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September 19, 2011

Why Netflix’s split won’t help with its real problems

Filed under: movies, netflix, television, video — Rakesh Agrawal @ 11:30 pm

Today’s announcement by Netflix of changes to its longrunning service will do little to solve the very significant challenge in front of Netflix streaming: content licensing.

In his blog post, Netflix CEO Reed Hastings compared his company’s challenges to those of AOL and Borders:

Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.

While all of that is true, Netflix is nothing like these companies. AOL and Borders died largely because of internal conflicts and lackluster attention to emerging technologies (broadband in AOL’s case, e-readers for Borders). Those are not the real challenges that Netflix faces.

Hastings and Netflix have always been forward thinkers. The company was launched at a time when DVD players were just starting to take off — but it wasn’t named DVDFlix. They experimented with creating their own digital media players before spinning out Roku. They have gotten Netflix streaming into virtually every device out there.

I have great respect for Netflix and Hastings. Not long ago, I heavily praised Netflix for making many right moves to be as successful as they are.

Netflix’s biggest problem is not internal conflict between the DVD side of the business and the streaming side. Every battle in that realm has clearly gone toward the streaming side. Netflix management has made it very clear that it wants the DVD to go away.

But they need the content owners to cooperate for that to happen — and so far, there has been limited cooperation.

Content providers are more than happy to sell Netflix old library content that they have no meaningful way to monetize. (Some of which is of such low value that it’s not even worth pressing DVDs.)

Content providers are much less willing to give access to new release movies, HBO Original content like The Sopranos and other high-value content for which there are many other more lucrative markets.

On the DVD side, Netflix doesn’t need to seek permission from the content owners. Under the first sale doctrine, they can rent anything they can get their hands on. Even there, Netflix has voluntarily agreed to delay when it begins renting new-release DVDs in exchange for access to other content from the studios. (Presumably, if Qwikster were truly separate, then it would rent all new-release DVDs as soon as they came out. I bet that doesn’t happen.)

As much as content owners want the revenues that can be generated by Netflix’s 20+ million subscribers, they are worried about Netflix devaluing their content. At $7.99 a month for unlimited access, Netflix is cheaper than the price of a single movie ticket in many cities. Premium content providers don’t like that.

Even if Netflix were willing to pay more for the content than it charges subscribers, content providers wouldn’t play along. Let’s say for the sake of argument that Netflix were willing to pay $14.99 a month for content and could only charge subscribers $7.99 a month. This would generate a loss of $7 a month but the studios would get a lot more money. The studios are unlikely to participate because they want consumers to associate a higher price for their product than $7.99 a month.

This is similar to the Minimum Advertised Price concept in retail, where manufacturers set a minimum price that must be shown whenever their product is advertised. They want consumers to associate a certain value with their product and retailers advertising a lower price undercuts that. (If you’ve ever wondered why Amazon sometimes asks you to put an item in your cart before showing you the price, this is why.)

A similar thing happened with e-books. Amazon used to sell many Kindle books for a loss to promote the adoption of Kindle. With recent changes in the marketplace, the publishers are setting the price and Amazon gets a commission.

A related issue that content providers face is channel conflict. They sell essentially the same product to multiple channels: first-run theaters, second-run theaters, cable video-on-demand, hotel pay channel distributors, premium networks like HBO and Showtime, DVD, basic networks like AMC, Bravo and USA. This “windowing” strategy allows them to maximize revenues for a single piece of content.

In order to keep getting the high prices they get from cable VOD, they can’t sell new release rights to Netflix at low prices. If Netflix goes for $7.99 a month, HBO at $20 a month looks expensive. TimeWarner, which owns both studios and distribution, wants to protect HBOs price point. There are two ways to do that: get Netflix to raise its price or only sell mediocre or dated content to Netflix.

Netflix will have to raise the price of its streaming service in order to get high quality content. Apparently this was a sticking point in the recent re-negotiation with Starz. According to the Los Angeles Times, “Starz didn’t just want Netflix to pay more money for its content. It wanted Netflix consumers to pay more too.”

As much as many consumers hate the tiered model and expense of cable and satellite channels, that model has worked for decades and the entrenched players don’t feel the need to change that. Unless copyright law changes to force compulsory licensing of movies and television content (the odds of a truly entertaining Oscars broadcast are much higher), Netflix will have to play by the rules created by the content owners.

