Netflix, the company credited with changing the way we rent movies, is undergoing some growing pains, and much like any adolescent, the company is alienating those closest to it.
The month of September has not been good to the movie rental company; losing content providers and consumers alike. First, its contract with Starz evaporated, causing hundreds of titles to vanish from Netflix’s expansive library.
Netflix CEO Reed Hastings attempted to downplay the loss, assuring subscribers and shareholders in a press release that – “We can take the money we had earmarked for Starz next year, and spend it with other content providers to maintain or even improve the Netflix experience.”
Shareholders were unconvinced by Hasting’s optimism and stocks fell nearly 9 percent.
Further problems arose when Netflix announced fee increases. Where once one could receive a DVD by mail and stream any number of movies over the internet for $9.99 a month, now the two services would be separated, each with a monthly price tag of $8.99. Renters balked, causing Netflix to lower its projected subscribers by one million for 2012.
Seeing the panic as a failure to communicate, the company tried to clarify its position by separating the two services into two separate companies – Netflix the movie streaming service – and Quikster, the new DVD by mail company.
Hastings issued a public apology, saying he “messed up,” and, “owed everyone an explanation,” but simultaneously claimed the split was, “necessary and best.”
Many felt there were three main advantages to a subscription: affordability, breadth of content and convenience. By splitting its services in half, it would appear all three of those traits have been degraded.
Many protest the fee increase is greedy and inane amid a recession in which entertainment is considered a luxury good. Many customers are canceling their subscriptions because they now find it unaffordable.
“The average person of university age range can’t afford $16 a month, we could afford $8,” said Amanda Faig, a graduate student of agronomy. “When price goes up, demand goes down.”
If a subscriber chooses to ignore the fee hike, opting for only one service, he will be forced to choose between content and convenience. By dividing their streaming and mail services, Netflix has forced customers to choose between their much larger DVD library with Quikster, and the convenience of being able to instantly stream a movie online with Netflix’s comparatively smaller collection.
“The big advantage of Netflix was you could get stuff that was harder to find,” said Jesse Drew, a UC Davis professor of technocultural studies. “People want the convenience of streaming but their offering of online content is being squeezed.”
Faig confirmed Drew’s sentiment.
“I don’t care to see Human Centipede (available for livestream),” Faig said. “I would like to see Sixteen Candles, but then I’d have to pay extra.”
Why then has Netflix, a company with a once effective business model, so drastically changed its ways? There are two main reasons. First, Netflix lost money on each DVD it shipped; about $1.50 to the film studio in addition to the ever rising cost of sending a DVD via snail mail. The apparently unsustainable model would explain Hastings’ comment that “DVD by mail may not last forever.”
Secondly, many argue the shift to streaming was inevitable.
“Netflix’s whole aim, which I agree with, was streaming,” said Justin Knight, a senior optical science and engineering major.
For many customers, streamed content has been viewed as the more convenient option for some time, and other companies such as Amazon and Apple now offer streaming services of their own.
Hastings and his company will face significant challenges to secure digital content in the coming months as they must compete with other distributors.
“Their streaming service is threatened heavily by other people who want the same content,” Drew said.
Take for instance the failed deal with Starz. The initial deal signed several years ago was worth $30 million; this is opposed to the nearly identical contract which failed earlier this month, the value of which was estimated at $300 million. This competition for content poses a serious threat to Netflix as it attempts to move into a streaming only paradigm.
Remember Amazon and Apple’s streaming services? With Netflix looking to abandon its DVD by mail service, it has now placed itself in direct competition with these companies.
“Amazon and Apple both have immense infrastructural advantages, IT advantages, and, in Apple’s case, an advantage on the hardware side,” said Andrew Hargadon, a professor of technology management at UC Davis’ Graduate School of Management. “Their prospects for competing were pretty slim … this just hastens their demise.”
With its stocks continuing to tumble and customers still canceling their subscriptions there is a very real chance Netflix’s decline may be terminal. For now the ship stays afloat, but in the long term, the company credited for bankrupting Blockbuster, may be due for its own curtain call.
JUSTIN GOSS can be reached at email@example.com.