Well ChromeCast is the incarnate of all those opportunities and at the same time evidence of where the industry will head with rapid adoption. While we have tried to tell the SmartTV industry that the best implementation for their platform is to be the launch pad for the stream, Chromecast demonstrates that use case out right.
2013 trends, the coming ecosystem war, and our comprehensive industry report), one of the biggest challenges to deploying a second screen app is to create consumer utility. That means the consumer needs to find more reasons to pickup that second screen with your app than with other devices (eg Harmony One remote) or app options. While there are a wide range of apps chasing Social and Stimulating feature sets for companion second screen experiences, there are an equal number of players trying to solve Discovery and Simple control of the first screen.
The real challenge with this approach is getting the content to launch on the first screen. If you are the Pay TV operator, controlling the first screen is "easy". If you are the game console or CE device manufacturer, it's also "easy"--you own the protocols. But if you are a third party app, trying to create consumer utility (and hence value) by allowing him/her to search across multiple video services and launch their chosen content to that service on the first screen--hard. Today, most of them are becoming adept at launching the video content onto the second screen itself, deep linking into the Hulu, Netflix, YouTube, or Amazon Instant Video app directly, but only a few third parties have mastered multiple devices for the first screen (eg BuddyTV)--and most of them only work with Live TV. Imagine the complexity in the living room: you have 5 different devices by now that have Netflix or Hulu installed, so even if you could talk to anyone of them, how do you launch the right device and get the main screen to switch to that device?
Enter Netflix and DIAL.
While the analysts are already calling DIAL an "AirPlay" killer feature, it is so much more than that. AirPlay is about pausing a video on your iOS second screen viewing device and launching it via your Apple TV to your first screen. DIAL is about enabling many video services (or at least Netflix and YouTube) to detect a first screen device that it creates a link to, and then launching an environment (a "sister" app) that allows it to control that device. Don't think of this as content mirroring, but as an app master-slave relationship similar to the way movie companion apps work with Blu-ray players or Xbox SmartGlass works with the Xbox itself. It will enable not only the deep linking of launched videos from 3rd party Discovery apps to the first screen, but will also enable new, bi-directional control experiences that give app makers a chance to have a robust ecosystem without owning the device itself.
âWe realized in the fall of 2011 that we could create some potentially useful 2nd screen experiences,â Scott Mirer, director of product management at Netflix, according to Gigaom.
But more importantly, âOnce apps from the same provider are running on both screens, there are several feasible methods for implementing control protocols either through the cloud or on the local network. And not every service or application is focused on the same kinds of use cases. Rather than try to get universal agreement on these protocols and use cases, it seemed best to leave room for innovation.â
According to Scott Mirer, director of product management at Netflix, âexpect to start seeing (other DIAL-enabled devices) in the next several months.â Appadvice
We thought Netflix would follow the Xbox SmartGlass development with something of their own quickly--and this looks promising (if shared beyond themselves). Now, when will iTunes announce their second screen ecosystem?
Enjoying the conversation? Join us in LA in late February at our next 2nd Screen Summit or in Las Vegas in early April for our 2nd Screen Summit @ NAB (www.2ndscreensummit.com)
- UltraViolet has 7m subscribers, but only carries 59% of the Top 100 titles and 50% of currently popular video titles
- Best Buy / CinemaNow launched a Disc-to-Digital beta last week
- Flixster's iPad experience now has download capability--giving UV consumers the opportunity to travel (without a laptop)
- While HBO Go, Hulu, and Amazon Prime are garnering press, the traffic shows that Netflix out streams them nearly 30 to 1
- Netflix has now tied HBO in total subscribers (albeit with some international ones)
- Xbox is the underestimated player in the digital living room with 30m subscribers and a recent commitment to launch 40 new content channels
- The Wii U deployed multi-screen services for its platform and promises to combine it with its second screen controller and then "TV will never be the same"
While everyone know Netflix, Hulu, HBO Go, and Amazon Instant Video (as an app), have you tried Matcha, NextGuide, Flixster, or Plizy? Interested in case studies on great apps that help consumers discover and watch content on their tablet? Click here
Join us at the www.2ndscreensummit.com today at the Wynn (1-6pm, cocktails to follow).
- To Control. While perhaps the hardest to monetize, this is the most important feature for device makers and those hoping to win the digital video ecosystem war (see 9 and 10 below). Recurring app usage starts with utility.
- To Discover. Trying to find content to watch, with many in the ecosystem seeking to influence that decision through some form of advertising.
- To Enhance. This will come in the form of a) searching for or receiving additional (perhaps synchronized) related information to the program and b) second screen-based commerce (a subset of M-Commerce). Just a few weeks ago, Nielsen reported that of consumers using a tablet while watching TV, roughly 40% are using them to check information related to the program and 29% of 25-34 year olds are shopping while watching TV.
- To Share. Already hyped in the press to the nth degree, expect to start to see attempts to measure how impression affect viewership across demographics and how they influence others decisions to view content.
But the more I discussed this Tuesday and Wednesday with various industry colleagues, and the more I read articles covered by various newspapers, the more I realized that there are details and nuances in how content windows work and what is driving servicer provider profitability and consumer consumption that not everyone is fully aware.
So let's examine a few of them from the three most important views in this equation: Disney, Netflix and the Consumer.
2. Netflix. The articles sight analyst estimates that Netflix paid as much as $300 million per year for this deal when Starz only offered $100 million per year. The journalists further mention the concern that Netflix is financially over extended already, having paid significant sums of money already for Relativity and DreamWorks catalogs. But keep in mind how this works for Netflix. This isn't a $25 million per month cost to them (roughly $1 a day at current subscriber levels), bur rather this is an investment in attracting more subscribers. Let's assume this is a 3-year deal. To keep the math simple, we'll assume that any new consumers are only on board for 18-months of service (ie the linear average of all new sign-ups over the forecast period). Let's make one more simple assumption--that the average Netflix subscriber pays $10 per month (meaning some mix of streaming only and streaming + disc). So, while currently at roughly 25m million subscribers, Netflix would need to sign up an additional 5m subscribers to break even over the forecast period (meaning if they don't renew the deal after 3 years, every single subscriber who joined perhaps because of the Disney content leaves the service). I realize growing by 20% seems like a huge growth curve, but keep in mind that it really means they need a linear growth of 7% (1.67m new subscribers per year). And keep in mind that between tablet, SmartTV, and gaming console forecasted growth over this period, only a very small percentage of them would have to join to achieve these numbers. So, in both the short and long term, this looks like a win-win for Netflix, and more importantly, this gives them a steady stream of content for their consumers that is considered both "premium" and is fully of kid-friendly titles. What about additional costs? Likely to be very minimal (bandwidth costs continue to decline at a steady pace).
3. Disney. After our discussions Monday, this certainly seems like a perplexing decision on the surface, but let's analyze the details. First, a quick reminder on windows:
- A movie comes out at the theaters and stays there for 10-12 weeks.
- Then it gets released on DVD/Blu-ray and is mostly available the same day for digital rental and purchase.