Splitting the DVD and streaming businesses does little to address any of these concerns. While other companies merge for synergies that rarely materialize, the DVD and streaming sides of Netflix are entirely complementary. The DVD side provides a fresh and deep library, while the streaming side provides instant access for when you just need something to watch right away. Recommendations take into account taste preferences regardless of the silly division between physical and digital media. Customer care, Web site development and other operations also have shared value.

I’m as big an advocate of the all-digital living room as anybody. I bought a DVR when they were selling for $1,000. I owned the first-generation Apple TV. If I had to pick between DVD and Netflix streaming today, it’d be no contest: DVD.

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January 12, 2009

6 ways a DVR is better than hulu

Filed under: consumer electronics, hulu, media, movies, television, video — Rakesh Agrawal @ 8:50 pm

I recently wrote 10 reasons why hulu is better than a DVR. Here are six advantages that DVRs have over hulu.

  1. You get higher quality video. If you have an HD source, chances are the video quality on your DVR will be much better. Hulu offers a very small selection (13 full episodes last I checked) of HD programming. Note that some local TV distributors charge extra for HD service. With AT&T u-Verse, the $15 for the DVR becomes $25 when you add HD.
  2. It’s designed for your living room. DVRs, despite the horrible UIs, were designed to be controlled from a distance and connected to your TV. It’s still only the geek set that will bother connecting their PCs to a TV for hulu. There’s hope though: Boxee is bringing hulu and other Internet video to a variety of platforms. A killer device would be a DVD player or game console that has boxee/hulu built in, similar to the LG blu-ray/Netflix player. (Boxee itself is based on XBMC Media Center, which runs on XBox.)
  3. It’s more network efficient. This isn’t a concern for most people today. But it may become one as incumbent TV providers wake up to the threat of Internet video. With a DVR, it doesn’t matter to the cable company how many people watch a show; the more the merrier. With hulu, every stream takes incremental bandwidth. Comcast is capping monthly bandwidth at 250 GB. It’s unlikely that ordinary Internet usage would come anywhere near that, but two or three people regularly watching hulu could hit that.
  4. You can record virtually anything. Although some DVRs restrict recording of some content (e.g. pay-per-view movies), the rule-of-thumb is that you can record whatever comes down the pipe. Hulu’s content comes from a select (though large) list of partners. You can’t, for example, watch ABC shows on hulu. Partners have Byzantine restrictions on when content appears. While many shows appear on hulu the day after broadcast, others appear eight days later. (House, Monk, Psych) I strongly suspect that this is because of Nielsen’s Live plus 7 TV ratings.
  5. You can keep what you record as long as you like. DVRs don’t generally expire content; as long you have free space you can keep it around. Or until you move and have to give the DVR back to the cable company. Most of the recent content on hulu expires within a few weeks.
  6. You can skip commercials.

I also came up with two more pluses for hulu:

  1. You get bite-sized content. Many of the shows I watch, such as talk shows or variety shows, are really collections of discrete elements. With hulu, I can get to just the parts I want easily. I don’t have to fast forward through the inane comedy bits to get to an interview I want to see.
  2. You get uncensored content. hulu offers content you won’t see on basic cable, such as scenes with nudity or bad language. (You must be logged in to see these.)

More on: hulu

January 2, 2009

10 ways hulu is better than a DVR

Filed under: consumer electronics, hulu, media, movies, television, video — Rakesh Agrawal @ 4:39 pm

I’ve been using a DVR for at least 8 years. I started off with a Replay 2020 and have since used other Replays, TiVos and cable company DVRs. Now my primary DVR is the whole home DVR that comes with AT&T’s u-Verse service.

DVRs have transformed the way I and many others watch TV. Besides breaking news and sports, I rarely watch live television.

But less than a decade after their inception (and before they’ve reached 50% penetration) they’re headed the way of the dodo, vinyl and cassette tape. The DVR’s kissing cousin — placeshifter Slingbox — will have an even shorter life.

