You’re fucked. You’ve got nowhere else to go. Netflix killed Blockbuster.

The music industry should be paying close attention to the Netflix brouhaha. Every analyst says the same thing, this is about killing the DVD rental business. Imagine if the music business killed the CD? But you can only do that if you have a reasonable alternative in place.

For those who say people will never rent music, remember people rented videotapes, bought DVDs, rented DVDs and now stream movies. Don’t tell me what the people want, they don’t know. Furthermore, what made streaming so appealing was two breakthroughs, Netflix-compatibility in television hardware and the iPad. Yes, imagine if the music industry had enabled tech innovation instead of thwarting it, maybe it would have been prepared for the future.

In case you’ve been under a rock, yesterday Netflix split streaming from renting, instead of one low price you got a whopping increase if you still wanted both. People are complaining, but as stated above, what is their alternative? They could go back to buying DVDs, but that’s still a bad deal compared to Netflix. As for renting, where you gonna do it? The video shop has evaporated and yes, we’ve got coin-operated rental machines, but inventory is limited and you’ve got to leave your house.

So I’m laughing. It’s the cheapskates revolting.

But they’ve got an alternative, streaming.

Now don’t say the alternative is BitTorrent. The people stealing don’t have Netflix subscriptions, it’s not worth their while. If you think DVD renters on Netflix are suddenly going to fire up their P2P client and steal you probably call your grandmother for tech advice. Furthermore, they’re afraid to steal. The MPAA and RIAA shenanigans just kill the incentive of those already paying, same deal with copy protection. Harming those who already pay is like making you wait in line for lousy overpriced food at the concert venue…oh wait, they do that!

This is Clayton Christensen in action, from the “Innovator’s Dilemma”. You build a new, technologically up-to-date business across the street from your old enterprise, and when the time is right, you shift everybody over, both employees and users. Netflix has been building streaming and the time is nigh…to get everybody streaming so they can get as much money as possible to negotiate with rights holders. And their leverage is incredible, since there’s almost nowhere to rent physical product, never mind buy it, and rights holders need that revenue. This is the same way Apple gained leverage over the labels. It paid, and then became the only game in town.

Furthermore, Netflix teaches us that once you get people to pay, you can always raise the price. The music business is about maintaining price points. Huh? Have they never gotten a cable bill? It starts off small and then goes up. Few disconnect, they grumble and pay up. Yes, the increase at Netflix is substantial, I’d go up a buck or two at a time, then again, the company’s goal is to kill DVD rental by mail. Hell, why buy all the discs, establish warehouses, mail them, incurring postage, when you can stream movies without any of this at all? The music business never got comfortable with the cost savings of digital, too busy placating Wal-Mart it got caught in the past.

Today’s big announcement is the launch of Spotify. For those pooh-poohing it, stating there’s little name recognition, you’re just showing your ignorance of Internet word of mouth. Yesterday nobody knew about Turntable.fm, today everybody but your grandma does. Then again, your grandma still reads the “New York Times”!

The labels crippled Spotify, making the free offering unclear. It should have been unlimited and then slowly cut off, or maybe you pay a little bit of money for a little more access. But the music business only believes in half steps, it can’t go all in, it likes to play it safe. Funny for a business that used to be about the cutting edge, and breakthroughs.

As for those complaining you can’t stream everything at Netflix… Don’t you get it? Netflix is consolidating its position, killing the DVD to ensure studios allow them to stream, they’ll want the money!

As for those complaining of streaming costs… Yes, it’s a problem for Netflix, but not for Spotify, because over 2,000 tracks live on your hand-held, there’s no streaming of them at all.

Then again, you’ll understand this when you use it.

Spotify got one thing right that no other subscription site has. Usability. That’s been the key to Apple’s success. Spotify looks like iTunes and playing the tracks, due to underlying P2P software, is indistinguishable from owning them.

It’s a brand new world.

Unfortunately, the movie business is leading.

