Netflix shifting focus away from DVDs to streaming

Summary: Netflix's CEO likens DVD by-mail rentals now to what AOL dial-up Internet was in the early 2000s.

By Rachel King for Between the Lines | October 25, 2011 -- 01:00 GMT (18:00 PDT)

It's no secret to anyone familiar with what Netflix has endured in the last few months that the online rental business is on the defense.

Netflix's current damage control strategy is all about focusing on digital streaming subscriptions and backing off from pushing by-mail DVD rentals. We're still a long ways off from Netflix giving up on DVDs entirely, but it might not be that long until DVDs fall into the shadows -- at least from a marketing perspective.

"The future is brightest by focusing on streaming," asserted CEO Reed Hastings during a Q&A conference call with investors on Monday. When asked about discounting hybrid DVD-streaming subscriptions, Hastings acknowledged that Netflix could do that, but there isn't as much interest in subsidizing DVDs in comparison to discounting streaming.

Hastings went so far as to compare DVD by-mail rentals now to what AOL dial-up Internet subscriptions became in the late 2000s: a long-term residual market with variable costs that is steadily declining every year.

CFO David Wells added that the long-term margin for streaming will be driven by how many competitors Netflix has, but he anticipates that the growth of streaming subscribers to outpace content addition over the next year.

"Netflix is not the only service that our subscribers use to source their entertainment," Wells acknowledged, confirming that many subscribers that also use other rental services such as Redbox to supplement content.

Hastings also responded about the competition, posting that the digital streaming industry will clamor around promoting exclusive deals more and more

"Relative to paid television, it’s not a zero-sum game," Hastings said. "Many people, including me, subscribe to HBO because it’s got incredible content, in addition to Netflix."

However, Netflix executives replied that they had not seen any impact from new products from competitors -- specifically Dish's Blockbuster Movie Pass or Amazon Instant Video.

Reflecting the loss of 800,000 customers during the third quarter that stemmed from price hikes and the Qwikster debacle, Hastings admitted that when budgets are tight, consumers figure out a hierarchy of the ones they want to keep most.

The goal for Netflix, Hastings posited, is to win those customers, touting Netflix's "pure on-demand experience" with personalized features that make it easier to discover content one might not have known exists.

"The focus for us is building back our reputation and brand strength," Hastings concluded. "But that’s not through grand gestures."

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18 comments

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RE: Netflix shifting focus away from DVDs to streaming

...then they better shift some more content - every time I search for a movie it's only available on DVD.

KNPepper
25 October, 2011 06:49

Reply Vote
- RE: Netflix shifting focus away from DVDs to streaming
 
 @KNPepper I think that was the whole problem with the Quikster split in the first place: their streaming selection is really limited. Some good TV shows but they are always missing seasons. The movies are mostly either ancient, arthouse, or C grade material. I also question just how "high margin" streaming really is. It seems to me it is only high margin now because they aren't paying very much for content. To strengthen the service they must increase content at the expense of margin.
 
 SlithyTove
 25 October, 2011 08:53
 
 Reply Vote
 - RE: Netflix shifting focus away from DVDs to streaming
 
 @SlithyTove
 Very good.
 
 That's where the price increase came from.
 
 fairportfan
 25 October, 2011 09:43
 
 Reply Vote
RE: Netflix shifting focus away from DVDs to streaming

I cancelled my DVD service and am streaming only... I really wish they had more recent content online...

browser.
25 October, 2011 07:17

Reply Vote
- RE: Netflix shifting focus away from DVDs to streaming
  
  @browser. I did the opposite as the content in on DVD
  
  Bodazapha
  25 October, 2011 10:53
  
  Reply Vote
  - RE: Netflix shifting focus away from DVDs to streaming
    
    @Bodazapha I thought about it, but DVD option is too limited. I stream a lot of TV shows and Movies and I need not wait for the DVD to be delivered.
    
    browser.
    25 October, 2011 11:04
    
    Reply Vote
RE: Netflix shifting focus away from DVDs to streaming

I cancelled my streaming subscription but kept the DVD service because of the lack of content for streaming. Netflix got to where they are based on their DVD service and now want their customers to be happy about a service that has less available content.

One of their initial strengths was offering DVD's that were more esoteric and not available at the neighborhood Blockbuster store. Now they want to focus on fewer, bigger titles via streaming just like Blockbuster did with DVD's.

If Netflix doesn't wake up soon they'll lose a lot more customers when a competitor finally offers a better value in terms of selection and price.

