Do The Netflix Shuffle

Content Is King

On September 18th, Netflix co-founder and CEO, Reed Hastings blogged a relatively wordy explanation behind the recent decision to restructure the Netflix subscription service. You can give it a read, yourself, here. The backlash from the social  media savvy subscribers, who have been blasting negative tweets about the recent price hike, has resulted in a dramatic drop in stock value as finicky investors have been dumping shares of the once blue chip company.

Citing companies, AOL and Borders, as outfits that had gone the way of the dinosaur, Hastings paints a picture that perhaps the executives behind the decision were only acting preemptively. As mentioned in my previous blog post, Blockbuster went down hard because it did not shuffle its feet quick enough to ditch the brick and mortar business model. However far down the line it may be, Netflix sees itself faced with a similar sink or swim situation - jettison DVDs for an all digital format or wallow in the debt associated with unnecessary operating costs of shipping and stocking.

Although Netflix's recent acquisition of Qwikster as well as big studio Hollywood's reluctance to cut off their DV-dollars would indicate that DVD rentals are going nowhere, the recent string of license-to-stream acquisitions clearly indicates a shift in priorities. Netflix, as it always has, is looking to position itself for the future.

Making Moves

Recognizing the fact that in the coming years competition will be fierce among on-demand subscription services, Netflix has been shopping around for licensed titles to feature over their streaming service. Aside from resigning NBC for another two years, Netflix also managed to sign a two year non-exclusive licensing agreement with CBS back February of 2011.

"Netflix is now the only online premium subscription service with shows featured on all four broadcast networks and dozens of cable TV's biggest brands."

- Netflix chief content officer, Ted Sarando 

Although the nature of the relationship between Netflix and CBS is not exclusive, the deal does add further value to Netflix's product. Back in August of 2010, Netlix upped the ante by putting pen to paper on a multi-year licensing agreement with Epix. The five year deal worth in the one billion dollar range allows Netflix subscribers access to "an array of new releases and library titles from EPIX streamed over the internet from Netflix - (press release)."


Granted, under this agreement, Netflix does gain a wealth of content borrowed from the very vaults of media moguls Paramount Pictures, Lions Gate Films and MGM Studios, there is a wrinkle worth noting. Netflix subscribers will have to wait a period of 90 days after content is released on EPIX before being able to view it via streaming online. It's a rather minor setback for subscribers; however, it does leave a window of opportunity for other companies to perhaps swoop in and gain traction market-wise. 


Watch the Throne  

Netflix's recent drop in stock value as well as the alarming number of unsubscribers has not gone unnoticed. The recently bankrupted Blockbuster issued a tweet brazenly calling out Netflix's gall for raising prices. Where does Blockbuster come off calling out its better with such bravado? Well, in an announcement made earlier this month, the second largest satellite-TV provider in Dish Network announced that they, too, would be entering the subscription-based streaming movie service industry. 


This just coming off the heels of a press release issued by Starz Entertainment that they would not be renewing their streaming video deal with Netflix. 

"This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exlusive and highly valuable content."

- Starz CEO, Chris Albrecht

Starz is not the only premium content provider to pull their titles from Netflix's streaming service. In anticipation of Ultraviolet's launching, Sony discontinued their content deal with Netflix whereas HBO had never gotten on board with streaming their highly-acclaimed library of episodics, most likely for the same reasons Stars opted to pull theirs.

Now that it has become all but apparent that streaming media would appear to be the heir-apparent to physical media of any format and quality, major corporations are jockeying for claims to the top spot that Netflx currently holds. Competition is healthy and the recent string of maladies befalling Netflix can only strengthen the resolve of companies, looking to challenge for the throne. We will continue to monitor the situation as it evolves in the Zarr Movies blog.

To Stream Or Not To Stream

Remember all the commotion Netflix stirred in July when they announced there would be an increase in subscription fees? Seemingly within seconds of publishing that press release, the social media sphere was ablaze with disgruntled "Dear Netflix" tweets and status updates threatening to jump ship for the likes of a Redbox or Hulu. Now nearly a week removed since the price hike had gone into effect, the response from both investors and subscribers alike has still been largely negative.

As of last Thursday, unlimited streaming content and DVD rentals are now two separate plans, both costing $7.99 a month rather than the $9.99 flat fee subscribers were accustomed. The very same day the price hike took effect, Starz (LSTZA) announced via press release that, starting in February of 2012, they would no longer be supplying Netflix's internet subscription service with premium content from its library of over 2,500 movies and TV episodes. Consequently, Netflix stock slid another 9% as finicky investors dealt away their shares in after-hours trading.

During the month long period before the price change went into effect, shares of Netflix stock fell sharply from around $305 in mid July to as low as $203 in mid to late August. Although such a slide in the face of 435% growth over the course of the past two years should not lead any one to believe Netflix is in imminent danger of imploding, one can only wonder if the restructuring of Netflix's long-standing business model was a necessary evil or a calculated risk.

Since its debut in 1999, Netflix has rolled the dice many a time. Taking on industry giant, Blockbuster Video, was among the first. Netflix's business model did away with the overhead of storefronts and opted for a subscription-based service deliverable by mail. At that time, Netflix's library paled in comparison to that of Blockbuster's catalog, but the convenience and lack of late fees gradually curried favor with consumers. Within ten years of operation, Netflix would surpass Blockbuster, who would eventually file for bankruptcy in 2010.

Today, Netflix is the big kid on the block faced with the inexorable task of setting the bar. There is no longer a benchmark with which to compare progress. As discussed in the last blog entry ("A Byte of the Ultraviolet"), the entertainment industry is shuffling its feet across black ice in search of a sound foundation to start anew. Slowly but surely, consumers are abandoning any notion of owning anything cumbersome. As the market would indicate, advancements in technology have changed consumers demands. They now expect content to be delivered immediately upon demand regardless of where they intend to watch it on their mobile device or from the comfort of their couch.

This recent shift of segregating the physical from the digital has loyal subscribers a bit miffed, but if Sony's Ultraviolet is any indication of what is to become of the home video market, Netflix is merely positioning themselves for the long term. Whether they're going about it the right way or not is yet to be determined. Netflix has no intention of abandoning the DVD market; however, they have no intention of banking their entire future on it either.

Zarr Movies will continue to monitor this story as it is not only in the interests of our endeavors as a media publisher, but also in your best interests. The upcoming years or even months, judging by how fast technology shifts, will determine how we, as filmmakers, publish our works for the world to consume. If you have any insights or even forecasts as to what will become of the film/television industry, by all means, feel free to drop us a comment.