The music business could have killed the CD, could have driven people to subscription, but afraid of the future and wedded to the past it refused to do so to its detriment. We’ll see what happens now.

~~~
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16 Responses to “Netflix Killed Blockbuster. Now What?”

  1. KidDynamite says:

    REDBOX!

    NFLX is trying to get rid of their DVD customers – or make them pay thru the nose… I don’t think they care if all their DVD customers cancel though…

  2. econimonium says:

    I’m a tech guy and I changed my subscription to DVD only. Look , streaming sucks. It isn’t Blue Ray, the quality isn’t good. Period. It’s much better off the DVD. That’s all I really care about and I’m a tech guy, so I’m not watching crappy limited streaming stuff. I have a Netflix subscription so I can rent anything I want. ANYTHING. You can’t stream ANYTHING, actually so at this time it doesn’t make any sense at all.

    So the day when I can stream a full blue ray quality movie is the day I will switch. And the day I can stream anything is the day I will switch. Otherwise, Redbox is good enough to get all the recent flix from, or I can watch crappy quality stuff online elsewhere.

    How this makes business sense for them at this point in time I’ll never know. And my polling of my friends on FB (so far 242 responses) is that they’re all switching to DVD only. Most of these people are tech people like me so whither the argument for streaming?

  3. KidDynamite says:

    @econimonium – very very interesting. I think that is the opposite effect of what NFLX is going for! can I ask where you live? Is it in a techno-savvy city area, and more importantly, do most of your 242 respondents have the ability to stream NFLX content?

    (note – I do not use NFLX and have no position in the stock )

  4. One competitor already. Google Movies. Yes they are an upstart but I’ll bet this expands and other sites commoditize

    http://www.youtube.com/movies?feature=mh

    I can see paying $1 for a movie. The next blockbuster will bring in $300 million worldwide if they charge that price

  5. RMoser says:

    Netflix streaming is not worth it give the poor selection of titles. I am either going to DVD only with Netflix or going back to Blockbuster by mail.

  6. econimonium says:

    @kid I live in the Boston area, so we’re all pretty tech savvy. Most of my respondents are programmers etc, but we all have the same attitude: we like Netflix because of the “long tail”…we can get obscure movies that we couldn’t anywhere else, and that’s pretty much what we watch. I can see the hits at the theater if I really want and when I don’t want to I could hop on a Red Box at the Stop and Shop or even do pay per on cable. Netflix is different.

    So I don’t understand from a business point of view what this is about. None of us are really getting “Black Swan” we saw it. But I am getting old horror flix, classics, and things I haven’t seen in years. And the quality of streaming just isn’t there, honestly.

    So there you go.

  7. KidDynamite says:

    @econimonioum – thanks. I’m not arguing with you – I don’t have NFLX because I don’t see the value in it, so you don’t have to convince me. however, I can certainly understand how people get value out of the $8.month deals.

    the obscure stuff is an interesting niche, but I can’t imagine it’s what led NFLX to a $15B mkt cap

  8. b_thunder says:

    “You’re fucked. You’ve got nowhere else to go. Netflix killed Blockbuster.”
    Microsoft killed Netscape.
    Cable/DSL providers killed AOL
    Google Android+iOS made Microsoft almost irrelevant.
    GOOG + AAPL + AMZN will make NFLX irrelevant very soon. They will be greatly assisted by every Cable/DSL company that (futilely) tries to compete with NFLX in the streaming business.

  9. pear4000 says:

    I shorted NFLX at $300. Down 4% so far today. Perfect timing: angry customers, over bought, over valued, nice round number as a psychological barrier 300. It has nothing to do with cheapskates. Netflix was worth it with the combo dvd + streaming, but not really at twice the price. The streaming content sucks compared to the DVD availability. I usually ask why do I have Netflix since I never watch anything on streaming, and I’m to impatient to wait for the DVD, so I end up just downloading the torrent file. Maybe people buying NFLX should think about