The reason: Hulu. Here are 10 reasons why Hulu is better than a DVR:

  1. It’s free. DVRs typically cost $10-$15 a month for service. For a TiVo, add $150-$600 in hardware costs. Many people can use hulu to ditch their cable TV subscription altogether and save $60-$75 a month.
  2. You don’t have to program it. Sure, programming a DVR is a lot easier than programming a VCR. But it still takes work. And with 300+ channels, a lot of scrolling. Most DVR UIs are atrocious. While Web interfaces can make things easier, AT&T’s interface (powered by Yahoo! and recently redesigned) feels like Web 2004.
  3. You don’t have to manage it. A lot of the UI on a DVR is devoted to managing conflicts among recordings, managing recording space, etc. Many a user forum has been devoted to identifying the logic behind what gets recorded and deleted on DVRs. I just know that on my AT&T DVR, things don’t work the way I’d expect. (e.g. deleting programs I’ve watched before deleting programs I haven’t watched.)
  4. It’s infinite. You have access to thousands of TV shows and movies, way more than a DVR can hold. That’s only going to expand as programmers recognize the power of hulu and television on the Internet.
  5. You don’t have to know what you want to watch beforehand. If you hear about a program you’re interested in, you can go to Hulu and watch it.
  6. It has fewer ads. For many people, skipping ads is a big part of the appeal of a DVR. But it’s still a hassle. You have to pick up the remote at the right time and you usually end up watching 7-10 seconds of ads anyway because things don’t line up right. I’d rather sit through one 30 second ad. This isn’t bad for advertisers or TV networks either. (More on that later.)
  7. It helps you discover. Hulu recommends shows you might be interested in. Most DVRs don’t. (TiVo is a notable exception.)
  8. It’s social. You can share programs that you like with your friends on social networks.
  9. Your shows won’t be screwed up due to cable system outages, storms, power outages or a football game that goes long.
  10. It’s searchable. As a search geek, I’ve been impressed with the quality of Hulu’s search interface. They’ve made it easy to find content you want.

There are some advantages that DVRs have over hulu. I’ll write about those later. In the meantime, check out my list of ways to improve hulu.

June 3, 2008

Occasional reader – Saying no to Google, popcorn prices popping, economics and height, Pringles

Filed under: fun, google, maps, movies, privacy, random, reader, street view, weekly reader — Rakesh Agrawal @ 1:09 am

October 13, 2007

What’s the most screwed up media business?

Filed under: journalism, media, movies, newspapers, television — Rakesh Agrawal @ 11:11 am

Among television, movies, newspapers and music, which industry is the most screwed up when it comes to adapting to the new world?

The newspaper business won some serious points this week in the “screwed up” race with Roy Peter Clark’s piece “Your Duty to Read the Paper.” Clark implores journalists to spend more time reading newspapers:

It is your duty as a journalist and a citizen to read the newspaper — emphasis on paper, not pixels. …

I’ve been reading the paper more closely lately, spending at least 15 minutes in the morning, and then picking up some longer stories and features in the evening. The experience has reminded me of something I forgot along the way: that there is no substitute for the local daily newspaper if I am going to live as a full-blooded citizen in a place that I love.

Why knock the newspaper industry for Clark’s essay? Clark is a “senior scholar” at the Poynter Institute for Media Studies, considered by many to be the most prestigious “think tank” for the newspaper business. If Clark were Jason Calacanis or Robert Scoble, I’d chalk up this piece as linkbait. Sadly, I don’t think Clark knows what linkbait is or its purpose.

While Clark has been spouting the sanctity of the printed newspaper, I’ve been consuming television content.

Not watching television, mind you, but watching television content. I watched CNN’s Reliable Sources and NBC’s Meet the Press on my iPod while on trains and planes. I caught NBC’s Thursday night comedy lineup streamed onto my laptop on Friday night. (I’m visiting my brother who doesn’t have a TV.) These are shows I wouldn’t have been able to watch otherwise.

Unfortunately for Clark and the newspaper business, those were potentially prime news reading opportunities. I hate it when people shove their broadsheet pages in my face when I’m crammed into a seat for five hours, so I try not to do that to them. Television won out because they provided content I wanted to consume in a format that was convenient for me. I can nitpick the details of NBC’s implementation or their fight with Apple, but at least they’re trying a lot of different things.

Same with the movie industry. I was interested in seeing I Want Someone to Eat Cheese With from IFC Films. It’s in limited release, so I can’t see it at the theater. No problem, it’s available for $6 through Comcast On Demand. The movie business as a whole is still stuck in the distribution window mindset with staggered releases to different channels, but those windows are rapidly collapsing. Comcast is now getting many On Demand movies at the same time they hit DVD.

