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Netflix's DVD Split Is Yet Another Self-Inflicted Wound
How many self-inflicted wounds can a company take before its mortality is threatened? When it comes to Netflix, the question is taking on increasing
relevance. The company that could do no wrong for the past two years first shot itself by announcing an onerous price increase without any real attempt to explain itself or soften the blow. The initial consequences of that decision came last week in the form of a 1 million subscriber downward revision and a 50 point drop in its stock price. Now Netflix has followed up with another bewildering move, announcing a re-branding and separation of its DVD by mail business as "Qwikster" complete with an independent web site. In my view this is another self-inflicted wound with even more serious implications.
Categories: Aggregators
Topics: Netflix
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Netflix's Q3 Subscriber Loss Could be Churn AND Acquisition Related
With Netflix today lowering its Q3 U.S. forecast by 1 million subscribers to 24 million, many observers are focused on the culprit being higher churn induced by the company's recent pricing change. Churn could well be the big driverhere, but the cause could also be the other side of the equation: a slowdown in new subscriber acquisitions, particularly for those just wanting the DVD-only plan. Until we get the actual breakdown with the Q3 results, we won't know for sure, but if it's both factors, then Netflix might be finding itself at the beginning of a very different chapter in its evolution.
Categories: Aggregators
Topics: Netflix
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Netflix To Lose U.S. Subscribers in Q3, First Loss In Over 4 Years
Netflix revised its guidance for Q3 this morning, now forecasting that it will end the quarter with 24 million U.S. subscribers. That's 1 million less than the 25 million it previously forecast as the mid-point for Q3 subscribers (despite the loss, Netflix is maintaining its financial guidance for the quarter). Since Netflix ended Q2 with 24.59 million U.S. subscribers, it is now expecting to lose 590K subscribers in Q3, the first time the company has contracted since Q2 '07 when it lost 55K subscribers.
The expected Q3 loss brings to a screeching halt the torrid growth Netflix experienced over the 6 most recent quarters, when it doubled in size, adding over 12 million subscribers in the U.S. The Q3 reversal can be traced to the controversial decision Netflix ham-handedly announced in July to split its DVD and streaming businesses, therefore resulting in steep monthly price increases for a large number of its existing subscribers. As seen in the chart below that Netflix released this morning, the primary driver of the 1 million downward revision from July 25th is on the DVD-only side, which is now forecast at 2.2 million subscribers vs. the 3 million expected. The 200K balance is from streaming-only subscribers. This split is a good news-bad news story for Netflix.
Categories: Aggregators
Topics: Netflix
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Amazon Planning to Give Away Its Instant Videos With the New Kindle Tablet? Uh Oh.
Catching up on my reading last night, I noticed toward the end of the first hands-on review I've seen about Amazon's forthcoming Kindle tablet
something that could be very disruptive. According to the writer (so this is opinion, not fact), to support the Kindle tablet, Amazon plans to give buyers a free subscription to Amazon Prime.
Of course, since last February Amazon Prime subscribers also gain access to Amazon's growing streaming Instant Videos catalog. So this would mean that Kindle tablet buyers would be getting lots of great video (and more to come) for no charge and presumably no ads either. If Amazon were to begin giving away high-value content as a marketing tactic supporting its devices, it could fundamentally change the game for everyone.
Categories: Aggregators, Devices
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Inside Starz's Netflix Quandary
Here's a thought experiment: Imagine you're running a major cable TV network and your fastest-growing distributor (and largest, by number of subscribers) offers to license your content for approximately $300 million each year, a sum that is about 10 times the amount it has been paying under the current deal struck less than 3 years ago. The new deal would have a very material impact on your P&L as your company's operating income last year was about $400 million. Seems like a pretty tough offer to turn down, right?
However, there are certain catches. First, this distributor is considered a disruptive competitor by all of your other long-time distributors (who collectively paid you about $1.3 billion last year). If you proceed with this new deal, you're concerned that these other distributors may retaliate by paying you less when they renew their deals in the future. Second, this distributor wants a degree of exclusivity that limits your ability to make incremental deals with companies it deems as competitive. Third, key suppliers of your content have escalation clauses that entitle them to incremental payments if you proceed with this new deal, which would in turn erode your margins. And last, but not least, the manner in which this distributor wants to compensate you would alter the way you are positioned in the market - from a "premium" to a "basic" channel - consequently risking a perception that your content will be irreparably devalued by consumers and other distributors.
Got all that? If so, then you grasp the quandary that Starz's executive team found itself in as it evaluated a huge license renewal offer from Netflix. Last Thursday Starz announced its decision, choosing to rebuff Netflix's rich offer, at least for now. But as the math below shows, combined with what I've learned from individuals familiar with Starz's economics, Netflix's putative $300 million/year offer was far more than Starz could generate otherwise, making its decision to walk away all the more difficult.