- Then it his the Pay TV window (HBO, Starz, Showtime, EPIX, and now Netflix), which typically carries some level of exclusivity for 3-6 months.
So in theory, to the consumer, this is no different than Disney movies being available on Starz or HBO, which should mean that physical and digital buy rates should not be impacted. Keep in mind that for the majority of movies, the consumer makes a decision of when to see it based on their trade-off of price and time--the movie theater being the most expensive but earliest during the marketing hype cycle, and the pay TV window being the cheapest but forcing the consumer to wait as long as 6 months after the movie was released to theaters. So, unless the Disney deal does not move the titles through the Pay TV window (meaning they are available on Netflix, then are unavailable after 3-6 months), this will not impact the other windows--all they have done is potentially triple their revenue (and profit) and have impacted other pay TV window aggregators.
So, while perplexing on the surface, this is a good deal for every player involved and will likely create subscriber growth for Netflix that surpasses that of HBO (30m) before the deal is completed in 2019.
Want to discuss further? Join us at the 2nd Screen Summit on January 7th at the Wynn during CES in Las Vegas (www.2ndscreensummit.com).
- UltraViolet now has 6m user accounts
- an estimated 30% of U.S. households have tried an OTT streaming service
- 31% of consumer households view their video entertainment on both physical and digital formats
- a substantial number of subscription streaming households (Netflix, Hulu, Amazon Prime) also purchase and rent content on eiher Amazon or iTunes
- Drive down "premium title" availability in digital subscription services, and
- Make UltraViolet ubiquitous.
But is this enough for success?
Well, let's back up and examine what ingredients are required for consumers to "cross the chasm" in market adoption of new products. With roughly 110 million households in the U.S., UltraViolet (UV) is just approaching the 5% penetration point. While that seems like a lot of consumers when comparing it to Netflix (22m+ subscribers) and Comcast (similar numbers), the right comparison here is the DVD player install base (near 100%) or the PC install base (also in the high 90 percentile in the US). So, how do you convince consumers who are clearly buying and renting a lot of DVDs (despite the press to the contrary, see this blog) to start paying a little extra to have digital ownership?
First, consumers need to believe that there will be title ubiquity. If this is only available on 50% or 75% of the titles that are available on DVD, then this is just another format that complicates their lives ("Hey, I want to get this on UV, but it isn't available..."). I know, I know. Many of you are going to chastise me with emails and tell me that 5 of the 6 major studios are now supporting UV and that eventually Disney will have to come around. Unfortunately, consumers don't shop for titles by studio (shocking as that is), nor do they care about the challenges our industry faces. What they know is that more titles are available to purchase digitally on their favorite list (let's assume the "IMDB Top 100" list represents that) from iTunes, Vudu and Amazon than from UV and for a price that is cheaper than the UV enhanced physical SKU. What can the studios do about this? Start by standing up themselves and making a public commitment to start putting every new DVD / Blu-ray title on UV (even if there is a not a UV SKU sold physically at retail) and give a reasonable time table to make their top 90% of SKUs available in the format (only Warner to date has demonstrated this kind of commitment).
Second, it is difficult to crow about having retailers signed up when the largest DVD / Blu-ray sales retailer (Amazon), the largest digital video retailer (iTunes), and the largest digital "rentailer" (Xbox) have not signed up for the program. No matter how you slice up the markets where the consumers you want to attract are currently buying or renting, each one of these companies represents represents the lion's share of them and I would venture to say you cannot create mass adoption without them.
Third, consumers' appetites are VERY strong for accessing their content through subscription packages. They sign up in droves for cable, satellite, telco and even Netflix/Hulu packages. If you want to create mass adoption, work with those subscription services to allow consumers to stream the UV titles they already own thru their services as well (yes, make it part of the deal in your next licensing negotiation). Once consumers can access the content they "own" through the video services they use to watch the other 35 hours of content each and every week, they will see it as a valuable feature and may consider it during their decision process to rent or buy titles (physically or digitally).
review in September.
I am very curious to see what the marketing campaign leading up to Christmas looks like.
Ok, let the harassing emails ensue.
terms of the language we use in this blog, this implementation is focused on Simple (the ability to control the first screen). The functionality worked decently enough for me on the iPhone and iPad, letting me choose something from either second screen and launch it to the first. It allowed me to choose subtitles, use "trick play" (forward, rewind, etc) and worked a bit like AirPlay in that I could take the video stream from the PS3 back to my iPad/iPhone and it would start playing from there--presumably as I walked out of the room to enjoy my content somewhere else. Assuming you educate consumers about this function, this is an easier way to search for content, especially since you can search for other shows (including the next in the series, etc) without interrupting program on the first screen. However, it falls short of the full promise of Simple in that you cannot control volume (for example) and can't use the second screen to cause the app on the first screen to launch (presumably a more complex problem to solve in terms of APIs and devices)--but that would of course open up a real opportunity to Discover content on your second screen and have it launch directly to your TV regardless of what service the content is on--Seamless (vs. now you can use Buddy TV, NextGuide, Matcha or Fanhattan to Discover content, launch it to Netflix on your iPad, then with Netflix running on your PS3, play that stream to your first screen).
Now while this seems like a great leap forward for the heavy Netflix streaming user population, the real deep water here for OTT video service providers and the consumers is ironically in all of the other feature sets. In a few of my previous blogs, we discussed the concept of "OS Level Syncing" as the promise of the future, which similar to BD-Live's current Blu-ray implementations, can be ultra-content aware of the video stream down to the frame level. That presents opportunities for Stimulating and Social features that can create real value for the consumers (synchronized content about the TV show/movie like the actors currently on screen vis-a-vis TVplus, the history or related facts behind the fictional setting in zeetag-like fashion, commerce opportunities to buy that special biker jacket a-la Sons of Anarchy from Magic Ruby, or even just a time-synced, curated Twitter feed to create an asynchronous community of viewers). It also creates advertising and brand engagement opportunities with consumers including better product placement, better gamification opportunities, and brings the promise of contextual advertising one step closer to reality. Because the OTT video service provider knows EXACTLY where your video stream is (and presumably with good metadata from a company like DigitalSmiths or Watchwith, what is in the frame/scene), they have the opportunity to take each of these use cases to the next level in terms of a robust, integrated consumer experience (works better than audio content recognition). Suddenly, 55,0000 titles of streaming on Netflix or all of the streams available on Amazon, Hulu or Vudu become immersive consumer engagement opportunities for major brands and sponsors in pre-recorded features on a level never imagined outside of class broadcast TV.
So the real question here is simple: Is this Netflix experiment the sign of things to come from Netflix based on (boring) utility features (Simple), or is this the tip of the second screen iceberg of commercial opportunity from the largest streaming service in the world (Stimulating, Social, Discovery)?
|Choosing episodes from a series without interrupting the 1st Screen|
|iPhone UI for choosing where to play content|
|Subtitling management function on the iPhone|
|Choosing episodes on the iPhone|
|Browsing content without interrupting the 1st Screen|
|1st and 2nd Screen shown together|
- There were 85 million social media comments during the 2012 Summer Olympics.
