Will USPS Hurt Netflix?

The U.S. Postal Service is proposing, through the rulemaking process, to move First-Class Mail to a two to three day delivyer standard for contiguous U.S. destinations. USPS first class service

Some think that will hurt Netflix DVD by mail performance. Some pundits might be tempted to quip "more than Netflix already has done to itself?"

But there is a countervailing argument. One might argue that users who really "want what they want, when they want it," or who "want it now," already have shifted to online delivery.

Also, users who have DVD by mail plans can choose plans that allow them to have multiple discs out at once. Not too many users really will be able to watch so many discs that delivery actually becomes a big problem.

Slower delivery by the USPS won't help, of course. But it remains to be seen whether it harms the DVD by mail business, which Netflix wants to wean itself off of, in any case.

Most people I know who use the DVD by mail service only watch on weekends. They're just too busy the rest of the time.

Netflix Found a Weak Link in Video Entertainment; Will Sports be Next?

Sports programming might someday lead to a major change in the way people buy video entertainment, perhaps representing a more significant change than broadband-delivered streaming services. 

To be sure, we commonly think it will be a technology change that enables some disruption of the video entertainment business, whether that is peer-to-peer, streaming, mobile devices or 4G mobile networks. Those things could help, certainly. But video is a different sort of business than many others. 

As the National Football League controls its "programming," so movie studios and TV networks control their content. While there are lots of other sources of sports programming, the NFL is a "unique brand" in the content realm. Unless NFL football becomes far less interesting, the NFL has a "moat" around its business. 

But disruption will occur at the weakest link in the entertainment video value chain. And some might argue that sports programming is a weak link, as "premium channels" have been disrupted by Netflix, another "weak link." 

Some might argue that Netflix has the potential to disrupt the TV business, but that is a theoretical possibility. What Netflix arguably already has disrupted are "premium video" channels such as HBO. Netflix is not a full substitute for HBO, in part because HBO has original programming, and in part because even when that programming is available to Netflix customers, quite some time has passed. 

So why could sports become another weak link? Cost.


The reason is the sheer impact of sports programming on the overall cost of a typical video subscription. Sports programming might be 20 percent of the viewing on a day-to-day basis but it may be 50 percent of the cost that the consumer pays, according to Dish Network Chairman Charlie Ergen.

Consider the business from the standpoint of a sports programming network. In most markets, any single content provider has four different customers buying an important sports channel. Once streaming services take hold, there will be additional providers buying sports programming.

As great as that is for the sports programming network, it isn’t so great for distributors or consumers.

The sports providers often require, for example, that sports channels are packaged on the tier with the most buyers. But not every video subscriber, or even every household, is populated by sports enthusiasts who value sports programming.

In theory, a daring video provider could make a decision to segment an audience, essentially choosing to give up “sports enthusiasts” by refusing to carry expensive sports programming.

That might cut distributor content costs a substantial amount. Ergen suggests as much as 50 percent. Such a provider would risk losing perhaps 20 percent or 30 percent of the sports enthusiast audience.

But such a provider would be significantly more attractive to the other 50 percent, or 60 percent or 70 percent of the customers who might willingly give up ESPN and other channels, to get a serious break on recurring monthly subscription fees.

Here’s the “money” quote: “If the economy continues to struggle along, that's probably a valid long-term strategy,” says Ergen.

“We almost went there last year with FOX Sports,” Ergen says.

In a daring bit of strategic thinking, Ergen says “I think that there's a limit to where sports cost can go and at some point, it's not going to be in 90 percent of the homes at some point if the costs go too high.”

Consumer demand for video programming really is not completely elastic. At some point, the value simply will not match the retail price in a satisfactory way.

To be sure, given a choice, every service provider would prefer the widest possible variety--”something for everyone.” But if push comes to shove, and price begins to be a barrier, a “sports free” service, offered at significantly lower cost, is going to be attractive to a significant portion of the audience.