Categories: Aggregators, Cable Networks
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Happy Labor Day and End of Summer
Happy Labor Day to VideoNuze readers here in the U.S. and to all, a happy end of summer. Many of us are getting in some time off before back-to-school and back-to-work realities kick in next week, and so no there's no new VideoNuze content today. However, I'll be back on Tuesday, with regular VideoNuze coverage.
Kicking off next week, I'll provide analysis of the Starz-Netflix non-renewal, and what the implications are for each party. As VideoNuze readers know, I've been a keen Netflix observer and this latest turn of events is part of the larger story of Netflix reckoning with its own massive success, as TDG's Colin Dixon and I forecast would happen this year. The Starz situation is illustrative of Hollywood's wariness in dealing with a far bigger and more influential Netflix.
See you on Tuesday, and enjoy your holiday weekends!Categories: Miscellaneous
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Scarcity Breeds Aggregation Opportunities
Following is a guest post from Sam Vasisht, president of 21TechMedia which specializes in advisory services, business and marketing consulting for digital media companies. Sam was previously VP of Marketing at On2 Technologies, now part of Google's WebM initiative. He blogs at www.techmediatalk.com and can be followed on Twitter @21TechMedia.
Scarcity Breeds Aggregation Opportunities
by Sam Vasisht
Based on news from the world of online video over the past few weeks, the dust is starting to settle on a number of topics that had been contentious, if not controversial for some time. Among them is the affirmation of online services as a bona fide monetization model for major media. This was stated by Viacom on its earnings call two weeks ago. Similar signals from other corners of the industry range across Netflix's price increases in its continuing quest for premium content licensing; Amazon stepping up its game in video streaming with a licensing deal with NBC and a few weeks earlier with CBS; and Hulu attaching attractive 5 year content licenses with its rumored sale offer while signing up additional content deals as well.
The race for content aggregation is on.
Categories: Aggregators, Devices
Topics: Apple, Best Buy, Hulu, NBC, Netflix, Viacom
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Hulu Pushes Further Into Originals With Morgan Spurlock's "A Day In the Life"
Hulu is partnering with director Morgan Spurlock ("Super Size Me") to exclusively distribute "A Day In the Life," a six-part documentary series in which each episode will follow one celebrity for a full day. The first episode, which debuts on August 17th, will focus on Virgin's Richard Branson. Episodes will roll out on subsequent Wednesdays on Hulu.com and Hulu Plus and will feature singer will.i.am, comedian Russell Peters, musician Girl Talk and others. Each episode is 22 minutes and will include ads. Spurlock provides more background in a video interview after the break.
Categories: Aggregators
Topics: Hulu, Morgan Spurlock, Netflix
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Friday Fun: Jason Alexander's "Netflix Relief Fund" and Microsoft Office 365's "Gmail Man" Videos
A little Friday fun - if you haven't yet seen former "Seinfeld" star Jason Alexander's hilarious "Netflix Relief Fund" video on Funny or Die or Microsoft Office 365's "Gmail Man" videos, it's time to take a break and do so. I promise both will lighten your day and prompt you to share further. Then get back to work. Both videos are after the jump. Enjoy!
Categories: Indie Video
Topics: Funny or Die, Microsoft, Netflix
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Friday Fun: Jason Alexander Lampoons Netflix Price Increase on Funny Or Die
A little Friday fun - if you haven't yet seen former "Seinfeld" star Jason Alexander's hilarious video lampooning Netflix's recent price increase on Funny or Die, it's well worth it. Alexander's mock heartfelt pitch for the "Netflix Relief Fund" is sure to resonate for everyone who's been up in arms about Netflix's recent price change. Video after the jump. Enjoy!
Categories: Aggregators
Topics: Funny or Die, Netflix
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VideoNuze Report Podcast #106 - Fox's 8-Day Pay Window and Netflix's Q3 Churn - July 29, 2011
Daisy Whitney and I are pleased to present the 106th edition of the VideoNuze Report podcast, for July 29, 2011.
In this week's podcast, Daisy and I dive into two topics - Fox's new exclusive 8-day authentication window, and Netflix's Q3 '11 subscriber churn. Regarding Fox, this week the network announced that it would limit online access to programs in the first 8 days following their airing to viewers who are authenticated as pay-TV subscribers (or are Hulu Plus subscribers). As I wrote, I think the move has significant implications for Hulu, and the broader online video landscape. We discuss Fox's motivations, the role of retransmission consent fee payments and what might be coming next.
