Correction: It is no longer separating its billing and no longer priming Quixter for a spinoff/dumping. The services are still separate and will show up (on one bill) as separate services -- one fee for DVD mailing, and a separate fee for on-demand. Which is both an economically reasonable move and also the move that made so many people mad.
The writing is on the wall for DVDs, and whether it's Quixter or Netflix, that service is going to be shuttered sooner or later. The question for Netflix, or really any streaming company, is whether it can gather enough content that people will continue to subscribe to streaming. Without relatively new movies and relatively desirable TV series, people are going to get sick of Netflix Streaming. My sense is also that the tipping point for streaming won't come until there is a combination of near-universal content and subscription model, because I don't think people are going to pay PPV prices for a la carte single-use viewing.
The problem here is the legal difference between streaming and DVD by mail. Under the first sale doctrine, Netflix (or whoever) can legally go out on the first day a movie is released to the public on DVD and buy tens of thousands of copies and rent them out immediately, without needing to get the consent of the copyright holder. For streaming, they have to get the consent of the copyright holder, and copyright holders are increasingly reluctant to provide blanket licenses--they'd rather get a PPV model.
It's not that I'm not willing to PPV--I mean, before all this began, I'd physically walk to Blockbuster and pay $4-5 to rent a DVD. It's that the constantly changing inventory of all-you-can-watch streaming makes it really hard to evaluate the difference between DVD-by-mail vs renting on iTunes or cable PPV vs just waiting for a movie to show up on TV, in terms of both $ and convenience, for the times when I want to see a movie that's not on streaming. Sometimes it seems like it's worth it to keep the DVD plan just to not have to think about it. But it's probably not.
Once people get used to something, it's really hard for them to give it up. People are used to the subscription model for movies now, and they're used to keeping something forever and having unlimited viewings if they pay $30 for it (like you'd pay for a full season of a TV show on a PPV model).
Good point. I'd be willing to PPV for movies but not for TV shows. And there's no real reason other than that's how it's always been. Well, that and I'd go broke if I had to PPV on TV shows, while I watch relatively few movies, even counting the ones I watch on TV or Netflix streaming.
I think Isaac is right about the what, but have to hope that the when will be sooner than we presently have reason to suspect.
In general I'd happily abandon slow-arriving, often scratched, hard media for a streaming service with Spotify-like depth and variety. It's current library of content doesn't quite justify even the lower charge, however, and I increasingly resent the premium price of the hard media service because so many of the disks have been arriving damaged.
I'd love to know if anyone else has had more frequent quality control issues with their Netflix DVDs in the last three months. Our single-household statistics (3 or 4 or the last 6 or 8 disks had issues) suggest that the company was well on its way to abandoning the hard media business even before the rebranding and spinoff could be set in motion.
A good point, Phil, and it's not even just a recent trend -- it was one of the things that caused us, and we were early adopters, to leave Netflix well over a year ago (the other was that we were enjoying too much actual TV for the DVDs to wind up being anything other than room decor). Disks were coming to us scratched and sometimes cracked. The cracked ones at least gave you definitive notice that you would not be watching that movie that night - what was really frustrating was getting through a solid percentage of a movie, only for it to freeze up and be essentially unplayable for chapters at a time.
We figured we can get the same iffy disk quality for free at the conveniently located branches of our local library system.
One of the things Netflix has going for it is that it can provide some things via streaming that cannot be made available on disk, either because the cost of production of the discs is too substantial (many niche TV programs have this problem, though Amazon's "print on demand" DVD service is making that happen) or because there are rights issues (typically music rights issues) that are insoluable for DVD releases but not an issue for streaming because of the contracts (Netflix now has all of Wonder Years, which can't come out on DVD due to music rights and the impossibility of using substitute music).
What content companies likely want is either to get paid based on how many times their content gets viewed rather than a blanket license, or the cable/broadcast bundle model--rather than just taking the one license you really want for X dollars, you'll take the license you really want and 35 additional titles that no one wants, but we want to promote for X + $10, because you don't get the license you really want if you don't agree to that.