“And there certainly becomes a time when a deal doesn't make any sense and a sports offering might not make sense, and that's been the case for us in New York,” says Ergen. “It could happen in other places.” Sports programming could drive change

Netflix Reverses Course on Qwikster

Netflix has decided to reverse course on its plan to separate the "DVD by mail" business from its streaming business. "It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," Netflix now says. 


Netflix says it is keeping the new price structure, though. Still, users who want both DVD content and streamed content will not have to navigate two websites, or pay two different bills. 


The reversal is the most-recent demonstration of the power of social mechanisms that let consumers voice their opinions, as Netflix was bombarded with negative reviews when the plan was announced. 

http://blog.netflix.com/2011/10/dvds-will-be-staying-at-netflixcom.html

Dish to Unveil Blockbuster Streaming Service

Dish Network Corp. will announce pricing next week for its Blockbuster streaming-movie service, which will compete with Netflix. Bloomberg reports.

Though the service will be offered initially to Dish subscribers, non-Dish customers who only want Blockbuster’s offering will eventually be able to do so. Dish to Unveil Blockbuster Streaming Prices

The number of people watching video on the Internet is expected to nearly double by 2015 to 1.5 billion while the amount of video they watch on the Web is also seen doubling to more than an hour a day, according to Cisco Systems. 


Not all that video will be of the subscription sort, of course.  Cisco forecast

Netflix Separates DVD, Streaming Businesses

It is hard to know for sure, but it is possible the recent bankruptcy of Borders bookstore might have played some role in convincing Netflix CEO Reed Hastings to move up the speed of the Netflix transition from DVD rental to streaming.

Netflix long has planned for such a move, but it is conceivable that the Borders bankruptcy, and clear sluggishness at Best Buy, could have convinced Netflix to move faster.

 Add new fourth generation wireless networks, tablet demand and faster uptake of smart phones and one can argue the business background for streaming is changing.

One also might note that creating a separate Qwikster business makes it easier to sell the whole DVD business, if desired.

Netflix steps up streaming effort

Netflix’s DVD business: Does Qwikster have a future?

Most, perhaps all of the commentary about the Netflix decision to create separate streaming and DVD by mail businesses seems to be negative. Netflix says the separation will provide an easier user experience, but a fair-minded person might question that position.

Creating two separate billing entities, with different and distinct commenting and rating systems, with the need to update two different sites when personal or billing data changes, is hard to envision, as an enhancement.

Some users will gladly trade off selection for immediacy. As Netflix moves toward offering more TV content, that could change. Netflix users might find they have a wider selection of TV content to choose from, compared to Qwikster users. For TV-centric viewers, that could be the tipping point. For movie-centric users, the tipping point might be quite some time away.

Perhaps most think the separation, which could result in better management of each entity, might speed the demise of the DVD operation. The transition is likely to be more gradual than many expect. The reason is the value proposition. Right now, the streaming operation simply does not offer the content richness that the DVD by mail option can offer. And in a content business, breadth of content matters.

Does Qwikster have a future?

Netflix Splits in 2: Why?

Netflix says it is separating its DVD by mail and streaming operations into two separate business units, with Netflix retaining the current brand name, while a different "Qwikster" brand being created for the DVD by mail business. Netflix splits in 2

"Streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently," says Netflix CEO Reed Hastings.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies.

Qwikster will add a video games upgrade option, similar to the current upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games.

Hastings says the separate, non-integrated websites will offer greater simplicity for users, though that might be a point of contention.

Each website will be focused on just one thing (DVDs or streaming), and will be even easier to use, Hastings argues. But a negative of the separation is that the Qwikster.com and Netflix.com websites will not be integrated.

Since about 60 percent of Netflix subscribers appear to pay for both streaming and DVD access, the implication is that 60 percent of users now will get two separate bills, have to use two different sites, and see partial sets of recommendations and reviews on each site. If you rate or review a movie on Qwikster, it doesn’t show up on Netflix.

"If you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places," Hastings says.

What is clear is that it will be better for Netflix. The price move was not a “decision,” so much as a “reality” presented to Netflix from the content owners in Hollywood, argues Bill Gurley, a venture capitalist at Benchmark Capital. The first sale doctrine  likely is involved. Basically, under U.S. law a product (a DVD) can be purchased and then lent or sold without further payment of royalties to content owners. 