- 18 million "Viggle Live" questions were answered during the Olympics
- While the iPad market share of tablets has dropped to a "mere" 65%, it is estimated that 91% of the tablet-based web traffic comes from the iPad--giving a strong indication of where the interactivity from consumers lies.
- The summer season final episode of Pretty Little Liars become the most social TV episode ever with 1.6 million episode related tweets, beating American Idol's May, 2012 record
- GetGlue surpassed 3 million users and Viggle surpassed 1 million users
- 70%+ (depending on whose data you believe) of tablet owners use a 2nd screen while watching TV...astonishing!
As theÂ UltraViolet academyÂ in London approaches to wake us out of our summer slumber and send us on to IBC, I sat discussing the onward march of digital video in today’s Top 20 ratings-driven world with some neighbors around the end of summer BBQs. Â There was a general view that most TV shows were available (in the US) on either HuluPlus or Netflix. Â While there was some discussion about network specific sites like ABC.com, HBO-GO and TV.com (CBS’ site) and some general understanding that there was content missing from HuluPlus and Netflix, most people felt like anything they were missing was probably available to purchase as a catch-up one-off show from iTunes or Vudu.
As I pondered this seemingly simple challenge, I though back to the end of May when I wrote aÂ blog about the current state of digital title availabilityÂ in the various service offerings (rental, sell-thru, subscription) and retailers (iTunes, Vudu, Netflix) and compared them to each other and to their physical counterparts. Â So, with the help of some colleagues, I set out to get to the bottom of the details.
We started with the current TV Guide Top 20 (as of August, 2012). Â I realize that the Top 20 would have been different in May and will be different in October once the season is underway, but this is a unique time of the year where even the most protected of shows has finally exited their Spring window and have been pushed out on DVD or at least a digital purchase service (if not a streaming one–rental by the episode is no longer supported by any site).
What were the results? Â Surprising to say the least. Â First, let me give you an idea of the list (since it is relatively short):
Now with this list, you would have thought there would be a high probability to have nearly all but the HBO and AMC series available already. Â The results?
- iTunes carries 75% of the content (in SD) for purchase (most recent season)–Vudu and Amazon were just a step behind them. Â The missing items were all some sort of reality show.
- Netflix has a (not surprising) poor showing for current seasons (strong for past seasons) with only 15% available, but to my surprise, HuluPlus only came in at 40% (disappointing in a big way). Â Combining the two options only yielded 45% availability.
- Physical still trumped all of the options with 80% of them available for purchase from Amazon and 75% for physical rental from Netflix.
- Combining digital purchase and streaming (across all services) yielded a 90% availability (with only X Factor and So You Think You Can Dance absent)–yielding a problem discussed inÂ my blog last week of finding content across multiple sources.
As I pondered this seemingly simple challenge, I though back to the end of May when I wrote a blog about the current state of digital title availability in the various service offerings (rental, sell-thru, subscription) and retailers (iTunes, Vudu, Netflix) and compared them to each other and to their physical counterparts. So, with the help of some colleagues, I set out to get to the bottom of the details.
We started with the current TV Guide Top 20 (as of August, 2012). I realize that the Top 20 would have been different in May and will be different in October once the season is underway, but this is a unique time of the year where even the most protected of shows has finally exited their Spring window and have been pushed out on DVD or at least a digital purchase service (if not a streaming one--rental by the episode is no longer supported by any site).
What were the results? Surprising to say the least. First, let me give you an idea of the list (since it is relatively short):
Now with this list, you would have thought there would be a high probability to have nearly all but the HBO and AMC series available already. The results?
- iTunes carries 75% of the content (in SD) for purchase (most recent season)--Vudu and Amazon were just a step behind them. The missing items were all some sort of reality show.
- Netflix has a (not surprising) poor showing for current seasons (strong for past seasons) with only 15% available, but to my surprise, HuluPlus only came in at 40% (disappointing in a big way). Combining the two options only yielded 45% availability.
- Physical still trumped all of the options with 80% of them available for purchase from Amazon and 75% for physical rental from Netflix.
- Combining digital purchase and streaming (across all services) yielded a 90% availability (with only X Factor and So You Think You Can Dance absent)--yielding a problem discussed in my blog last week of finding content across multiple sources.
- the 500 channels of content you were receiving from your Cable, Telco, or Satellite provider,
- the collection of DVD's on your shelf, and
- the available plethora of DVDs to rent at your local Blockbuster.
- Movies came out at the theater first, and then a few months later were available to rent (eg Blockbuster) or purchase (many locations) on the same day.
- A few months after this, they started appearing in your premium TV networks (eg HBO, Showtime).
- A few months after this, they came out on the standard, non-premium broadcast networks.
- BuddyTV let's you tell it which of several pay TV network operators you have in your house and will ask you for your sign-on credentials for popular subscription services. Then, as you search, browse, or hope to discover content, it will show you the available content, and if available on your set top box (live channel, DVR, VOD) will serve it on your first screen (integration with STBs is great, getting the right device to serve up everything else isn't easy).
- Matcha takes a slightly different approach and assumes your tablet is your intended viewing device from the start and even plays most content directly after your decision with one-click, but it does not attempt to integrate your local pay TV operator.
- Fanhattan currently has the most extensive list of sources of content, but acts more like a librarian did in days of yore, pointing you to the right service and leaving you to figure out how to get the video content to your viewing screen.
- Vudu is integrating it's own available library with your Vudu and UltraViolet purchased titles, but no 3rd party service is integrating all of those great "cloud-based" titles you own, and the few apps attempting to integrate your physical DVDs are too painful of an experience to mention.
- Well part of the answer will come from metadata service providers like TMS, FYI and Rovi who will work with subscription and cloud video service providers to be able to serve up better metadata about what is available when and where.
- Part of the answer will lie in the nascent discovery segment where service providers like Digitalsmiths, ThinkAnalytics and Jinni are working to create algorithms that can "see" across multiple content sources.
- Part of this will have to be work delivered by the video aggregation services themselves, allowing 3rd party APIs to query cloud-ownership of your account in addition to the available content for purchase, rental or subscription viewing.
- And finally, the last mile has to be delivered by your 3rd party app or video service provider of choice (assuming your local cable company or iTunes one day start offering you the ability to see content outside their network). The user experience (UX) can make or break any technical solution.
For Some Movies, âSecond Pay Windowâ Can Come Years After Theatrical Release. Implications for Streaming Business?
by Terence Keegan
Time was subscribers to Netflixâs discs-by-mail service faced a âvery long waitâ for popular titles. Now, in the age of streaming subscription services, that wait is measured in months, if not years â despite the instant-access convenience of the technology.
Following Wednesdayâs announcement by Amazonâs Lovefilm that it had secured âsecond pay windowâ rights to Universal movies in the UK, we asked analysts about the evolving nature of pay-TV windows, both in the U.S. and abroad.