If everything is being licensed, you don't have to license item by item. You can keep a 100% accurate accounting of views or minutes of views for each product, and then use aggregate minutes viewed as a denominator, thereby paying for each product in exact proportion to its use. The problem is that aggregating all content creates a much more valuable product than the sum of the products of each separate competitor (with lower aggregate costs to boot). But knowing that, each provider has an incentive to hold out for more than its proportional share of the total enterprise -- this is like the one guy with the ramshackle house in the middle of the plot the developer wants to use to build a high-rise. The developer wants to pay the low price that the house would get if there were no development, and the homeowner wants to be paid a price that reflects the high value of the obstruction to the developer.
Companies get around this in the tech industry all the time -- sometimes a technology standard requires the participation of multiple patent holders, each a monopolist who can prevent the entire transaction. But offhand I don't know of a way around the antitrust problem in this context. So maybe we just need to wait for a distributor to gain enough traction, Apple store-like market share, that it can force the content providers to deal with it.
Incidentally, the tying issue -- we won't sell you ABC for $X, but we will sell you ABC + 30 crappy titles for $X+10 -- I know that happens all the time, and the reason that it happens is that studios want to steer revenue away from things where they have to pay profit participation and toward unprofitable crap where they'll never have to pay participation. But I just want to put my Chicagoan hat back on and remind everybody that from a pure economic perspective, all that is doing is moving money around within the package. If the product ABC has a monopoly price of $100 and the 30 crappy titles have a market value of zero, then the total package will sell for $100. To the extent that you use the monopoly value of one item to extract an above-market price for another item, you will reduce the amount paid for the more valuable item by exactly the amount by which you sell the less valuable item above its market price. The price stays the same, but the internal allocation might change. That could explain why a studio might be reluctant to participate on an all-content basis, but it also might explain why participant talent might push for an all-content model.
Keep thinking of that SNL character that says "just kidding" immediately after everything she says.
ReplyDeleteNetflix CEO Reed Hastings got his MBA at the Ike Turner Business School. He's real sorry, baby, and it won't ever happen again.
ReplyDeleteCorrection: It is no longer separating its billing and no longer priming Quixter for a spinoff/dumping. The services are still separate and will show up (on one bill) as separate services -- one fee for DVD mailing, and a separate fee for on-demand. Which is both an economically reasonable move and also the move that made so many people mad.
ReplyDeleteThe writing is on the wall for DVDs, and whether it's Quixter or Netflix, that service is going to be shuttered sooner or later. The question for Netflix, or really any streaming company, is whether it can gather enough content that people will continue to subscribe to streaming. Without relatively new movies and relatively desirable TV series, people are going to get sick of Netflix Streaming. My sense is also that the tipping point for streaming won't come until there is a combination of near-universal content and subscription model, because I don't think people are going to pay PPV prices for a la carte single-use viewing.
The problem here is the legal difference between streaming and DVD by mail. Under the first sale doctrine, Netflix (or whoever) can legally go out on the first day a movie is released to the public on DVD and buy tens of thousands of copies and rent them out immediately, without needing to get the consent of the copyright holder. For streaming, they have to get the consent of the copyright holder, and copyright holders are increasingly reluctant to provide blanket licenses--they'd rather get a PPV model.
ReplyDeleteIt's not that I'm not willing to PPV--I mean, before all this began, I'd physically walk to Blockbuster and pay $4-5 to rent a DVD. It's that the constantly changing inventory of all-you-can-watch streaming makes it really hard to evaluate the difference between DVD-by-mail vs renting on iTunes or cable PPV vs just waiting for a movie to show up on TV, in terms of both $ and convenience, for the times when I want to see a movie that's not on streaming. Sometimes it seems like it's worth it to keep the DVD plan just to not have to think about it. But it's probably not.
ReplyDeleteOnce people get used to something, it's really hard for them to give it up. People are used to the subscription model for movies now, and they're used to keeping something forever and having unlimited viewings if they pay $30 for it (like you'd pay for a full season of a TV show on a PPV model).
ReplyDeleteGood point. I'd be willing to PPV for movies but not for TV shows. And there's no real reason other than that's how it's always been. Well, that and I'd go broke if I had to PPV on TV shows, while I watch relatively few movies, even counting the ones I watch on TV or Netflix streaming.