The key point is that "first sale" does not apply to streaming services. If you want to know why content owners prefer streaming to DVD rentals, that's the reason: they make more money. 


Netflix must negotiate for each and every streamed title, and the price of the right to stream that digital title is up to the whim of the content owner. If an owner says "no," no distributor can get access. Copyright rules under "first sale"

If you assume Hollywood stuidos wanted a price per month per user to license streamed content, there is an economic problem for Netflix. Netflix obviously would prefer to pay only for content that users actually watch. 

By separating the two businesses, Netflix actually pays less (if the scenario is correct) because the number of potential subscribers is less. Though susceptible to the charge it has made a bit of a kludge out of its business, Netflix might have been forced to do so for financial reasons beyond its control. 

Netflix Cuts Customer Forecast By 1 Million

Netflix is lowering its estimate of streaming customers from 22 million to 21.8 million and of DVD customers from 15 million to 14.2 million by quarter’s end.

The new Netflix pricing model, which took effect on Sept. 1, 2011, gives customers the choice of $7.99 per month to either stream movies over the Web or rent one DVD at a time via mail. The company’s former flagship offering of streaming DVD rental now costs $15.98 per month, a 60% increase from the previous $9.99.

Apparently pricing matters.

Netflix Cuts Customer Forecast By 1 Million as Price Hike Takes Effect

Netflix Now Has More Subs Than Comcast

If all that mattered was subscribers, Netflix would be a bigger company than Comcast, the largest U.S. cable company. In the first quarter of 2011, Netflix added 3.6 million subscribers, ending the period with more than 23.6 million subscribers in total. That was up 69 percent from the 14 million subscribers it had a year ago.

Comcast ended 2010 with 22.8 million pay TV subscribers. Of course, subscriber numbers are not the only metric. Comcast's average revenue per user is much higher. Netflix ARPU is about $12 per subscriber, per month. Comcast ARPU is somewhere north of about $82 a month.

read more here

Netflix Earnings Up 88 Percent, Adds 3.3 Million U.S. Subscribers

Netflix added 3.3 million U.S. subscribers in the first quarter of 2011, plus another 290,000 interantionally, to end at 23.6 million, which is slightly below the 3.7 million analayts were hoping for but still double the growth from a year ago.


Netflix saw a rise in domestic operating margins to 16 percent, from 14.9 percent in the fourth quarter, largely due to an increase in streaming-only subscribers and price increases on hybrid subscriptions. Margins should fall back to around 14 percent as streaming and marketing costs continue to rise (offset by declines in DVD shipping).

Netflix Earnings Up 88 Percent, Adds 3.3 Million U.S. Subscribers

Netflix Supplemental Now, But "All Will Change"

Liberty Media clearly sees Netflix as a supplemental channel to cable TV, satellite and telco TV distributors, but doesn't think that always will be the case. "Cable players pay us $1 billion and more a year," says Liberty Chief Executive Greg Maffei. Netflix is not in that league as a revenue generator.

"When you look at Netflix, the customers come in two categories," says Maffei. "It’s either the consumer who would never be a premium subscriber or cable subscriber at all."

"The second kind of consumer is the price-sensitive viewers who have cable but like the ease of over-the-top options at the right price," says Maffei.

But "all of this will change," Maffei notes.

read more here

Amazon Prepping Netflix-Like Streaming Service:

Amazon.com appears to be readying a service that would make 5,000 movies and TV shows available to watch instantly, at no incremental charge, for members of the online retailer's $79-per-year "Prime" free-shipping membership program.

The service would provide "unlimited, commercial-free, instant streaming" of 5,000 movies and TV shows' with content similar to what is available through Netflix's streaming component. Amazon's service, though, would be limited to standard-definition video.