Windows for video-on-demand and pay-TV services âcan absolutely varyâ with the advent of subscription streaming, according to Michael Pachter, managing director of equity research for Wedbush Securities. But Pachter tells M&E Daily that while all services âwant content as soon as they can,â itâs hard to say how critical first-run rights to content are to the market success of Netflix, Lovefilm, or other streaming services.
Netflix, for one, maintains that its subscribers value breadth-and-depth over first-run access â at least when it comes to DVDs by mail in the U.S. Speaking at a Nomura investor conference in New York on Wednesday, Ted Sarandos, Netflixâs chief content officer,Â said that âstay[ing] out of the path of the first 28 days of VOD transactions or DVD sales….supports the overall creation of contentâ (via Home Media Magazine). (The more content thatâs created, the broader catalog Netflix will have to license/offer.)
In Netflix’s disc rental business, the 28-day window remains relatively settled, apart from the company’s 56-day window for Warner titles. But among movies available via streaming services from Netflix and other companies, windows run considerably longer.
Richard Broughton, senior principal analyst and head of broadband at IHS Screen Digest in London, illustrates how UK pay-TV windows typically are structured with the example of Universal film âGreen Zone.â The movie â among those that Lovefilm offers its streaming subscribers as of May 2012 â was released in UK cinemas more than two years ago, in March 2010, according to Screen Digest. It then saw a pay-per-view release via the Sky Box Office in July 2010, followed by availability to subscribers of the Sky Movies service beginning in late January, 2011.
âSo Lovefilm customers,â Broughton tells M&E Daily, âare likely to have to wait a reasonable amount of time from a filmâs debut on Sky Movies before gaining access. With blackout periods taken into account, Sky looks to have the films for roughly 14 months.â Screen Digestâs estimated length of the Sky window is in line with the recent findings of the UKâs Competition Commission on movie windowing structures in the country, Broughton adds.
To be sure, windowing strategies are in flux in every segment of movie and video distribution, from theatrical to streaming. For content owners, the value of ânew releaseâ content in any window is one issue. But the instant-access nature of streaming services â not to mention the obvious technological feasibility of day-and-date theatrical and digital movie debuts â gives rise to a more complicated question: when does a ânew releaseâ program cease to be ânewâ in todayâs marketplace?
As far as Lovefilm and Universalâs movie deal goes, âLovefilm is getting hold of the films potentially over a year later than Sky, which will diminish the appeal of the catalogue,â Broughton says. âItâs hard to quantify in monetary terms, but the effect is present.â
by Chuck Parker
Iâve spent the last few weeks having renewed discussions with a variety of people whose opinion I respect in this space, including those in the Twitter-sphere, the blogosphere, and in plain old real life, and with the NCTA Cable Show happening in Boston next week, I think it is the right time to open this debate up again.
The debate is simple: Who is going to disrupt the current Pay TV industry?
A few months ago at the OTT Con in Santa Clara, I had this discussion in spades with many of the participants in the would-be âcable killerâ world (most of whom themselves are âcord cuttersâ or at least âcord thinnersâ). My takeaways after those discussions were that it was incredibly premature to even think about âOver the Topâ or âbroadbandâ video killing the established Pay TV operators like Comcast, DirecTV and Verizon because only the metrics had indicated that all of the current players combined had only made a minor dent in TV Viewing (3 hours of online viewing vs. 34 of traditional viewing per week, 2% of the $200B TV advertising spent on âon-lineâ video) and that so far the only business being disrupted in a serious manner was DVD sell-thru, which was suffering as much from physical Netflix and the shift from purchase to rental as it was from digital Netflix. My brief conclusion then was simple: Large pay TV operators were bringing in an average monthly bill per household of close to $100 (ARPU) and the would be disruptors were still in the sub-$15 range and those Pay TV operators were âStriking Backâ with their own TV Everywhere solutions, so any would-be survivors in the next 3-5 years would have to deliver an incredibly compelling user experience (UX) centered around Discovery (likely on the second screen).
Gigaom tried to articulate this a little more clearly in a recent article (that perhaps started this debate anew) called the 7 ways Comcast is killing the cable killers. In short, large operators have implemented a multi-pronged strategy of defensive and offensive initiatives including blocking peer-to-peer (P2P) traffic, prioritizing traffic on their network (i.e., giving their own video priority), implementing data caps and data cap exceptions (for their own TV Everywhere traffic), and unleashing offensive TV Everywhere strategies to counter Netflix and Huluâs impact (StreamPix, authenticated Hulu, HBO Go, etc).
But perhaps we should take a step back and look at the wider âhome entertainmentâ industry and look at what is driving content creators, distributors and consumers to change their business practices and viewing habits. Despite the recent decline in the physical media segment of the industry (DVDs and Blu-rays), physical media still represents 47% (~$15B) of the âpay for playâ video consumption market, while Pay TV has been slowly growing its share at 34% (~$11B, not including sports) and what we would affectionately call âDigitalâ (including PPV, VOD, SVOD, and EST) represents only 19% (~$6B), though this is the fastest growing segment. Since it is unlikely that consumers are going to significantly increase the amount of hours of video they watch (who has 37 hours anyway?), we should assume that any further growth in digital will either come at the expense of the physical DVD world or the Pay TV networks. Since Pay TV has continued to grow during the expansion of digital, it is probably a safe assumption that it will either slow its growth or stay flat in the next 3-5 years while physical media continues to decline.
But when you dig deeper into the economics behind all of this, you find out that the big money makers for the content creators and distributors are Pay TV packages and the sell-thru of movies and the least profitable segments are the subscription digital services and the subscription physical rental services….
Read the rest of Chuck Parkerâs article at his blog here.
The debate is simple: Who is going to disrupt the current Pay TV industry?
A few months ago at the OTT Con in Santa Clara, I had this discussion in spades with many of the participants in the would-be "cable killer" world (most of whom themselves are "cord cutters" or at least "cord thinners"). My take aways after those discussions were that it was incredibly premature to even think about "Over the Top" or "broadband" video killing the established Pay TV operators like Comcast, DirecTV and Verizon because only the metrics had indicated that all of the current players combined had only made a minor dent in TV Viewing (3 hours of online viewing vs. 34 of traditional viewing per week, 2% of the $200B TV advertising spent on "on-line" video) and that so far the only business being disrupted in a serious manner was DVD sell-thru, which was suffering as much from physical Netflix and the shift from purchase to rental as it was from digital Netflix. My brief conclusion then was simple: Large pay TV operators were bringing in an average monthly bill per household of close to $100 (ARPU) and the would be disruptors were still in the sub-$15 range and those Pay TV operators were "Striking Back" with their own TV Everywhere solutions, so any would-be survivors in the next 3-5 years would have to deliver an incredibly compelling user experience (UX) centered around Discovery (likely on the second screen).
Gigaom tried to articulate this a little more clearly in a recent article (that perhaps started this debate anew) called the 7 ways Comcast is killing the cable killers. In short, large operators have implemented a multi-pronged strategy of defensive and offensive initiatives including blocking peer-to-peer (P2P) traffic, prioritizing traffic on their network (ie giving their own video priority), implementing data caps and data cap exceptions (for their own TV Everywhere traffic), and unleashing offensive TV Everywhere strategies to counter Netflix and Hulu's impact (StreamPix, authenticated Hulu, HBO Go, etc).
