I read about the Netflix/Qwikster announcement this morning and just had to laugh. That company is so severely confused and mismanaging what was a virtual monopoly on the video rental industry that they almost deserve to fail. I say almost because even though I’ve personally cancelled my membership a long time ago, it’s still the representation of the idea that streaming media can work and, more importantly, that it should not only come from Tier 1 service providers.
Netflix was, long ago, the white knight, saving us from Blockbuster and Hollywood Video, the evil corporations that charged you extra for being lazy and not bringing videos back. That was their business model. You would pick up a movie for a couple bucks and end up paying twice that because you forgot to return it on your way to work the next morning. Then, they raised the prices of the initial rental, just to get those people who actually returned it on time. I remember renting a movie from Hollywood video for around $5, going home, watching it, and returning it tw0 days later and paying $10 in late fees. That business had to die.
So, along comes Netflix, the DVD rental by mail. Sure, you had to wait 1-2 days to get a disk, but you could watch it and return it, or hold on to it for a month, or anything in between, and never pay extra. That was revolutionary. That was the original Netflix business model. “No late fees” was their slogan for years.
Then streaming became a reasonable concept. It was always possible, but connections were slower, buffering was bad, and streaming quality was usually terrible, but it was a neat idea. Originally we got it FOR FREE. It was just part of the Netflix subscription. It was EXTRA gravy. It was the cherry on-top of the already great rental service.
Then they raise the price, probably to pay for more bandwidth, which was understandable. They they raised it again, probably to combat higher postal costs. They they raised it again, and again, and again.
Before I cancelled my subscription, Netflix had literally doubled in price (I had an original $7.99 plan, which was $14.99 when I cancelled), had knocked me down to 2 DVDs instead of 3, and had extended my wait time per disk to 3-4 days. It just wasn’t cost effective any more. For $14.99, I can rent 3 PPV movies from my cable provider, which was about the amount we were watching at the time. Add in the fact that I had never used the streaming more than a couple times, and the plan didn’t make any sense.
So, you can imagine when I read over the weekend that Netflix had decided to split it’s core business into two companies, that I was just rolling with laughter. It was pretty clear, from the moment that they could stream, that it was the way they wanted to go. Streaming, with zero overhead outside of “server maintenance” and bandwidth, is a much simpler model. Being a DVD rental service had become secondary, but they kept it up just to entice people to stream. Even by their own admission, the “streaming only” service plan they offered was their most popular with new subscribers. What they had done was use the DVD business as leverage to put themselves in devices and services (TVs, game consoles, etc) because they could promise a sizable subscription base to the manufacturers.
Then came the downfall. Being the 800 lbs gorilla isn’t all sunshine and roses. You, as the majority provider, have a responsibility, whether legitimate or merely implied, to continue to improve your service AND fight for your customers and prove their loyalty isn’t misplaced. Seeing Netflix turn from a “quirky idea” and into actual competition gave media companies, service providers and telecommunications companies all the incentive they needed to try and nip this “problem” in the bud and strong arm Netflix into exactly the position they wanted. Netflix caved and everyone is about to lose.
Hollywood took the first swipe at Netflix because Hollywood ALWAYS wants control over their content. They can’t just make it and be happy with box office returns. No, they need to control each product until the end of it’s life cycle. Netflix was cutting into the DVD purchases because it was easier and cheaper for people to just rent the movie. Coupled with the fact that Hollywood has been slow to create their own streaming options, Netflix landed right in the crosshairs. Hollywood actually thinks that their content demands premium prices. In their eyes, movie tickets should be $30, DVDs should be $20, PPV should be $10 and so on. They’ve signed deals with every movie theater, chain store, and cable provider along the way, just to ensure that you can’t go see, buy or rent a cheap movie. Netflix was the exception, and it needed to die. First they put in place what was essentially a trade embargo. That’s what countries do when they want to starve another country into submission. Netflix was forced to wait extra time (28 days!) for new releases, when other PPV providers and RedBox got a movie on day one. Why? Because RedBox is owned by McDonalds and Coinstar, two of the largest corporations, and PPV movies are run through telco’s like Comcast, Verizon and AT&T, also huge corporations. You don’t fuck with the legal teams of those companies. Hollywood lawyers knew that. Who can you fuck with? Small companies that send shit in the mail. To show their love and support, movie companies, in return for Netflix doing what they asked, started selling Netflix inferior disks with ads and unskipable previews. A nice touch and extra little twist of the knife for Netflix customers. PPV doesn’t have ads, funny how that is.