The notable observation here is that Amazon will try to create a business model that does not rely directly on incremental revenue, but rather on increasing subscribers to another existing service Amazon deems important. That's similar to Apple selling music and video to sell iPods and iPads. Netflix, Comcast and others, on the other hand, have less wiggle room, since their video businesses are about selling video.

Comcast, of course, also is trying the Amazon tactic, tying a fixed-line cable subscription to its mobile and untethered online video service. Still, it always is dangerous when a new competitor proposes to give away what another company sells.

Amazon Prime is a membership program that provides free two-day shipping as well as one-day shipping for $3.99 per item on certain purchases.

Currently Amazon offers a selection of more than 75,000 movie and TV show rentals or purchases through PCs, Microsoft's Xbox 360 and connected-TV devices, including those from TiVo, Samsung, Sony, Panasonic, Vizio and Roku.

Amazon.com's agreement to buy full ownership of LoveFilm, a European DVD rental and movie-streaming service, confirms the e-commerce giant intends to beef up its digital-video offering.

Operating in the U.K., Scandinavia and more recently Germany, LoveFilm's service is very similar to that of Netflix in the U.S. But it is well behind the American company, both in subscribers—1.6 million versus 17 million—and in the amount of streaming content it has licensed.

read more here

Netflix Beats, Worry Grows (Insert "Apple" and You Know the Story)

Netflix Really Becomes "Net Flicks"

The issue now is whether Netflix has put so much distance between itself and others that the others cannot catch up.

Netflix Streaming-Only Customers Are 33% of All New Subscribers

Netflix now finds 33 percent of its new customers are choosing the $7.99 a month, "streaming only" plan, a rather powerful testament to demand for the Netflix offer. Netflix introduced the offer in November 2010, at the same time slightly increasing the price of existing plans that support both DVD and streaming delivery.

Netflix also says it expects the percentage of "streaming only" customers to grow over time. About 66 percent of new customers elect to buy the  $9.99 1-DVD combination plan, which allows users to rent one DVD at a time, and also allows unlimited viewing using streaming.  "Very few of our existing subscribers are downgrading to the pure streaming plan," Netflix also notes.

read more here

What is Netflix's Long-Term Position in Online Video Business?

Netflix has confounded naysayers for years. The basic argument has been that the DVD rental business would be replaced by online video, and that Netflix would not make the adjustment.

So far, Netflix has proved doubters spectacularly wrong. By all accounts, it is making a steady transition to online delivery, and its customers seem to be adapting as well. So perhaps a new consensus has developed: that Netflix is among the firms that will survive the transition from physical media delivery to online delivery.

If you have been in most Best Buy outlets recently, you get a sense that Best Buy is serous about ultimately phasing out sales of physical media content, to the extent that floor space is an indication of what a retailer expects to sell.

Perhaps oddly, then, one might ask the question of whether online delivery is an unalloyed good thing for Netflix. Some might argue it will pose new, and different questions, for Netflix.

Up to this point, most seem to agree that switching to online delivery saves Netflix money because the company avoids paying postal fees for delivery. That's true.

But content owners are becoming more aggressive about protecting their online rights, and it is a reasonable prediction that Netflix will have to pay much more, in the future, for access to content it can stream. That obviously could pose issues for the revenue model, given the low costs Netflix now imposes on users of its library.

If its content acquisition costs rise, Netflix will face margin pressure, with the obvious choice of raising prices or watching its margins tumble. Higher prices might limit growth, but higher prices seem almost inevitable, at some point.

In the chart, for example, note the blue bar, representing streaming content costs, compared to the white bar, which represents  DVD content acquisition costs.

At the same time, a switch to streaming, rather than DVD rentals, will cost Netflix more, over time. Now, Netflix can buy a DVD, pay once, and rent the disc until it is worn out. When streaming, the typical deal is that the content owner gets 60 percent of the gross rental fee. So there is more financial leverage when sourcing content by buying DVDs.

Other distributors pay similar amounts, of course, but generally price each viewing at higher rates, ranging from $1.99 to $4.99 per movie (or more) on Apple's iTunes, Amazon On Demand, Vudu, and cable, satellite or telco video on demand services, for example. TV show rentals might cost the end user $1 per episode.