That leaves the music business. It’s the industry that came up with the Ringle, one of the dumbest ideas I’ve seen in a long time. It’s also the industry that has been the most aggressive at suing its customers. At least newspapers haven’t done that yet.

Disclosure: I attended a Poynter Institute leadership seminar in the mid-90s and had a great learning experience, though I can’t say the same about the St. Petersburg Hilton Motel 6.

More on: newspapers, television

Recommended reading:

July 11, 2007

Yippie-ki-yay

Filed under: fun, intellectual property, movies — Rakesh Agrawal @ 1:09 am

I went to see Live Free or Die Hard tonight. In addition to the pure mindless fun of two hours of chase scenes and car explosions, there’s the fun of talking about all the things that are so ridiculous afterward:

  • Although the movie is set in DC, the buildings are too tall, the crowd scenes are too white and the tunnel that is a key focus of the action doesn’t exist.
  • Jets and helicopters can’t maneuver the way they do.
  • The stereotypical movie computers that are in big airy rooms with flashing lights and displays. Real data centers tend to be sterile, freezing and cramped.

In case you haven’t seen the first three movies, here’s a fun video that will catch you up. You don’t want to miss the fine nuances of the plot.

The story of the video itself is interesting. Originally Guyz Nite included clips from the first three movies. After studio lawyers insisted the band take it down, the marketing department came back and paid them to add clips from the fourth movie and put it back up.

(Explicit lyrics)

January 16, 2007

Netflix movies without the red envelope

Filed under: movies, video — Rakesh Agrawal @ 8:52 pm

Netflix is beginning to experiment with streaming movies and TV shows on demand to PCs. Customers will soon be able to watch movies and TV shows like “The Office” without having to wait for the red envelope to show up in the mailbox.

The space is already extremely crowded: Amazon, CinemaNow, Movielink and a bunch of startups already offer some form of movie rental on demand. Apple sells digital downloads.

What is Netflix’s core differentiator? In the DVD rental-by-mail business, it’s logistics. They know how to get movies in-and-out of warehouses efficiently; most returns go right back out the same day. 60 Minutes has an interesting clip on Netflix logistics.

In the online world, it’s much harder to pinpoint Netflix’s strength. From a feature standpoint, Netflix brings nothing new to the table:

  • Movies are streamed. You have to be connected to watch movies. Some of the competitors, including Amazon and Movielink, let you download a movie and watch them offline. (For example, on your laptop when you’re on a plane.)
  • Selection is limited. Online movies/TV shows are limited to a selection of about 1,000 titles. Netflix offers more than 65,000 titles by mail.

The twist with Netflix is that online viewing is included with your Netflix subscription, instead of having to pay $2-$5 for each movie viewed. You’re limited in terms of the number of hours you can watch, depending on which subscription plan you buy. It’s an odd way to price them. Vongo offers unlimited downloads for $9.99/month.

The biggest challenge is that most people can’t watch the movies on their TVs. Getting the movies on to the TV is essential to winning in this space. There are a number of companies that are in a better position than Netflix to do this: Apple (with Apple TV), Moviebeam, Tivo and all the cable companies.

Apple will likely get a substantial number of people to buy their box, but it’s harder to get people to spend $10-$13 to buy a movie than $2-$5 to rent one. MovieBeam has a lot of issues. Tivo is probably one of the best positioned companies to provide such a service, but so far hasn’t announced any plans.

The 1,000-lb gorillas are the cable companies. They’ve got many advantages that are going to be tough to overcome:

  • A box already connected to the TV in many homes.
  • Fat pipes (that they own). While the online movie providers are struggling to get sub-VHS quality video to you, Comcast already delivers HD-quality movies. And all that bandwidth costs them a lot less.
  • Established billing relationships. It’s easy to make impulse purchases and have them added to your cable bill.

January 2, 2007

How low can Netflix go?

Filed under: movies — Rakesh Agrawal @ 8:16 pm

Netflix is testing a new $3.99 a month plan. (If you’re already a subscriber, you need to logout to see the offer.) This plan is a re-pricing (for new subscribers) of the current $5.99 plan, which allows subscribers to rent a total of two movies a month with one out at a time. At $2 a movie, this beats most movie rental offers.

It’s great for consumers, but it doesn’t bode well for Netflix or its investors. Fortunately for them, it’ll take a while for the studios to get their act together on digital delivery.