But perhaps we should take a step back and look at the wider "home entertainment" industry and look at what is driving content creators, distributors and consumers to change their business practices and viewing habits. Despite the recent decline in the physical media segment of the industry (DVDs and Blu-rays), physical media still represents 47% (~$15B) of the "pay for play" video consumption market, while Pay TV has been slowly growing its share at 34% (~$11B, not including sports) and what we would affectionally call "Digital" (including PPV, VOD, SVOD, and EST) represents only 19% (~$6B), though this is the fastest growing segment. Since it is unlikely that consumers are going to significantly increase the amount of hours of video they watch (who has 37 hours anyway?), we should assume that any further growth in digital will either come at the expense of the physical DVD world or the Pay TV networks. Since Pay TV has continued to grow during the expansion of digital, it is probably a safe assumption that it will either slow its growth or stay flat in the next 3-5 years while physical media continues to decline.
Ok, so what does that mean?
The content creators need to find a way to reduce the impact of the two least profitable market segments on their business. They need to:
- convert physical rental to digital rental (where they change their economics from a ~25% split to a ~70% split),
- provide consumers a reason to purchase content digitally vs. renting, and
- support their large Pay TV customers in their battle with the disruptors who are delivering the most impact on subscription digital rental.
Practically, this means they:
- support digital rental windows that are on par with the physical windows by supporting Apple/iTunes, Vudu, Amazon and of course Pay TV Operator VOD while constantly reducing the viability of physical rental distributors (pushing the Netflix and RedBox windows out past the digital rental windows or forcing them to buy from Wal-mart and others instead),
- put tremendous effort behind UltraViolet and Disc to Digital programs so that consumers can build a digital library of owned titles and attempt to drive household movie purchases per year from the current average of 7 back towards its 2004 zenith of 14, and
- empower Comcast in their StreamPix efforts, support the TV Everywhere models of DirecTV and Dish's Blockbuster, and consistently ratchet up the content cost for Netflix to acquire their content to a price on par with their subscriber base (meaning they pay the same as Comcast for content deals).
- the VOD and PPV offerings from our cable and telco operators were completely abismal until iTunes, xBox, and Hulu launched (and the BBC iPlayer in the UK), forcing the Pay TV operators to improve their own VOD and catch-up channel offerings to combat "churn" (cord cutting, cord thinning), and
- the success of Netflix has forced those same Pay TV operators to launch their own TV Everywhere strategies including HBO Go and StreamPix.
So what happened?Well, it turns out I have more than the 400+ titles I thought I had previously. I have 525 titles in the house (not your average consumer). Even at $1 a title, I am not willing to pay $525 to have access to this whole library digitally. So I went thru a fast filtering process: Would I watch this movie more than 1 more time (ie 1x per year)? It meant the real "keepers" (for my household) were cult-ish fan movies (Matrix trilogy, Lord of the Rings, Batman, the Marvel Avenger series, Mission Impossible, etc), kids movies (mostly Disney and DreamWorks titles), holiday classics (Home Alone, Christmas Vacation, etc), and classic comedies (The Blues Brothers, Eurotrip, American Pie, Austin Powers, etc).
I came up with 170 titles (32% of my catalog) I thought were worth spending the money on converting to digital under the premise that I would watch them more than 1 more time (otherwise, I would rent since we know the average cost will be $3.50+ per title to convert and renting is not much more and is money spent later when I will watch it instead of now when I might watch it in the future).
Then I started determining which titles I would convert to Vudu / UltraViolet. While I know that titles move in and out of availability on Netflix, I don't think the average consumer understands that at all. So my simple logic was that if it was available on Netflix, I would not convert it to digital at Walmart. I was shocked (and even double checked my process) that only 18 of 170 titles were available on Netflix (11% of the 170 chosen titles). Netflix losing the Starz catalog (which covered many Disney titles) is a bigger loss than I think was anticipated by all. In an article in February (a few days before the change), Netflix said they would replace all but 15 of the Disney titles. That certainly does not appear to be the case as just about every kids' DVD title I have (the stuff they watch over and over again) from Disney and from the other studios is NOT available on Netflix.
While the numbers for UltraViolet / Vudu were higher than Netflix (68 of the 170 keepers or 40% of the target), it is no where near large enough to encourage wholesale consumer adoption at any price point. Clearly, the desire to have the kids titles, driven mostly by Disney titles, was the biggest contributor to the loss here (probably 20+ titles), but there were also numerous other non-studio titles missing (eg the BBC contributions like Blue Planet, Walking With Dinosaurs, etc).
So I chose 30 of those 68 title (some were available on Netflix, some I just re-filtered) and went to Walmart. I had high expectations because Vudu made a new feature available online where you can check the title availability and then print the list and take it with you to Walmart which then in turn saves them the data entry process--in theory speeding the whole process up dramatically. The experience was unfortunately worse than it was on April 16th. The sweet lady who last time had so much patience was out of it entirely. I still had to fill in a form--she could not explain why, but rather gruffly told me I had to do so. I didn't have to re-enter all of the titles, luckily. We then went thru the list title by title, checking that each of the discs was available and ran into our first major problem--one of my Austin Powers discs was missing. I said no problem, just remove it. She said quite adamantly it was not possible. I asked what my options were and she said I could get management over here, but there was nothing she or any of them could do as the system would not let them remove anything--I was told to go home and find the disc or come back with a new list. Refusing to be defeated, I let another customer go before me and thought about how they had designed this process. The printout was itself not material--it was the saved catalog in my account they were accessing. I pulled out my iPhone, logged into the Vudu site and removed that title from my list. I didn't print it (I was in the store after all), but she was able to check that it was in fact out of her view of the title list. Problem solved.
Then we hit the second major snag. The system in their photo processing center had to print a label to be attached to the paper work before she could ask for my credit card and then stamp my discs. But that same label maker was constantly being accessed by the photo center as orders from their on-line photo service came in and it printed labels for their pickup. It kept failing to access the label maker (timing out each time) and took nearly an hour to get thru (after 20+ attempts from the attendant). When it finally printed the label, her colleague was able to stamp all of the discs, take my credit card, and send me on my way.
After 30 minutes in the car and 90 minutes in the store, I only ended up with 26 DVDs converted (I had to pull 3 before I left because they were suddenly not available on the Walmart list and had the 1 missing disc). I paid $121 or an average of $4.65 per title for the right to access those titles digitally (streamed to my PS3 or iPad) presumably anywhere in the US.
If the average consumer has 80 titles in their library and filters in a similar manner, they would be faced converting 25 titles and likely finding 10 of them available for a cost of $47.
The conclusions for the industry and the consumer:
- I just think getting the consumer to fork over $47 for 10 titles they already own for the pleasure of watching them streamed to the iPad is going to be a challenge. Why not encourage them to spend the level, but for 50 titles (an offer for $1 per conversion at 50 or more DVDs)? That builds a digital library.
