Netflix’s VOD Dilema

Dave Zatz —  September 23, 2011

It’s been an interesting week for Netflix. Beyond their befuddling division of labor and branding, surely motivated by business considerations unrelated to the customer experience, they’re also rethinking their stance on video on demand. In addition to their current slate of all-you-can eat video streaming, Netflix may also be open to the idea of renting individual titles. From Dan Frommer’s excerpt of a recent Netflix CFO David Wells presentation:

You know, traditionally what we said about VOD was it’s a low-margin business, we weren’t that interested in it because it sort of complicated the simplicity of the offering. I think in today’s sort of evolving and changing world, we’d look at a number of different options. In terms of making it convenient for folks to find that content rather than going to a competitor, to another site, we certainly would look at it.

By forking off their DVD service as Qwikster, with separate websites and billing, you’d assume Netflix no longer fears complicating things. And given the escalating costs of online rights in relation to Netflix’s flat rate streaming offering ($7.99/month), I suspect their current margins will shrink — reducing that point of comparison as well.

But even if we’re misreading those elements, Netflix could impact any licensing leverage they have by also undertaking individual rentals. Further, whereas many industry players don’t currently see Netflix as a direct competitor, there’s no way a cable box or the studios would allow a competing video on demand service… effectively killing those initiatives before they get off the ground.

Meanwhile, given the presumed loss of (SD) Starz current release content in just about 5 months, Netflix will further spotlight back catalog movies versus new Hollywood blockbusters. At the same time, Amazon offers both free instant streaming (to Prime subscribers) in addition to a large catalog of video on demand. Which is why they’re getting more of our money these days.

18 responses to Netflix’s VOD Dilema

  1. I reduced my netflix account to streaming-only the night before the Qwickster email went out to all subscribers.

    Receiving that email reaffirmed my decision.

  2. “Amazon offers both free instant streaming (to Prime subscribers) in addition to a large catalog of video on demand. Which is why they’re getting more of our money these days.”

    And if you’re willing to pay for a-la-carte titles, TiVo is the best playing experience for Amazon VOD, due to the caching and high bit-rate.

  3. Interestingly, I happened to make this observation a few days ago in the Roku forums. It seems obvious to me that the two things Netflix should do before anything else – not counting the obvious, which is to hang on to existing content – is to work feverishly on increasing the quantity of HD titles and add a VOD branch to their service. As it is now, I tend to use Amazon, Vudu or Zune (via Xbox) when I’m looking for new content to rent or purchase.

    I would much rather have the ability to go to one site for which I pay a monthly subscription fee for generally older content and the ability to pay-per-view (or purchase) newer content. Even though Netflix possesses a larger catalog than Amazon’s, I would drop Netflix tomorrow if Amazon’s service was available on more devices (e.g. PS3 or Xbox) because of the Prime subscription/VOD combination and videos that offer better PQ.

  4. My previous Netflix plan was to drop DVDs. BUT, to occasionally switch from a monthly streaming plan to a DVD plan so that we could catch up on recently released DVDs. The separation of NetFlix/Qwixster shot that plan down. I’m thinking Netflix has jumped the shark.

  5. I feel like this separation of services was meant to undermine the “flippers” like myself, using the DVD-only service one month, the streaming service the next month, depending on where the good content is. That simply may not be feasible now and I am not happy about it. My 2TB Tivo has a ridiculous amount of unwatched content, and I should just consider watching that and save a few bucks and a whole lot of trouble.

    I sure wish Amazon Instant Prime would come to Tivo or PS3; now that could get interesting!

  6. The big problem I have is that I will lose my rental/rating history if they split that. I rely on that to tell me if I have watched a movie and for finding new movies without having to plow through ones I have already watched.

    At the moment, I just watch blu ray disks, but an occasional stream for things that will probably never be on bd. The hd stream on the roku is pretty good, better at managing the connection than my bd player.

    I’m bd only now but I may add streaming back before the my cycle on the 27th in hopes of maintaining my history for the official split.

    I wish they had just grandfathered me in at $24 a month…

  7. Its nice to have two companies competing for worst communicators of the year award–HP and Netflix. Do you think Reed Hastings was replaced by an alien pod being or something? Wow, what a fabulous series of mis-steps.

    I was in fact considering subscribing to Netflix streaming to get access to “House of Cards” whenever it comes out. Just to see. Now I’m not so sure.

    Like others what I mostly want is access to new movies, which I get from my Apple TV. When I want a TV show I either have to buy it from Amazon or buy it from iTunes. The reason I’d consider Netflix is for some back-catalog TV show access. Like right now I’m working my way through Breaking Bad. Once that’s run out I’ll probably take a shot at Justified. If I didn’t already have these on my Tivo backed up by TTG storage on my desktop.

    I’ll still think about it at some point, but I’m less likely to subscribe now than I would have been, even if I was never interested in doing the disk thing again, just because Netflix has lost so much of their goodwill. Will be interesting to see where this shakes out.