Next came the Telcos themselves. PPV is big business, just ask the porn industry or boxing. $7.99 a pop and zero overhead? That’s pure profit to a company like Comcast and AT&T. They also get money FROM Netflix for bandwidth in the first place. Having signed the aforementioned deals with content producers, they’re seeking to cut out the middle man. Why pay for Netflix when the movies can come directly from Hollywood to your DVR? Fair pricing, competition, “exclusive” busting distribution, at least those are my reasons. The worst idea anyone ever had was to make something an “exclusive” to something else. Cable providers have actually had this fight with TV stations and LOST, but apparently Netflix is too pussy to actually put up a fight. AT&T and AMC had a feud for months over AT&T wanting to lowball AMC on the rates for it’s content. AMC said, “umm, fuck you, we have Madmen” and actually ran a creeper along the bottom of it’s station telling people that AT&T was about to cut them off and to call AT&T and tell them what bullshit that was. It worked. AT&T relented, gave AMC a better rate, and life continues. The point here is that telecommunications companies are used to getting their way. They have for at least 100 years. A single station had the brass set to stand up to them and they relented. What does Netflix do when Stars threatens to pull out? Wave goodbye and promise to bring you other programming.
This actually leads me (finally) to my original premise. The eventual demise of Netflix, while warranted since bad businesses need to make way for more successfully run replacements, isn’t good for you or me. Because of exclusive deals and service providers wanting to be content providers as well, we’ve entered into dangerous territory. Comcast, HBO, Stars, Viacom, they can all charge you higher prices for the same content. On top of that, network service providers are starting to raise rates (again), cap bandwidth and charge more for streaming services. Here’s an example. You pay $120 a month to Comcast for internet and cable. You watch TV and a lot of streaming content, and you hit your bandwidth cap. If Comcast is providing you PPV movies, streaming content to a set top box, streaming content online and the service to begin with, AND charging you overages, you’re paying for content multiple times over. Once for the service, once for the subscription to content, and once for extra bandwidth. They want their cake, to eat it too, then eat yours, then steal your milk. They’ve also stepped up their attack. They want to kill Netflix now, not let it limp on for years, and take back control over the streams. They’ve actively sought out other hardware providers to provide content to directly, cutting out the need for a separate streaming service. Just this week, Comcast and Verizon announced they’re in talks with Microsoft to provide content directly to the Xbox 360. Oh, by the way, that’s probably only if you’re a XBL subscriber, which of course, you also pay for.
The best part is when they start blocking each other. Why would Verizon want you to be able to access AT&T content. Then it’s not exclusive. What if AT&T doesn’t want you to watch Netflix because it’s directly competing with them charging you out the ass? Don’t think that can happen. It already has. Multiple times. It’s going to keep happening as long as service providers want to be in the content game. They don’t want to just control the pipes, that’s not as profitable. They want the pipe and anything sent along it as well. They also don’t like the idea that you can choose another pipe. That choice will go away eventually too. It’s just a matter of time. Comcast already merged with NBC and provides exclusive content. How long do you figure it’ll be until the content is exclusive to the service?
The point of all this rambling is that I’m all for the demise of Netflix, but something needs to take it’s place, and something needs to be done to prevent ISPs from becoming the ONLY content providers. It’s already starting to happen, choices are being reduced and eliminated. The thing they are most frightened about is people cutting cable. They see people going “streaming only” and want a (big) piece of that action. Oh, you don’t pay for cable, which gets us ad-revenue as well? That’s okay, we’ll get you with the streaming, and ads online, and subscriptions to sites and content. They’re positioning themselves to be just fine with the fact that more and more people are cutting cable out. Cable is over priced and has been since the 1980’s. They know that. It’s $100 out of my budget I’ve thought many times about cutting. If they can’t get you with TV, they’ll get you with the streaming content. One way or another. Why do you think they’ve tripled their efforts to combat against movie and TV show piracy? It’s not because you’re “stealing” content (which is a gray area since it’s technically been “broadcast” over the airwaves anyway), but because you didn’t PAY them for it… twice. Like I said, they want their cake, and most of yours as well. And maybe a pie. And a quick cup of coffee.
Good times ahead. Little choice, lots of bills, same shitty content. I can’t wait.