- College-aged kids (with more time than money) are going to rip DVDs vs. spending 2 hours in Walmart and $47. If the become a target demographic, something different needs to be done.
- The studios seem to have reduced the premium title availability at Netflix pretty effectively. It looks like Netflix is negotiating for strong titles shortly after they are available, but then letting them leave their library 6-12 months later.
- This is good for the studios because it creates a reason to purchase digitally, but will not work without signficant education efforts (ie marketing).
- This also spells DOOM for Netflix if the education to the consumer works. It truly means Netflix is a late window video service full of titles that may have once been "A" titles, but have little long term value. Said differently, it is a service to use when watching something, almost anything, is better than trying to find that same poor content on your cable provider's channel listing.
- Walmart clearly needs to improve the actual service itself. I should be able to drop off my DVDs in a box/bag with the list, shop in their store for 20 minutes, and return. Having to wait at the counter for 90 minutes is a definite service failure that needs to be addressed.
- Walmart or Amazon should promote a DVD catalog service (iPhone app with bar code scanner) that allows me to track what I do have in my catalog (some independent ones exist for the iPhone, Amazon has the inklings of this service on their website). It would provide the consumer with a service capability so that I am not renting a title I already own. It would provide the merchant with an opportunity to tell me when it becomes available for conversion. It could provide recommendation and discovery engines with valuable seed data to improve the recommendations for watching new content.
- Ultraviolet needs to drive a consistent consumer experience across all titles (HD availability, streamed or downloaded to a core set of devices including the iPad and several TV service options).
Looking at consumer video services (Netflix, Hulu, Amazon and even GoogleTV) and their second screen counterparts (Matcha, Fanhattan, BuddyTV, etc), the admission of the challenge is painfully evident in the user interface the consumer faces and the result of the Discovery process.
But let's back up a bit first. What is Discovery? How does it relate to Search and Recommendation? I think we will find wide agreement that the concept of Search is one where you know what you are looking for and are trying to find it. Now this can be more complex than "Where can I find a legal version of Mission Impossible: Ghost Protocol that I can watch in my living room right now?" (which itself can be challenging in today's service offerings). It is not usually as complex as the problem Shazam solves in the music industry ("what is the name of that song that sounds like..."), but can be difficult (I know the actor who was in the movie or what it was about). Search is decidedly a "lean forward" experience, and as most of us have found out over the last 5 years, it incredibly difficult to implement on a 10-foot remote experience, with various virtual keyboards or fancy remotes trying to help us solve this problem.
Recommendation is also relatively straight forward as a concept. Usually, it starts with features I have already seen that I like or genres I know I like and then asking a friend or a service to recommend something similar in hopes that the movie or TV show may also appeal. The simplest approach here is what we all know as the "Amazon" approach (people who watched that movie, also watched this movie). It can also be incredibly complex, taking into account your social network, what is currently popular, what movies or TV shows you have already seen, and what genres you like.
So what is Discovery? In this blog, I have often defined it by the service's ability to suggest relevant and interesting content to the user in a very simple, "lean back" user experience. In the real world, this might be akin to the difference between "do you have filet mignon?" (Search) vs. "I heard the fresh lobster here is amazing" (Recommendation) vs. the chef preparing a tasting menu of courses based on some consideration of what you don't like/are allergic to and his particular culinary skills (Discovery). Discovery suggests that you are going to end up watching something you didn't know you were looking for, but will very likely enjoy.
So why is this so hard to accomplish that even the mighty Google is struggling with it? The challenge is very likely in the detailed nuances of our likes and dislikes of videos. For example, "Space Balls" and "Aliens" are both science fiction, but hardly even remotely similar movies. Additionally, you may have liked the latest Mission Impossible because it is a spy movie, or an action movie, or a Tom Cruise movie--or it could have been you actually prefer movies where there is suspense, drama, gunfire, intrigue, and scantily clad heroines--but that may be difficult for you to describe yourself, but you know what you like when you see it. Lately, some of the video services have started to attack this nuance a little more directly by featuring complex genre options such as "goofy family comedies" (Netflix) or "epic heists" (Fanhattan).
Another contributing problem is the user interface, or more broadly, the user experience. For example, imagine the PC market before the mouse and graphical interface--no amount of amazing desktop publishing algorithm could solve a problem without a change in the way the user interacts with the program.
So let's consider what we are trying to accomplish again: a "lean back" experience akin to the way we surf channels these days in the living room, but that quickly and easily delivers something for us to sample with ever increasing probability of success. This very likely means the majority of Discovery experiences will need to take place on a 2-foot remote (tablet/smartphone), especially since its more mature siblings Search and Recommendation are likely to be more effective there.
Let's look at what might be important in that user interface. "Lean back" implies quick and easy, without much thought. Let's agree here that we want to find something worth sampling at least in 3 clicks/gestures. Additionally, let's consider the famous Columbia & Stanford University "When Choice is Demotivating" which concluded that consumers faced with 6 choices had a reasonable buy rate, but when faced with 36 choices, those same consumers shut down and walked away. So, as we look for a good UI, let's agree that any presentation that requires a significant amount of processing (by our brain), a significant number of clicks/typing/gestures, or presents too many choices at any given point is not going to work well.
So what is out there then?
Netflix said recently in their tech blog that 75% of their streamed content is the result of their recommendations. I think this is more likely a factor of the consumer use case for Netflix (I am bored and want to watch something, almost anything) than an indication of their algorithm's success. While the recently implemented Just For Kids vs. Adult UX is a good start, the recommendation service still struggles because there is no distinction of which members of the household are using the service at any given point, giving me recommendations on Dinosaur content and Gossip Girl and suggesting spy thrillers to my 8-year old son and wife. Further, their UI is based on a concept of rows of choices related to an algorithm choice ("Top 10 for this account", "Popular with Members Like Me", "Like: a recent title I watched") that presents at least 18 choices on the screen at once with a scrolling access to 12 rows (72 choices). Too much.
Amazon has been absent on the iPad, with only their web browser as a 2-foot interface (no app), and the experience is absolutely painful. The company that built the recommendation culture has fallen flat here. To be fair, their PS3 experience has "Best of Prime", "Popular Movies" and "Popular TV", but that doesn't match with my expectations from them.
So apparently implementing Discovery is very hard, as the great list of companies above haven't really licked the UI/UX yet, and despite claims on performance of the recommendations themselves, the average consumer would not rave about the results either.
I think you will see two major efforts in this space in the near future:
1) a continuous effort to improve the UI so that consumers can be presented with multiple paths to a recommendation (genre, friends, popular, new), but that allows a limited number of clicks/gestures to get to an increasingly better set of results quickly, and
2) further effort on the algorithms themselves to better harness the nuances of the videos we like to watch and integrating that information more seamlessly with input from our social networks, our stated preferences, and external events (new releases, movie awards, etc).
I am sure all of us wish Netflix and the 2nd screen apps the best of luck in solving this since all of us would have a happier 37 hours in our week...