We then shift to discuss estimates of Netflix's Q3 '11 subscriber churn, due to its recent price change. By my calculations, Netflix itself is estimating it could lose approximately 6.5 million subscribers in the U.S. in Q3, which would be a record for the company. The amount attributable solely to the price change could be in the 2.5 - 3 million subscriber range. In the wake of all the speculation about how subscribers will react, Daisy discloses the surprising decision she and her family have made with regard to their Netflix subscription. Listen in to find out!
Click here to listen to the podcast (14 minutes, 34 seconds)
Click here for previous podcasts
The VideoNuze Report is available in iTunes...subscribe today!Categories: Aggregators, Broadcasters, Podcasts
Topics: FOX, Hulu, Netflix, Podcast
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Amazon Gets Universal Movies to Stream That Netflix Already Has
Amazon announced a new licensing deal with NBCU that gives it streaming rights to a batch of older movies from Universal Pictures, bumping to 9,000
the number of movies and TV shows available for its Amazon Prime Members. However, the move is unlikely to have the folks at Netflix quaking in their boots; like Amazon's licensing deal with CBS from last week, virtually all of the Universal movies are already available on Netflix (by my count 9 of the 11 titles identified in today's press release can be streamed on Netflix while only "Elizabeth" and "Fletch" are available solely on DVD).
Don't get me wrong, more content is always a good thing, and these deals, along with an acquisition of Pushbutton, a UK app developer for connected devices, suggest things may be ramping up at Amazon. But the content deals do underscore the catch-up game that Amazon is playing with Netflix. That's the dynamic in today's market - Netflix got a head start in aggregating Hollywood content for online distribution. Now, to the extent it has a willingness to pay, Amazon must go do similar deals.
Categories: Aggregators, FIlms, Studios
Topics: Amazon, Netflix, Universal
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Will Wal-Mart Expand VUDU Into Subscriptions and Compete With Netflix?
Wal-Mart's news this week that it has more deeply integrated its movie streaming service VUDU into its web site and e-commerce operations is a
good step forward in competing better with Amazon and iTunes. However, because the vast majority of users prefer all-you-can-eat subscription services, the reality is that VUDU's new visibility will likely have little impact on Netflix (except maybe for lighter users who are upset by Netflix's recent price change and aren't deterred by VUDU's per title rental model and restrictive expiration policies).
That raises the question of when might Wal-Mart really step up to the plate and expand VUDU into subscriptions, offering a true alternative to Netflix? It seems like the time may finally be right to make the move. In particular, Netflix's recent price change, separating DVD-by-mail and streaming-only services presents a golden opportunity for Wal-Mart to go on the offensive. Here's the logic:
Categories: Aggregators
Topics: CBS, NBCU, Netflix, VUDU, Wal-Mart
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Now We Know: Netflix Modeling Churn At Record 6.5 Million Subscribers in Q3 '11 Due to Effect of Pricing Change
A central question following Netflix's recent decision to separate DVD and streaming plans - driving some subscribers' rates up by 60% - was what effect it would have on churn. The hue and cry from outraged subscribers in the days after the decision was announced certainly indicated it would be meaningful. But it was anyone's best guess what it would actually be.
Now, with Netflix's Q3 '11 subscriber forecast included in its Q2 earnings release, plus a few assumptions I've made, it appears as though Netflix itself is modeling churn of approximately 6.5 million U.S. subscribers this quarter, a record for the company that could wipe out almost all of its quarterly gross subscriber additions in the U.S. (see below for a 2-year churn chart). The 6.5 million includes around 2.5-3 million incremental subscribers lost - presumably due to the price increase - over and above an expected churn of 3.5-4 million subscribers for the quarter.
Categories: Aggregators
Topics: Netflix
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New CBS Licensing Deal Doesn't Offer Amazon Much Differentiation vs. Netflix
Amazon and CBS announced a licensing agreement this morning, which, while a step in the right direction for Amazon Prime, doesn't seem to offer it much differentiation. The press release states that 18 CBS TV programs are part of the deal, though the only ones identified are "The Tudors," "Numb3rs," "Medium," the "Star Trek" series, "Frasier" and "Cheers." A quick glance at Netflix's catalog shows that all past seasons of "Numb3rs," "Medium," "Cheers," "The Tudors" and the original 3 seasons of "Star Trek" are available on streaming. Only "Frasier" isn't available on streaming, though it is on DVD.
Perhaps some of the other programs in the deal aren't already available on Netflix, but the group identified today underscores how networks' and studios' non-exclusive approach means that any distributor with a willingness to pay will get essentially the same content.
Categories: Aggregators, Broadcasters
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VideoNuze Report Podcast #104 - Netflix Pricing Debate - July 15, 2011
Daisy Whitney and I are pleased to present the 104th edition of the VideoNuze Report podcast, for July 15, 2011.
