The Recent Ups and Downs of Netflix
Netflix, as well as the rest of the entertainment community, has been going through some interesting times. Netflix became successful by recognizing that there was a big market for easy-to-access films. They started with DVDs in the mail, moved into video streaming, and are now looking to make their streaming service their primary delivery system.
There was much talk early last year about the growing power, reach, and influence of Netflix. They had a huge reach, with 20 million streaming subscribers; but the studios have always had a bit of a “stressful” relationship with them. The revenue streams provided by Netflix for the streaming rights to movies and TV shows are welcome by the studios, especially in this time of collapsing DVD sales; but at the same time, once the studios start providing their titles for streaming with a monthly Netflix subscription; the perceived value of the individual titles could decrease, and cut-off future revenues to the studios via DVD sales and pay-per-view.
Well, Netflix made some major stumbles in the summer: they increased subscriber fees in hopes of trying to get people to move from their DVD-by-mail service to streaming, and they attempted to split the DVD-by-mail business from the streaming business under a new company (Qwikster.) Quickster was a disaster, and they abandoned those plans after only a few weeks. The increased fees for DVDs hurt them in the short term: they lost 800,000 subscribers. But they’re willing to take this setback because they believe the future is in streaming.
Recently though, some other factors have come up.
Factor #1: the 20 million streaming subscribers to Netflix watched more than 2 billion hours of TV shows and movies through its streaming service. This was more than anticipated, and reminded the entertainment community that in spite of the challenges Netflix created for itself, it’s still a force to be respected. This was reported in the January 4th Wall Street Journal article “Netflix Video Streaming Totaled Two Billion Hours.”
Factor #2: given Factor #1, more studios are starting to hold back on delivering timely content. The success of Netflix is causing several studios to reconsider their licensing agreements that allow Netflix to stream their titles and purchase their DVDs wholesale.
In the fall of last year, Starz declined to renew their contract with Netflix for streaming movies from Disney and Sony. And now, Warner Bros. is starting to limit the content they’ll make available. As reported in the January 9th Wall Street Journal article “Warner Bros. Extends DVD-Rental Delay,” it was reported that Warner Bros. will double the waiting period from when they allow Netflix to distribute their films from the current four weeks to eight weeks after DVDs are available for purchase by consumers. This is to allow Warner Bros. time to sell more DVDs, as well as show Warner Bros. titles on their own premium cable channel: HBO, which is part of Time Warner.
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