PhillyIT
25 October, 2011 08:52

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- RE: Netflix shifting focus away from DVDs to streaming
  
  @PhillyIT They really did forget their roots.
  
  My biggest problem was with their manipulation via the website. Streaming coming up first (why no preferences that allow me to decide what page tabs first), Changing their Ipad App by removing the ability to view your DVD queue (If you ever looked at their Apple comment area on Apps, they had 100s of folks complaining about that). I dont have proof on this one but they throttled thier website when viewed by Ipad. Now that i have removed streaming from my service, the site is back to normal on IPad.
  
  Overall, the customer experience for me has been declining for the past 18 months.
  
  Bodazapha
  25 October, 2011 11:00
  
  Reply Vote
RE: Netflix shifting focus away from DVDs to streaming

Be interesting to see how the streaming model works out for them considering the quotas some of the large ISP's are implementing. In our area you pay additional $ per MB over your 25GB quota.

netsysmgr@...
25 October, 2011 09:16

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RE: Netflix shifting focus away from DVDs to streaming

Unless Netflex thinks everyone is going to be happy watching outdated TV shows - their logic is quite flawed.

Their current movie content is seriously lacking and will continue to do so. They currently don't have a contract with any major movie studio and Starz will quit delivering content the first of 2012.

And in regards to paying $8 a month to watch outdated TV shows - why should I when I can watch them from standard Hulu, TVLand and others resources for free?

pauliw25
25 October, 2011 09:59

Reply Vote
Redheaded step-child, as always

Streaming is fine if you run Windows or OSX. It isn't offered for Linux so when it bites the dust, so will my standing as a Netflix customer.

midnightcommander
25 October, 2011 10:01

Reply Vote
Mistake to dis DVDs

Shifting away from DVDs, where they are by far the dominant player, to streaming, where they already have a half-dozen serious competitors, with more to come--ultimately, the studios and networks will go direct--is a mistake. I value the selection and even the speed of DVDs. I don't have time to watch more than 3-4 movies a month and I'm never waiting for Netflix. But for streaming, I'll go with Amazon. I already have Prime, which I already use a lot for shopping, and the additional cost of streaming is zero. Much better value. Netflix can shift to streaming, but their service isn't sufficiently differentiated there to warrant the extra cost.

pdegroot
25 October, 2011 10:23

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RE: Netflix shifting focus away from DVDs to streaming

Netflix does not even give their discounts for long time customers. I used to get an extra movie out at a time but that quit when they got greedy. Then I dropped from 4 out at a time to 2. Just dropped them all together today. They just don;t care about anybody but the stockholders. That is the demise of most good companies that go public on the stock market.

PS Their streaming is great for my wife that likes shows that are 30 years old. Not for me !!

Artymonn
25 October, 2011 10:36

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RE: Netflix shifting focus away from DVDs to streaming

I have DSL service with a maximum download speed of 3MB/sec when the stars and planets are aligned. I cannot stream videos. If I want to watch a movie, I rent it from Redbox or Netflix or Blockbuster. It looks like Hastings does not want my business.

macguy47
25 October, 2011 10:44

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RE: Netflix shifting focus away from DVDs to streaming

In order for Netflix Streaming to replace DVD rental a few things have to improve. Netflix needs to have as many films streaming as on DVD. The quality has to equal Bluray and wifi home networking needs to improve so that connections don't keep dropping.

spece
25 October, 2011 11:50

Reply Vote
From indispensable, to irrelevant.

Enjoy those margins Enron execs. Oooops, Netflix execs. Cancel a free, catch that? FREE, streaming trial. Nothing there. See you, wouldn't want to be you.

HRobin1455
25 October, 2011 15:12

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RE: Netflix shifting focus away from DVDs to streaming

I too think the streaming content is too limiting to bother keeping. It's old, indie, artsy, or just plain junk. Why pay for that?

pwhite42
25 October, 2011 15:20

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RE: Netflix shifting focus away from DVDs to streaming

I don't understand what Netflix is talking about. Access to the DVD library gives you ALL the titles in the Netflix catalog vs. only a small selection by streaming "that is getting better all the time". That a bunch of BS. Maybe it is getting better, but it's not fast enough, and it's not good enough to be the ONLY plan I want. I dropped streaming and went to DVD only. Keeping both plans costs way too much. The streaming catalog is NOT worth $8 a month in it's current state, and it will never have the size of the DVD library in titles.

So now they lost $2 a month from me. They should have left well enough alone or come up with a better "combined" deal. I think Reed Hastings is a fool, and he's paying for it now.

WindowWasher
1 November, 2011 07:38

Reply Vote