Netflix now offers a $7.99 per month unlimited streaming service, and you can guess that the economics can invert, given reasonable volume. You might wonder how Netflix can even offer the unlimited $7.99 streaming plan, and the answer is that it has agreements that were very generous. But it takes no insight to argue that future agreements will not offer such advantages.

The Netflix deal for Starz contnet, signed in October 2008, gave Netflix access to approximately 2,500 Disney and Sony movies for less than $0.15 per subscriber per month for its content, compared to the $2 to $4 per subscriber per month that TV operators typically pay Starz.

Netflix signed a deal to stream content from Epix, which is owned by three studios, Paramount Pictures, Lions Gate and Metro-Goldwyn-Mayer. The exact terms of the deal haven't been disclosed, but numerous reports say it's for up to $1 billion over five years.

Importantly, Netflix won't be able to stream Epix's movies until 90 days after they have reached Epix's distribution window, which is typically 6-12 months after a movie is first available on premium movie channels, so this deal won't address Netflix's problem that it offers no current releases.

On the operating cost side, one might argue that more streaming means less mailing of DVDs, and hence less cost. That's correct. But one might quickly conclude that Netflix will have to pay more for streaming rights than it can possibly save in postage and fulfillment costs.

Perhaps the impact already is being felt. In the third quarter of 2010, Netflix's operating margin was 12.6 percent and net margin was 6.9 percent, down from 14.9 percent and 8.4 percent, respectively, in the second quarter. Some would say that is the result of higher content payments not balanced by an equal reduction in distribution cost.

There are other issues as well. At some point, if consumers start paying for bandwidth consumed that accounts for higher video consumption, the implied cost of streaming delivery will grow, increasing the "price" part of the "value versus price" equation. That could make other alternatives, especially a multichannel video subscription plus digital video recorder, a much more attractive "value."

That will especially be true for wireless providers, as people are getting used to watching video on their mobiles, and viewing on an iPad or wireless-connected PC also can be a satisfactory experience. Sanford C. Bernstein analyst Craig Moffett, for example, expects the revenue per megabit for wireless providers to fall from 43 cents today to just 2 cents in 2014.

Down the road are other potential risks to the business model as well. In September, the U.S. Court of Appeals for the Ninth Circuit issued adecision that calls into question the First Sale Doctrine. Though it was a case related to re-selling software, the court observed that the policy implications might affect movies as well.

To get early access to fresh content, Netflix will have to pay more. If it chooses not to do so, the value of its library might weaken, from a customer's perspective. If it pays more to acquire more, and fresher content, its costs go up. So Netflix might have to raise prices. That could change its place in the market.

Netflix could accept lower margins, up to a point. Amazon certainly seems willing to do so. But assuming Netflix can manage those challenges, it does seem that a strategic choice has to be made. Netflix can offer a wider array of current content at higher prices, or a more-limited range of library or catalog content at lower prices. Some would argue it will do both, offering "enough" content at "good enough" prices to establish its position within the overall online video market.

Even in the more-established "premium" channel space, there is content differentiation between HBO, Starz and Showtime because none of the networks can afford to buy rights to all "new release" movie content, for example.

The trick will be to build on the library while adding just enough fresh and recent content to remain competitive. It's a tall order, but Netflix has confounded its critics in the past.

Whitney Tilson: Why We’re Short Netflix - Seeking Alpha:

Comcast Tests New Service That Combines Internet, TV

Comcast Corp. is testing a new service that combines linear television and some Internet content. The new set-top device combines digital video recorder functions with the ability to watch some web-delivered video and search for programs.

(click on image for larger view)

But it isn't just the ability to protect themselves from Netflix, Apple TV and other competitors. Typical cable set-top boxes are a bit underpowered in terms of supporting elegant user interfaces.

Time Warner Cable CEO Glenn Britt admits that over-the-top services have better user interfaces.

"I would not sit up here and say our user interface is really good," Britt said recently. "It's not as good as theirs."

