Netflix is being hammered again today over reports of lost customers and projected losses following price increases over the summer and a quickly canceled plan to separate its streaming video and DVD delivery services into separate businesses. There are some very dire predictions floating around about the ability of the company to sustain the business model that originally made it such a success.
Now, it's important to put these problems in perspective. Losing 800,000 subscribers sounds a lot worse before you add the context: That's from a base of between 24 and 25 million. Of the people who had Netflix before this last quarter, something like 96 or 97 percent of them still do, despite the substantial price increase. But Netflix does have a problem it didn't used to have, which is a level of grumbling that's changing the relationships it has with subscribers in a way that could make some of those subscribers look for other options.
Think of it this way: Netflix is still dominant in its area and that's not yet close to changing. But at one time, so was MySpace. Not an entirely fair comparison, no, but there are enough competitors around, and Netflix is reliant enough on licensing deals that it has to be able to renew (as it recently didn't with Starz) that the relationship it has with customers is potentially fragile — partly because of the push toward streaming video that Netflix itself has been making.
What people loved about Netflix in its early years was (1) convenience and (2) selection. DVD delivery was so much more convenient than going to the video store, but now it's so much less convenient — both for you and for Netflix — than streaming. DVD delivery has gone from the "I can't believe how easy it is!" option to the "it's kind of a hassle; what am I, a pioneer?" option in a few short years. What can we say? We're fickle people, we moviegoers. Thus, the push to streaming.
There have definitely been bumps in the road to making streaming convenient. From a consumer perspective, if you're going to lean on the convenience of streaming video for your movie-rental needs, as Netflix has been encouraging people to do, you're going to want to set yourself up with equipment that makes that more appealing than watching on your laptop or what have you. If you like your picture teeny, that might be your phone. But if you don't, perhaps that's an iPad, perhaps it's another tablet like the Amazon Kindle Fire (which reportedly won't support Netflix, at least at first), perhaps it's a standalone set-top box like Apple TV for Apple people or Roku for non-Apple people. It might even be a Blu-ray player that incorporates streaming capabilities. But once you do the setup, streaming is relatively convenient.
The problem is that Netflix wasn't able to bring the selection advantage over to the streaming side. In some areas, the streaming selection is terrific — there are plenty of classics and independent films and cool documentaries, and there's a solid (though not comprehensive) selection of television, both comedy and drama. People who say there's nothing good in the Netflix streaming library aren't trying. But for people who use movie rentals to see recent theatrical releases, Netflix streaming often leaves them high and dry — unlike the DVD service.
And while Netflix likes to compare its catalog to things like Amazon Prime, a limited crop of films that can be streamed free at Amazon for the price of a subscription, it ignores the fact that Amazon and iTunes have something Netflix doesn't have, which is a la carte streaming rentals of recent films. For instance, at Amazon or iTunes, you can rent Fast Five, or The Tree Of Life, or Horrible Bosses, for a few bucks. (You can also buy them in digital form, if you choose.) And once you make it convenient to watch streaming video, it's convenient to get it from anybody. That puts the focus back on selection, and that's a problem for Netflix with certain customers who may not be likely, in the long run, to both pay for a Netflix subscription and rent recent releases from other providers on top of it.
If you like classic films or offbeat ones, they have plenty to offer. But if you're looking for what's come out recently and you want the convenience of streaming, you get those films as single rentals, and not from Netflix.
The business models of the future may very well not look like any of the models we have now. Cable companies want you to eventually just get all your video streaming from them. Amazon and Apple both would tie your streaming video tightly to devices you purchase from them (tablets in particular). It's all complicated by companies like Comcast, which is both a cable company and a content provider. Nobody is saying this is an easy problem to solve, and for the time being, a patchwork of services they can use for different services may actually serve consumers pretty well.
Netflix has the enormous advantage of a base of more than 20 million subscribers to work with, but for the moment, they've moved off the initial convenience/selection sweet spot that earned them all that loyalty in the first place. It's a scramble at the moment for the content deals that are going to keep streaming services going in the future, and Netflix has certainly been apologizing and explaining and trying to keep everybody on board while they try to make those deals. Perhaps they'll change leadership, or perhaps they'll come up with a premium deal to lure folks back or keep them from leaving. The long-term solution, though, lies in the content, because as long as they can't find the recent movies they're looking for in the streaming library, customers are going to remain restless.
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