ReplyDeleteI think Isaac is right about the what, but have to hope that the when will be sooner than we presently have reason to suspect.
ReplyDeleteIn general I'd happily abandon slow-arriving, often scratched, hard media for a streaming service with Spotify-like depth and variety. It's current library of content doesn't quite justify even the lower charge, however, and I increasingly resent the premium price of the hard media service because so many of the disks have been arriving damaged.
I'd love to know if anyone else has had more frequent quality control issues with their Netflix DVDs in the last three months. Our single-household statistics (3 or 4 or the last 6 or 8 disks had issues) suggest that the company was well on its way to abandoning the hard media business even before the rebranding and spinoff could be set in motion.
A good point, Phil, and it's not even just a recent trend -- it was one of the things that caused us, and we were early adopters, to leave Netflix well over a year ago (the other was that we were enjoying too much actual TV for the DVDs to wind up being anything other than room decor). Disks were coming to us scratched and sometimes cracked. The cracked ones at least gave you definitive notice that you would not be watching that movie that night - what was really frustrating was getting through a solid percentage of a movie, only for it to freeze up and be essentially unplayable for chapters at a time.
ReplyDeleteWe figured we can get the same iffy disk quality for free at the conveniently located branches of our local library system.
One of the things Netflix has going for it is that it can provide some things via streaming that cannot be made available on disk, either because the cost of production of the discs is too substantial (many niche TV programs have this problem, though Amazon's "print on demand" DVD service is making that happen) or because there are rights issues (typically music rights issues) that are insoluable for DVD releases but not an issue for streaming because of the contracts (Netflix now has all of Wonder Years, which can't come out on DVD due to music rights and the impossibility of using substitute music).
ReplyDeleteWhat content companies likely want is either to get paid based on how many times their content gets viewed rather than a blanket license, or the cable/broadcast bundle model--rather than just taking the one license you really want for X dollars, you'll take the license you really want and 35 additional titles that no one wants, but we want to promote for X + $10, because you don't get the license you really want if you don't agree to that.
If everything is being licensed, you don't have to license item by item. You can keep a 100% accurate accounting of views or minutes of views for each product, and then use aggregate minutes viewed as a denominator, thereby paying for each product in exact proportion to its use. The problem is that aggregating all content creates a much more valuable product than the sum of the products of each separate competitor (with lower aggregate costs to boot). But knowing that, each provider has an incentive to hold out for more than its proportional share of the total enterprise -- this is like the one guy with the ramshackle house in the middle of the plot the developer wants to use to build a high-rise. The developer wants to pay the low price that the house would get if there were no development, and the homeowner wants to be paid a price that reflects the high value of the obstruction to the developer.
ReplyDeleteCompanies get around this in the tech industry all the time -- sometimes a technology standard requires the participation of multiple patent holders, each a monopolist who can prevent the entire transaction. But offhand I don't know of a way around the antitrust problem in this context. So maybe we just need to wait for a distributor to gain enough traction, Apple store-like market share, that it can force the content providers to deal with it.
Incidentally, the tying issue -- we won't sell you ABC for $X, but we will sell you ABC + 30 crappy titles for $X+10 -- I know that happens all the time, and the reason that it happens is that studios want to steer revenue away from things where they have to pay profit participation and toward unprofitable crap where they'll never have to pay participation. But I just want to put my Chicagoan hat back on and remind everybody that from a pure economic perspective, all that is doing is moving money around within the package. If the product ABC has a monopoly price of $100 and the 30 crappy titles have a market value of zero, then the total package will sell for $100. To the extent that you use the monopoly value of one item to extract an above-market price for another item, you will reduce the amount paid for the more valuable item by exactly the amount by which you sell the less valuable item above its market price. The price stays the same, but the internal allocation might change. That could explain why a studio might be reluctant to participate on an all-content basis, but it also might explain why participant talent might push for an all-content model.
ReplyDeleteReason why I love this blog #547 - we can go from bad nut puns to this to how best to prepare and serve a stallion heart.
ReplyDelete