After you connect your accounts up, you notice that Matcha organizes "suggestions" in 5 rows. First, there is a row on the "Hottest" content. Based on what they showed me, I am assuming this is popular in Matcha vs. popular in broadcast TV in general, etc.
The 2nd row is "Newly Available", presumably content that was just made available to Netflix or Hulu.
The 3rd row is about "Recommendations". I am assuming in this case that they have taken into account my Netflix Queue, Hulu queue and my Facebook likes (I can't tell) to make a recommendation. Most of my recommendations I have already seen, but most of the recommendations are in the right space.
The 4th row is called "Friends" and is presumably a collection of what my friends liked on Facebook. There does not seem to be a discernable order though (most liked, recently liked, etc).
The 5th and final row is called "Queue", which seems to be a combination of the Netflix queue, my Hulu queue, and a Matcha queue.
There are a few filters that can be applied (Movies vs. TV, year of the content's release, genre).
This collection of 5 rows seems to be the primary function of the app--a recommendation service that helps you launch directly to Netflix or Hulu as a result (and presumably Amazon in the near future). How good is it? I think the UI is clean, but not as sophisticated as Fanhattan, which has more discernable selection criteria (Emmy winning, Oscar winning, Top 20, Recently Like, Most liked, all fitlerable by ratings, genre, etc, etc).
There is a product detail page, which similar to Fanhattan, shows the sources and suddenly introduces iTunes and Amazon as a source (rental and purchase). I did try to Like the content and put it in my queue. I cannot tell if the Like went to my Facebook (they also have a dislike which Facebook does not do), but it did add it to my Matcha queue (but not my Netflix queue).
While I am not sure this app is intended to be a second screen app, I would say the following:
- Simple. No control of the 1st screen. Would be a MAJOR improvement if available.
- Social. Other than likes and importing likes, there was little ability to push information socially. Low.
- Seamless. A good effort on gathering sources of content, though the cable/telco/satellite channel line-up for content is missing. Medium.
- Stimulating. Relatively lightweight here (low).
- Discovery. Ahh--isn't this what they want to be? I think the app is a probably in the Amazon mode (your friends watch, this is popular), but has not yet built an algorithm to help me Discover new content. I would say medium for effort, but if this is to be there "raison d'etre", they need to find an algorithm/engine (Digitalsmiths, Jinni, theFilter) to drive real Discovery features for the consumer. They would also need a better seeding process (similar to BuddyTVs) to help capture what I like in general and what I have seen at a cursory level.
As a consumer already exposed to Fanhattan and BuddyTV, Matcha has some feature development to do to get me to switch to their app.
It used to be that we all had the "Discovery" experience in Blockbuster (going to rent a video, expecting a 15-minute trip and spending an hour combing the walls of the store looking for something to watch). Then, DVD sell-thru became VERY affordable. So affordable that not only were the big releases being sold by Wal-mart, Target and Bestbuy below their wholesale pricing (losing money to drive traffic to their stores), but as the DVD industry matured, cheaper back-catalog titles became available in the check-out aisles of grocery stores. Spending $5, $7 or even $10 for a title to have forever seemed like a bargain compared to the time suck of the trip to Blockbuster combined with its late fees. More importantly, buying a cheap title to watch when it was a slow night in the near future was a perhaps a better alternative then cable TV. For years HBO filled this need--a subscription movie service that allowed you to essentially turn on the TV and watch something "good" when you had time on your hands for entertainment.
Next physical Netflix started to make a serious dent in all of this--but it only worked for those people who had patience and essentially replaced the new release for those willing to wait and the back catalog for those who planned ahead and always had a title around to watch. I think this is the first time consumers had an alternative to the timesuck/late fee experience to watch new movies and to the "what's on HBO?" experience (despite all of us having DVR's, but not having the foresight to use them to solve this problem).
Then we had a step change improvement -- rental went digital thru iTunes, Vudu, Amazon, and Xbox. Now, the "Discovery" process happened in your living room. There was some initial disappointment with titles only available on certain services and sometimes later than the physical DVD rental and sell-thru date. The fact that the studios made more money per rental (improving their share from 25-65% on average) hastened the demise of Blockbuster nearly overnight and brought digital rental day and date with physical rental and often sell-thru.
Then Netflix dropped the boom and started a digital subscription (SVOD) service. In theory, this was no different than HBO--you had a bouquet of content that you didn't really understand and had no guarantees on what would be in there tomorrow, but instead of setting your DVR or waiting until the next movie started, you could now actually search/discover and watch "something" instantly. And cheaply. Cheaper in fact than HBO.
Consumers voted with their feet/pocket books and Netflix grew their subscribers at an alarming rate, threatening even the mighty HBO.
Not surprisingly, the physical sell-thru rate started dropping quickly. Consumers now had a better rental experience either in Netflix or digitally and had a digital subscription video service that replaced the "what do I watch when I am bored" scenario.
Studios wanted and needed sell-thru, digital or physical, to regain its previous levels (while their share is similar with digital rental, the gross sales on sell-thru 3-5x higher). But how? Digital purchasing meant you acquired a title on a single device (your Vudu box, your PC) and at the time the concept of cloud ownership was non-existant (even with the mighty Apple).
What consumers needed was confidence that they could buy something digitally and have it on any of their devices when and where they wanted it.
The industry launched the concept of an industry-supported digital locker service in 2008 (then called DECE), but like all industry initiatives, it languished under the weight of its own support. The 75 initial members pulled it in many directions and then suddenly with Microsoft and Sony clearly at the helm, Apple refused to join. The battle lines had been drawn and the law abiding consumer suffered (and digital pirates continued to flourish).
Now as scant 4 years later, Ultra Violet has launched (the industry's answer to a consumer digital locker). But there are serious challenges to drive consumer adoption:
1. The experience isn't consumer-centric. You don't have the same experience movie to movie (same offer) or retailer to retailer (different sign-up processes, different viewing process).
2. In four years, Apple has launched and owns the tablet segment, probably where most digital movies and TV that are owned are viewed BY FAR.
3. Netflix has used the 4 years to cement a 20m strong subscriber base, offering unlimited movies for less than the purchase of a single new release.
4. The "connected TV" promise has become a confusing wasteland of technical solutions that make Apple all that more appealing.
And now, Wal-mart / Vudu wants to help you convert your physical library to digital with a hefty fee--and most of the physical titles you own you probably also have access to on Netflix. What to do?
While in my previous blog, I described the time vs. money trade-off of the legal conversion option, the other challenge is the easy access to a large library in which content is likely but not guaranteed to be there tomorrow vs. the cost (and hassle) of converting those titles to UltraViolet and Vudu.
My guess is that of the 400+ titles I have at home, probably 3/4 of them are available on Netflix. The other 25% are going to have issues with availability (Disney, other smaller studios) or won't pass the rental option test (ie if I am truly only going to watch that title once in a long while, is a $4 rental a better option at the point of viewing vs. a $2-5 investment for a title I may not watch for some time).