In this week's podcast Daisy and I debate Netflix's decision to separate streaming and DVD-by-mail pricing. The topic has been widely covered this week, and we try to address some of the major questions swirling around (e.g. why did they do it? what are the implications? what choice will subscribers make? And more). One point I continue to make is that if Netflix's goal was to kill off the DVD business, as some have suggested this week, that seems pre-mature to me. DVDs still have a huge amount of strategic value to Netflix because they offer so much more choice than today's streaming catalog.
More of VideoNuze's coverage below (including great commentary from readers):
Sorting Through the 4 Tough Choices Most Netflix Subscribers Now Face
Netflix Makes a Surprising Left Turn With New Pricing Approach
Click here to listen to the podcast (17 minutes, 47 seconds)
Click here for previous podcasts
The VideoNuze Report is available in iTunes...subscribe today!
Categories: Aggregators, Podcasts
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Sorting Through the 4 Tough Choices Most Netflix Subscribers Now Face
Netflix's decision yesterday to separate unlimited streaming and DVD-by-mail pricing means that a large majority of its nearly 23 million U.S. subscribers will be forced to choose from among four tough choices. As I described in my last post, Netflix subscribers to any of its DVD-by-mail plans now face the choice of either scaling back to DVDs-only, switching to streaming-only, absorbing a rate increase of somewhere between 33%-60%, depending on which plan they've had, or simply dropping Netflix altogether.
Following is an attempt to sort out how subscribers may think about their decision as well as my take on Netflix's viewpoint on each choice.
Categories: Aggregators
Topics: Netflix
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Netflix Makes a Surprising Left Turn With New Pricing Approach
For a company that has done just about everything right for the past several years, yesterday Netflix took a surprising left turn, unveiling an unusuallyaggressive new pricing approach that raises its rates across the board. Though no rate increase will ever be welcomed by subscribers, this one has generated a massive amount of subscriber enmity, with scores of subscribers threatening to drop the service. The decision has wide-ranging competitive implications and could well mark another turning point in the evolution of online video.
First, to recap the new pricing. In a blog post yesterday, Netflix VP of Marketing Jessie Becker announced that DVD-by-mail plans and unlimited streaming plans would henceforth be charged separately. As a result everyone who had some type of DVD plan must now also pay an additional $8/mo in order to access streaming content. That marks a stark reversal of Netflix's strategy of including streaming as a free value-add to DVD subscribers.
Rewinding history a bit, Netflix's approach not to charge for streaming content was likely the most strategic decision Netflix ever made. It allowed the company to leverage its DVD library's breadth to introduce millions of subscribers to streaming with no barrier to trial (i.e. no need to make a new decision whether the streaming content was worth paying for). The value prop was breakthrough: get massive choice with DVDs, but a convenience bonus with streaming.
Topics: Netflix
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Cable Flexes Its Muscles (Again) With ESPN's Wimbledon Win
Score another sports programming victory for cable, as ESPN announced today that it has acquired all of the U.S. TV rights to Wimbledon tennis in a
12-year deal beginning in 2012. ESPN's win was NBC's loss, as the broadcast network's 43-year association with the tournament comes to an end.
For ESPN, and for cable TV networks in general, it is another step in a steady progression of using their economic supremacy over broadcasters to obtain television rights to marquee sporting events. While ESPN is the undisputed leader, numerous other cable networks like TNT, USA, Versus, Golf and of course the regional sports networks (RSNs) such as Comcast SportsNet and Fox Sports Net have staked their claim to early round or full coverage of high-profile sports events.
Categories: Broadcasters, Cable Networks, Cable TV Operators
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Netflix Expands to 43 Latin American Countries But Faces New Broadband Challenges
A major piece of news from Netflix during this typically slow July 4th holiday week: the company posted on its blog this morning that it intends to expand its service to 43 countries in Mexico, Central America, South America and the Caribbean later this year.
The 43 countries weren't specified nor was an exact timetable for rollout. And no mention was made of DVDs, so it appears that this will be astreaming-only offering. In another first, the service will be available in Spanish, Portuguese and English, the first time to my knowledge that Netflix will offer additional language options.
Netflix observers have been eagerly awaiting news from the company on international expansion plans beyond Canada, which launched last September. By the end of Q1, Netflix said it had approximately 800K subscribers in Canada, but the service has been hindered a bit by extremely low data caps by broadband ISPs. The Canadian experience, along with other broadband-related factors, makes the choice of Latin America a bit surprising as Netflix's next move and introduces new challenges.
Categories: Aggregators, International
Topics: Netflix
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