Morgan Davis


Crazy Like Netflix

I’ve been fuming about a recent decision by Netflix to remove a convenient feature of its DVD “queue” management on streaming-enabled devices. Netflix, the company that sends DVDs to my mailbox and streams movies over the Internet, recently revealed plans to eliminate the ability to put a disc-based movie into the mail-order DVD queue. This appears as a button next to movie titles on Netflix streaming apps and devices. The company cites this as a move to make the interface simpler for customers. Was that feature really so complicated? I don’t buy it. There’s something more strategic going and I think I have it all figured out…

While Netflix has been upfront about their long range goal of boosting their streaming business, the number of titles available for instant streaming has been lackluster, necessitating physical discs as the only way to see recent and popular movies. This is one of the biggest gripes customers have about this darling movie membership company that knocked the block off of Blockbuster. Now, it seems that every painful move Netflix makes to get out of the mail-order DVD business is not counter-balanced by any benefit with the streaming side of their venture. This has many subscribers upset, including this one.

But how could such a brilliant company, which only a year ago could do no wrong by customers, begin to make exceeding questionable and, frankly, downright bone-headed business decisions that are enraging a loyal customer base? After all, the company managed to attract over 20 million customers — a testament to many things it does right. I recall singing its praises after dropping Blockbuster when it was clear that Netflix was the better choice. It had a larger disc selection, lower prices, and faster turn-around time on shipping. But now, with its streaming focus, many are really starting to wonder.

It was only a few months ago when they increased pricing on DVD plans while introducing a low-cost streaming-only plan. This forced many customers to opt for plans that offered fewer DVDs at one time, or pay more for the same number of discs.  For customers like me who used to manage two discs at a time, I’ve selected the one-disc plan to keep my cost the same.  That’s moving the needle on my happy meter in the wrong direction.

While waiting for the US Postal Service to shuttle discs between Netflix and my mailbox, I’m scouring their web site for movies I can place into my “Instant Queue”. Sometimes I use my web browser on my computer. But more often than not, I’m on my iPhone using the Netflix app. Yet, when I can’t view an instant title I want, I have to put it into the DVD queue. Only now that extremely convenient ability is going away for reasons Netflix dubiously claims is confounding to customers. And I’ll have to remember to do this next time I get back on my computer, which means it probably won’t happen.

In other words, not only did they force me to lower my membership plan to receive fewer discs, but now the very act of getting discs lined up for shipment becomes a rarity.

This change in behavior — or rather, the pain of it — is exactly what Netflix appears to be aiming for as they surreptitiously cause customers to loathe anything having to do with physical DVDs by making it costly, inconvenient, and tedious.  Crazy!

It makes no sense to invest into taking away a feature. As an Internet application developer, I know what this entails. A team of programmers at Netflix will have to go into the software code and make changes to eliminate the “Add Disc to DVD Queue” feature. For example, the Netflix app for Apple devices will have to be changed and resubmitted through the iTunes App Store and redistributed to all iPhone, iPad, and iPod Touch users. The firmware (software that resides in hardware devices) for Netflix-enabled game consoles, Blu-ray players, and TVs will have to be changed and offered as updates (perhaps mandatory, as I would not put past Netflix to do). It takes time, developers, and salaries to make that kind of backwards change.

So why would this successful company go out of its way by investing money into changing its software and firmware only to further frustrate customers and possibly lose them? Are they truly crazy? Or maybe crazy like a fox…

This may be total conjecture on my part, as I have no insight into the movie industry. But I suspect that Netflix has basically had it with Hollywood, specifically the impossible wheelings and dealings with the movie companies to release their titles quickly for streaming. Why should the distributors consider that? The only business models they know are syndicating movies through brick-and-mortar theaters, the sale of DVDs, and whatever arrangements they have with the DVD rental services like Netflix, RedBox, etc. And that’s worked just fine for years. How long had Blockbuster been doing that? You’re not going to see titles available for streaming until the distributors are satisfied that they’re not going to make as much on the physical sale of DVDs via retail.

This is why you mostly see obscure streaming titles from smaller (think: indie) distributors, or very old titles that don’t have much appeal to buyers (think: bargain DVD bin at Walmart). George Lucas is not going to be happy with a few pennies from streaming The Empire Strikes Back when there is a chance you might just go out and buy the DVD. And that’s why, I believe, you don’t see hugely popular titles available in instant format. If the movie studios made all their titles available for instant streaming (after their run at the theaters has lapsed, of course) they would see a huge drop in the purchase of DVDs.

Like Netflix, I think most people share a vision of an everything-at-your-fingertips world of entertainment. It’s not farfetched to imagine a time when all you need to do is point and tap (or grab your remote) and you can watch just about any movie instantly. So why would you pay $20 for a DVD to take up space on a shelf when for half the cost of one DVD per month you have every movie whenever you want, on your TV, computer, phone, game console, etc.

Undoubtedly, this vision of a streaming-only world is difficult for Netflix to achieve given legacy distribution models. Streaming eliminates all the hassle and cost of physically handling DVDs which Netflix has to initially buy — lots of them for each title, replace them when they get scratched or lost in the mail, etc. They’ve got mailing centers all over the country. Someone has to staff them and handle shipping, receiving, and all the management related to processing your disc queue.  There must be some kind of pay-per-rental agreement between Netflix and the movie distributor, and so all that has to be logged and accounted for as discs fly in and out.  Even with barcode scanning on the mailers, it’s still clunky.  What a logistical pain.

And let’s not forget, this is not what Netflix envisioned in their business plan. They called themselves Netflix for a reason, not Mailflix.If someone told you that every movie made was available immediately, my guess is you’d prefer that over discs. (And, yes, they would need to address the problem of subtitles and closed captioning).

This next evolution to purely streaming is inevitable, and Netflix realizes this. But the movie industry is in the way. Customers today need DVDs because the streaming titles are abysmal for reasons already given. How do we get to that next level? And this is where, I believe, Netflix is gaming the movie distribution industry.  Unfortunately, it didn’t tell us that we are the pawns in this odd game of chess that will force the industry to change.

By making it harder for their 20 million subscribers to rent DVD discs via mail, that means fewer discs are being purchased by the rental companies,  fewer are being rented, which means fewer royalties are being paid to the distributors. As the movie distributors begin to ache from this decline in revenue, Netflix will show them there is a growing demand for on-demand streaming to take up that loss.  Distributors will cave in to pressure to release newer titles earlier, and hopefully permit popular titles to be streamed (e.g., Star Wars), as the market for owning physical DVDs dwindles.

The only way Netflix can impose the leverage it needs is by effectively strangling the whole system by dropping support for physical DVDs, recognizing it may lose customers in the process. In the long run, that may be worth it. That’s the only way all these crazy, customer-hostile decisions make any sense.

But don’t feel bad for the retail DVD industry. Once the rental companies stop offering DVDs by mail, you could be more inclined to actually buy one for those wonderful bonus features and HD Blu-ray quality. In the end, the benefits might outweigh the negatives many fear today. Perhaps more discs will be sold outright, Netflix will realize huge savings by eliminating mail-based disc processing and have virtually all titles on hand at a lower monthly subscription cost. We might even see the return of the local video rental shop for when you want a cheap DVD rental without having to buy a disc. Sounds like a win-win.

I’m hoping this is the case. However, Netflix could be more transparent with customers rather than making flimsy claims about user interface complexity. They’re dead set on doing what they are going to do anyway, and we ‘re all being taken along for that ride. I’d rather it be a short, bone-jarring ride, than one that drags on forever and is annoying and uncomfortable. So please, Netflix, just come clean with us so we can get it over with faster.

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