  10. Thatguy says:

    I’ve got a NFLX subscription (3 discs and streaming).

    We’ve gotten so used to the streaming service, the discs often go unnoticed and unwatched for longer periods. Absolutely fell in love with the streaming. Its at the point now that we rely on it and just in time to disappoint, NFLX streaming performance starts to suck. We used to get HD quality more often than not up until a couple of months ago. Now I have to wait 20 minutes to get pixellated garbage, assuming it doesn’t just bomb out essentially making the service unuseable. We get an error message telling me that its our net connection. BS! We just subscribed to HULU plus now because we were suffering from the absence of streaming video. Same XBox, same wifi connection, same ISP, and same time of day and Hulu screams while NFLX doesn’t work. Tells me all I need to know wbout whether its my net connection or NFLX.

    I suspect that it has to do with the content delivery providers. I’ve tried to piece together the history of NFLX using Akamai versus L3 versus Limelight to figure out why the performance dropoff was so great but its tough to pin down. I see some seeking alpha articles talking about the move from Akamai to L3 and Limelight and I recall some grumbling between L3 and the carriers regarding payments for network access points, so I wonder if this isn’t the case of the end user getting the shaft due to a pi$$ing match between the carriers and the content delivery networks. Anyhow, I’d love to be able to use NFLX streaming again, but if it continues to perform like doo doo then I’m going to keep the Hulu plus ‘scription and then get a DVD only plan from NFLX. NFLX needs to get over its performance hurdles before they make this move.

  11. jaymaster says:

    I’m on the fence with this too. I would drop streaming in a heartbeat, and stick with the discs (blu-ray, mostly). Like econ, I want the picture and sound quality. Streaming is OK (usually), but not close to DVD (and blu-ray is in a class all its own).

    But the wife really likes streaming TV shows, and thinks the quality is just fine, so she will have the opposite desire (what else is new?)

    But I’m like that with music too. I for one and damn glad the music industry is still making CDs. That’s the way I buy all my music, still. Then I can encode them per my own personal desires. The quality of encoding/compression is all over the place on the streaming sites (and even at iTunes, in some cases).

  12. me says:

    The guy that wrote this must work at Best Buy. After Circuit City Best Buy raised prices and are now known as “Amazon’s shouwroom”.

    Same will be true for Netflix. I dumped streaming, it sucks and they have no selection and new movies are a month late. Streaming does not have the sound or picture of BlueRay.

    So instead of asking where can they go? Get creative. For the $96 that Netflix wants for streaming you can get Amazon Prime for $79 that includes free steaming.

    Like b_thinder says “GOOG + AAPL + AMZN will make NFLX irrelevant very soon.”

  13. number2son says:

    I cancelled my NetFlix subscription recently because, like econimonium, I found that streaming blew chunks. I live in the East Bay and work in tech. Not that it matters. But if the goal here is to diminish the quality of the viewer experience, well then, Mission Accomplished!

  14. bobmitchell says:

    Netflix is going to find out very soon why you NEVER COMPETE WITH THE TELEPHONE COMPANY.

    Comcast charges $6 for a pay per view movie and at the same time offers internet service that allows Netflix to deliver the movies to your house.

    How long does this last?

    Blue ray, and it’s GIANT files was an attempt at making the files too big to “trade” over the internet. 7 GB over a household internet connection is going to take at least a few hours. It’s quicker to run to the store/redbox. Better bandwidth/throughput.

    The music industry never had a chance based on it’s old distribution method. Now, instead of looking for and promoting talent, they sue their customers. Excellent use of capital.

  15. scottinnj says:

    Meh. For $20/month I get the 2 dvd and streaming. We can watch the DVD’s on weekend and during week watch maybe 2 streaming movies. So that is say 16 movies month for $10, or $1.25/movie. Sure its $0.25 more than Redbox but the selection at Redbox is very poor.

  16. buddy318 says:

    VUDU