick-E-Mart on the Simpsons.

I still haven't decided whether to drop my streaming account. There are things Netflix offers that Amazon Prime doesn't, and vice versa. But honestly, do I really want to pay extra for them?

I'm not into torrents, but I suspect a lot of people are thinking about it now.
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From:wdomburg
Date:September 19th, 2011 05:11 pm (UTC)
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The announcement was handled badly, but honestly? As a streaming only customer, I'm glad for the change. No more "available on DVD" clutter in my search results. If I want a shiny disc with a shiny new release, hitting a Red Box is far more attractive than adding it to a queue and waiting some indeterminate amount of time for it to arrive.

Ultimately, I think they simply care more about mainstream consumers, who are driven by impulse, than by film geeks, who enjoy maintaining queues. Whether that means they're setting up Qwikster to fail. or expect it survive serving a more niche market, or perhaps even thrive by moving into markets that cannot be served by streaming (i.e. game rental) is an open question.
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From:snippy
Date:September 19th, 2011 05:26 pm (UTC)
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It might work for you, but not for me. I don't care about new releases--I care about the vast catalog of old movies, many of which aren't even on DVD yet, but most of which are not available for streaming.
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From:radiumhead
Date:September 19th, 2011 05:46 pm (UTC)
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Im so fucking pissed at netflix right now.

The streaming and the dvds were billed to me as 2 seperate charges. They went through before my check cleared. I got billed a $35 overdraft fee by the bank for each charge!!
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From:pkthunder
Date:September 19th, 2011 07:59 pm (UTC)
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That's strange. Mine came through as one charge.
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From:lots42
Date:September 19th, 2011 05:56 pm (UTC)
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It's always 'how the fuck can we make more money'.
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From:phillipalden
Date:September 19th, 2011 06:41 pm (UTC)
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I've been a customer of Netflix since it started. I'm not big on "streaming video" although I know it's probably the future of content delivery.

I prefer getting the DVDs in the mail.

I'm also aware that many people are pissed off at Netflix's price hike.

But I'm still going to stick with them as I've yet to find a better alternative.
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From:silmaril
Date:September 19th, 2011 08:46 pm (UTC)
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This article: Another proponent of the "Studios hate to see anyone else make money off of things, NO FILM FOR YOU AT 11" view.
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From:kmg_365
Date:September 19th, 2011 09:05 pm (UTC)
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When I saw the email from Netflix in my inbox, I almost deleted it thinking it was spam.

After reading the email, the conclusion I came to was that Netflix considers the streaming line of business their growth entity. Spin off the legacy DVD company and see if you can eventually find a buyer.
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From:mariness
Date:September 19th, 2011 11:12 pm (UTC)
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Or Bart_Calendar's explanation above.

I'm not at all sure that the streaming line of business is the growth entity in the immediate future. Netflix has a lot of competition there -- Amazon Prime, Hulu, buying episodes directly from iTunes and so on. (Not to mention torrenting.) I think eventually it will become a growth entity, but it's got a bumpy road ahead.
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From:nikkif
Date:September 19th, 2011 11:32 pm (UTC)
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The most compelling argument I read said that the contracts Netflix has with studios for streaming had a maximum number of users built into them, and the total Netflix customer base recently exceeded that limit. So they separated the services so they can show that they are actually still below the limit with legitimate streaming users. (Since not everyone used streaming, even if it was technically part of their subscription.)
Combine that with the ability to more easily offload the DVD business, without reflecting poorly on getting the streaming business, and you start to get an answer.

Still, though, I think I'm going to cancel. I can get the two parts of the Netflix business separately from other suppliers. The compelling part about Netflix was having it all together. Without that convenience, I'm less compelled to put up with their bs. I'm a little sad, though. I've been a customer for a long time.
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From:fauxfire76
Date:September 20th, 2011 12:50 am (UTC)
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The wife and I suspended our account as there wasn't enough streaming that we actually wanted to watch and for the most part we're not really interested in what's coming out or what's come out in the last couple years. Given these new changes to Netflix however I can pretty much guarantee that we're just going to cancel it all together and just go with one of the boxes from now on if we want to see something recent. For everything else, well let's just say there are other options I won't go into here.
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From:cosmicbandit
Date:September 21st, 2011 01:59 am (UTC)
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My kids get a lot of mileage out of the streaming. I will stay will the dvd shipments for the reason I initially joined Netflix. I like some of the more esoteric stuff that can't be found anywhere else.
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From:jeffpalmatier
Date:September 21st, 2011 02:54 am (UTC)
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Here's the Oatmeal's take on Netflix: http://theoatmeal.com/comics/netflix
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