December 18, 2006

MovieBeam’s (sort of) video on demand

Filed under: consumer electronics, media, movies, video — Rakesh Agrawal @ 7:44 pm

Imagine a Tivo that could only record one channel, would only record shows that the networks thought you might be interested in, charged you every time you wanted to watch something and then would delete it whenever it wanted. Doesn’t sound very appealing, does it? That’s exactly what the movie studios have created with MovieBeam.

MovieBeam is a dedicated settop box that allows you to watch movies in your living room. The promise is your choice of up to 100 movies, with up to 10 new movies delivered to your box each week. Among the gems currently available on my box: Nacho Libre, The Bachelor, Don Juan de Marco and BASEketball. Selection of movies is clearly an issue.

Movies are continually beamed to the device using excess space in over-the-air analog TV broadcasts. That is one of the key problems with MovieBeam: it requires users to correctly position an antenna. I found that differences of even a centimeter or two make the difference between receiving movies and not. Although the instructions say that an indicator will light when the signal is lost, I haven’t seen it despite twice having lost signal for several days.

In order to use MovieBeam, you should have a home phoneline. With some difficulty, I was able to get it to work on a Vonage line.

The box costs $100. Movies cost $2-$5 depending on whether it’s a new release or not and whether you want to watch in HD. You have to finish watching within 24 hours of buying.

As it is currently executed, the service is a dud. The lack of selection and the difficulty in actually getting content on the box are tough to overcome. It’s an idea that might have worked a few years ago, but with the rise of video on broadband is unlikely to go anywhere. (MovieBeam is part-owned by Disney. According to their Web site, Disney “incubated” it for four years.)

But there is a silver lining – the hardware and UI are very good. The box has an Apple-like elegance and is packed with high end feaures, including HDMI and component video outputs, digital optical and coaxial outputs, a USB port and an Ethernet port.

The on screen UI is crisp, intuitive and very visual, nicely incorporating elements like movie trailers. A very nice touch: if you hold down the up/down buttons on the remote the list of movies scrolls faster. It’s infinitely better than Comcast’s On Demand interface.

The Ethernet port is currently inactive. (Which is odd, considering that there’s a prominent Linksys logo on the box.) But if you were to re-write the software to deliver a Netflix-size selection of movies over Ethernet instead of what the studios shove down to the box over the air, it has potential. While you’re at it, you could add support for music and photo playback.

Even then, you face the stiff competition from cable settop boxes. They’re essentially free to use, serve multiple purposes and are installed for you by the cable guy. With these challenges, MovieBeam is likely to face the same fate as another high-profile Disney venture.

Comcast tests early release movies on demand

Filed under: apple, media, movies, video — Rakesh Agrawal @ 6:58 pm

Comcast is testing the release of movies on settop boxes at the same time they are released on DVD, according to The New York Times. The tests are being conducted in Pittsburgh and Denver. The big winners in such a system? Consumers, Comcast and the movie studios. Potential losers include Blockbuster, Netflix, retailers such as Target and Wal-Mart and premium movie networks such as HBO and Showtime.

Movie studios have typically followed staggered release windows in an attempt to maximize the revenue generated by a movie. Movies follow a long path: first-run theaters, second-run theaters, DVD, pay-per-view, pay movie channels, network TV. Although these windows have shortened considerably in the last few years, they are still in widespread use.

With simultaneous release, consumers win with greater flexibility. On the day the DVD is released, they can now buy the DVD, rent the DVD from a video store or Netflix, or watch it on their set top box.

Blockbuster is clearly feeling the heat. From the Times story:

Blockbuster, which could be hurt by the success of simultaneous release, said that the sales and rentals of DVDs represent the largest revenue stream for the studios and “we believe that they will be very cautious in introducing any new less profitable service that could be cannibalistic to the rental and retail channel.”

Target made similar overtures when Disney started selling movies on iTunes.

Video-on-demand is the future of movie consumption; it will make the assinine HD-DVD vs BluRay battle moot. As iTunes, YouTube and even the TV networks’ Web sites have shown, people want to watch what they want when they want.

VOD still needs some tinkering:

  • Comcast’s interface for selecting movies is terrible. It’s bad enough now when the selection is limited; it clearly won’t work when you have tens of thousands of movies.
  • Movies must be watched within 24 hours of purchase. This should be expanded to 72 hours.
  • Movies disappear when their pay per view window is over. After that you either have to get the DVD or try to catch it on a premium network.
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