    There are lots of sources for me to look for things these days. Xfinity app on iPad/laptop for Comcast VOD catalog. HBO Go ditto. Hulu on laptop. ABC/CBS/TNT/TBS apps on the iPad. Most everybody’s web sites on the laptop. Etc. And that’s assuming I have the spare time to watch it all.

  8. I think the cable companies smell blood. Or at least FIOS does. They rolled out iOS VOD-only apps last week- very little fanfare (ok, none) and they suck- functionality is horrible and they just don’t work – almost all 1-star reviews on iTunes. So they must have rushed that out.


    They’ll fix it soon enough. And they’ll have a product that’s easy for technophobes who think plugging in a Roku is beyond them and who want to get their VOD everywhere, including the TV in the den. That is more or less what happened to TiVo: consumers went for the ease of the all-in-one boxes that Comcast and TimeWarner installed and maintained for them.

    Movie studios may prefer to deal with FIOS and Uverse because they come with a built-in customer base and the ability to promote the VOD content.

    Stranger things have happened.

  9. *crickets chirping*….. waiting for HDHomeRun unit review…..

  10. Have been an Amazon Prime member since spring so when Netflix started charging for instant, I dropped them. I now get Amazon Prime for instant movies and a Blockbuster disc.

    The one disc at a time I now get through Blockbuster is BlueRay at the same price as Netflix’s (one at a time BlueRay) plus since there is a Blockbuster store (yes, some still exist) in my town so I can do an in store trade once in a while.

    Sure has been fun watching Netfix’s CEO being totally arrogant (“We know we will loose some patrons but we can take the hit”), then when the hit came he began to grovel big time. Would like to see Comcast’s CEO do the same.

  11. “There are lots of sources for me to look for things these days. Xfinity app on iPad/laptop for Comcast VOD catalog. HBO Go ditto. Hulu on laptop. ABC/CBS/TNT/TBS apps on the iPad. Most everybody’s web sites on the laptop. Etc.”

    Yup. Lots of sources for non-lean-back material.

    Lean-back, as always, is a different story…

  12. jon, If Netflix did DVD, streaming, and VOD I’d give them all my money. I prefer the one-stop shop approach.

    Alan, I did get some press outreach from Verizon regarding their mobile VOD service. So I think they were hoping for a bit of fanfare. But perhaps most responded like I did – “meh.”

    Mark, trying to decide how I’m going to cover the Prime. Think I’ll write up accessing it from a Virtual Machine first and also from an iPad. So far I’m pleased. It’s out of the way in the basement, but the three digital tuners are available anywhere/everywhere in the house.

  13. My impression about Neftlix VOD is that I doubt that they could provide better A/V quality than Vudu, so why would I use their service? I don’t for a minute think that I’m typical but I do think that many people would wonder what Netflix could provide that their cable or satellite company doesn’t already offer.

    Perhaps Netflix’s offerings could be price a dollar or two less than Comcast’s or Verizon but the latter two are a much less fraught experience: no worrying about bandwidth or server congestion.

    Hastings, I believe, really screwed the pooch on this one: he committed to streaming without really controlling content or distribution. With DVD rentals, he had a handle on both. He is so fixated on the “future” that he has lost sight of the present.

  14. Reed needs to explain why Netflix needs to split itself in two in order to make sure they don’t mess up streaming, while somehow Amazon has been able to embrace digital distribution without splitting itself into a million pieces.

    Especially given how inconvenient the split is going to be for its customers.

  15. Yeah, I suspended my Netflix streaming last week (dvd’s were gone long ago) and signed up for Amazon Prime. They’ve got lots of seasons of things I was catching up on with Netflix anyway and if there’s something I really NEED to see I can just get it a la carte.

    Mostly I’m just tired of the shenanigans over there at netwikster.

  16. If people didn’t catch it, Amazon Prime just signed a deal for access to a bunch of Fox shows, including Buffy The Vampire Slayer (if you haven’t ever seen it, you really should), X-Files, and others. Not saying their line up can compete with Netflix Instant Video yet, but its making progress…

  17. Netflix would be wise to look at a hybrid model of their streaming service and something to directly compete with the offerings of Vudu, Amazon and Blockbuster. Its just smart to take what the compitetion does best and offer it along side what you do best. I don’t want one side or the other to win in the battle of Netflix vs Blockbuster. I want my side to win :)

  18. What George & Glenn said – I’ve switched to 1-dvd-out on Netflix.

    I have long used Amazon video on my Tivo (downloaded, Tivo can’t stream) and it has been a great addition to my OTA-only TV viewing.

    I primarily use it to subscribe to commercial-free TV episodes in HD (under $3/episode)

    I’ve now added a $100 Blu-ray player to stream the free videos offered to Amazon Prime customers.

    The Blu-ray player can’t add apps, but at that price point I can easily replace it or add something else (e.g. AppleTV)