Edward Rogers, deputy chairman and controlling shareholder of Rogers Communications also pointed out that set-top evolution in the cable industry has not kept pace with other developments in consumer electronics. "We realize that the evolution of these boxes has been a little slower than what we need," Rogers said.

Comcast Tests New Service That Combines Internet, TV - WSJ.com (subscription required)

http://www.cable360.net/technology/MSOs-Blame-Set-Tops-For-Their-OTT-Problems_44366.html

Netflix testing $7.99 and $8.99 streaming-only plans

Netflix now is offering streaming-only plans in the U.S. market, for prices that seem to range from $7.99 to $8.99, or $9.99 if users want physical disc access as well.

Netflix testing $7.99 and $8.99 streaming-only plans in US right now, one is not a discount (update) -- Engadget

Future of TV: One Investor's View

At some point, "over the top" video distribution is going to be a bigger financial force in the television business, but it won't happen as fast as many believe, simply because the amounts of business revenue at stake are so enormous. As hard as attackers will try, access to quality content still will be a key issue, as content owners will not be in a hurry to jeopardize their current revenue streams.

"Over the top" options will continue to proliferate, and device manufacturers will attempt to create ecosystems around their products to entice content owners to buy in. But it will take time to create the scale content owners will want to see before making adjustments in content relationships.

Also, existing distributors, such as cable companies, know exactly what is at stake and will work furiously to enable online video in ways that complement, rather than compete with, their current offerings.

Virtually all the contestants in the ecosystem will be looking at ways to "move up the stack" in terms of providing more value. Many of those attempts will fail.

Software and applications are not core competencies for many of the ecosystem providers, and that ultimately will limit the success of "up the stack" efforts.

Almost by definition, the real combat will take place over second and tertiary screens, rather than the large TV screen. Tablet PCs and smartphones will provide key examples, even though game consoles and other devices using the TV display also will fight for attention.

Perhaps the key issue is the future of content bundling. Nearly all the technology developments will create alternatives to the multichannel TV subscription. Perhaps an analogy can be glimpsed in the music business, where the "bundled" album or CD lost favor compared to purchases of discrete songs.

Also, the trend in video entertainment over the past several decades has been a shift away from linear formats and towards on-demand consumption. Digital methods are only the latest examples of a trend that began with the videocassette recorder.

Television originally was designed for a mass audience in a single country. But global content and its ability to develop a “niche” global audience now is a new trend. Think of about the rise of Japanese Anime, Spanish Novelas, Korean Drama or the rise of Bollywood entertainment from India. It’s not a mass, mainstream audience but I would argue that it’s “global torso” content that will be meaningful at scale. Websites like ViiKii, which have been launched to create realtime translations of shows by fan-subbers, have huge followings already. And I’m sure that this is what popularized the SlingBox in the first place. British, India & Pakistani ex-pats on a global scale want to watch cricket.

NetFlix might be winning the battle for distribution of movie content online. Linear television remains much more fluid. One app to watch is YouTube, which might graduate from user-generated video to a distribution mechanism for "linear" professionally-created video as well. Potential audience size always matters, and YouTube is aggregating an enormous potential audience.

That same argument goes for gaming consoles, which now represent an installed base of U.S. devices numbering about 60 million terminals. The issue is not simply the game console's ability to deliver online video, but the role gaming might ultimately play in building audiences for gaming-plus-TV experiences.

Content discovery will be important as well. In a universe of content, it is hard to find "the good stuff." In part, that is why some believe "social TV" is a growth area. People talk about video and movies they like. That will help with the "discovery" problem.

Another unknown is the way narratives are crafted. Hollywood is the master of the long-form story.Whether that will be the only, or even dominant narrative in the future is open to question.

What happens when content production & distribution is easy to professionally produce and distribute at mass low-cost scale? Will we still have predictable story lines? Or can we develop more fragmented content to meet the needs of fragmented audiences and interest groups?

What happens in a world where content producers have a direct relationship with the audience and can involve the audience directly in story creation? Or maybe even as wacky as involving the audience in the story itself?

read more here

Netflix Proved Lots of People Wrong