If consumers think all this thru while thinking about what the Wal-mart experience may be like (and that they likely can't view these titles on their iPad while traveling), my guess is that this will not take off very quickly.
I will try it myself on April 16th and let you know how it goes.
As for the other burning question, "How can the studios improve digital sell-thru"? That's an easy list to create but hard for them to accomplish:
1. Make the UltraViolet offer consistent on every title (streaming, download, HD for the right price, viewable on an iPad).
2. Make it easier to register the UltraViolet copy (should be as seamless as my Blu-ray player detecting it and marking my digital locker appropriately).
3. Make the iTunes digital copy work with Ultraviolet (for a small fee).
4. Like iTunes, let me purchase UltraViolet digital only titles (Paramount started this late last year).
5. Provide an incentive for me to convert my physical library that counters that hassle and the Netflix inertia.
If the studios can't do these things in the near term, I predict that a "Seamless" 2nd screen app (Fanhattan, M-GO, BuddyTV) will come along shortly that will "catalog" my digital collection and combine that with the sources of subscription and rental services, and further combine that with my Cable/Telco/Satellite provider program line-up and a slick recommendation / Discovery engine (DigitalSmiths) that includes my social network "likes', and consumers will have the tools to reduce their "purchase" of physical and digital content to only what they need, when they need it...this is a race that Discovery, Social networks, and 2nd Screen might just win.
Blockbusterâs continued crumbling and Netflixâs Qwikster debacle boded well for Redbox in 2011, as the kiosk operator rose to be the leader in U.S. physical disc rentals, according to research firmÂ NPD.
Redboxâs rental volume increased 29 percent from 2010, with its overall market share rising to 37 percent in 2011, NPD reports. Blockbusterâs market share fell as the chain closed more brick-and-mortar outlets during the year. Netflixâs share of DVD and Blu-ray rentals for the entire year stood flat 30 percent; however, the company reached a two-year low of 25 percent in the fourth quarter of the year, following the attempted rebranding of its DVD service.
Still, NPDâs Russ Crupnick notes that Netflix is âin the process of shifting customersâ to its streaming service, âso not all of the physical movie rental share drop is a net lossâ for the company.
Total DVD and Blu-ray movie rental volume declined by 11 percent in 2011, according to NPD, while nearly one in three paid movie rentals (31 percent) now come from paid video-on-demand (VOD) options. Netflix remains the dominant provider of paid digital movie rentals, with a 55 percent share as of the fourth quarter of 2011.
For the time being, at least, ârenting physical discs from now-ubiquitous kiosks in grocery stores and other venues has taken the lead as the most popular movie-rental method in the U.S.,â Crupnick said.
NPDâs numbers reflect rentals of movies only (i.e., not television shows or series); VOD data excludes free movies from over-the-top television or cable providers.
As in the U.S., streaming video services in the UK will compete not only on the breadth and depth of their content offering and ease of use, but on price as well.
Netflixâs anticipated streaming video service is now available in the UK and Ireland for monthly subscription rates of ÂŁ5.99 and âŹ6.99, respectively, with the company offering new customers in the region a free one-month trial.
Meanwhile, Amazon â in an announcement toasting the two millionth customer for Lovefilmâs discs-by-mail rental service â said that it would now market an unlimited streaming-only package âfor an introductory price of ÂŁ4.99 per month.â
How many Netflix streaming subscribers will watch âLilyhammer,â the companyâs first original series of 2012? A hit show would not only give Netflix greater leverage in content acquisition and development, which is crucial to the companyâs future; it also could ratify Internet distribution as a bonafide competitor to traditional pay-TV.
âLilyhammerâ â which stars Steven Van Zandt (âThe Sopranosâ) as a New York mobster-turned federal prosecution witness, who has begun a new life in Lillehammer, Norway â is set to premiere via Netflixâs streaming service in the U.S., Canada, and Latin America on Feb. 6. All eight episodes of the showâs first season will be available simultaneously. Netflix chief content officer Ted Sarandos explains the value proposition: âIf you love the first episode, there is no need to wait until next week, or to set a DVR, to catch the next one.â
Netflix has other original content queued up for streaming subscribers: drama series âHouse of Cardsâ is set for debut later in 2012, while new episodes of celebrated comedy âArrested Developmentâ will arrive in 2013.
Watch Netflixâs trailer for âLilyhammerâ here.
The U.S. Postal Service announced on Monday a cost-reduction proposal whereby it would move its First-Class Mail âto a 2-3 day standardâ next spring, likely bringing longer wait times to subscribers of discs-by-mail services from Netflix, Blockbuster, and GameFly.
Yet at least for Netflix, whose DVD shipping centers are located near postal processing facilities, the change would add only a day (at most) to disc delivery times, reports The Street. âA slowdown of first-class mail wonât have much of an impactâ on Netflix, Wedbush analyst Michael Pachter tells the website. âThey are primarily a streaming company,â Pachter adds, âmore so now that they raised prices for their DVD customers.â
Netflixâs remaining discs-by-mail subscribers, Pachter says, âwill tough it out if Saturday delivery is cancelled, or if one-day delivery becomes two days some of the time.â
The Postal Service noted that âthere would be an opportunity for mailers who properly prepare and enter mail at the destinating processing facility prior to the day’s critical entry time to have their mail delivered the following delivery day.â In tandem with the First-Class Mail change, however, the Postal Service is looking to close more than half of its 487 mail processing facilities.
Twentieth Century Fox Television and Imagine Television will produce new episodes of acclaimed comedy series âArrested Developmentâ in an exclusive deal with Netflix, the companies announced late Friday. The new episodes are slated for exclusive availability to Netflixâs U.S. streaming service customers in 2013.
Other streaming services, such as Hulu (via Vulture), had been competing with Netflix to land new episodes of the series. The deal marks the second high-profile original production that Netflix has nabbed in recent months; it also has secured exclusive rights to Media Rights Capital political drama âHouse of Cardsâ for a late 2012 rollout.
Although Fox cancelled âArrested Developmentâ in 2006 after three seasons, the show subsequently gained a broader audience on DVD. The parties envision the deal spanning roughly 10 new episodes of the show (via The Wall Street Journal), and the entire original cast is expected to return (via the Los Angeles Times).
Walmart could distribute millions of dollars in gift cards to members of a class action lawsuit against the retailer and Netflix, under proposed terms of a settlement released on November 14.
Netflix continues to defend itself against the lawsuit, which claims that the two companies ran afoul of antitrust laws when they agreed to steer clear of each otherâs DVD business as part of a 2005 cross-promotion deal. Netflix also has complained that Walmartâs proposed $27.5 million settlement essentially allows it to market competing video products and services to Netflixâs customer base (via paidContent). Walmart, of course, has stepped up promotion of its Vudu service for movie rentals and downloads in 2011; under terms of the settlement, the company admits no wrongdoing in the 2005 Netflix deal.
More on the settlement at Consumer Reports.
While Disney renews its licensing agreement with Netflix for streaming episodes of ABC television series, it also has struck a similar deal with Amazon, Netflixâs aspiring competitor in the video-on-demand space.
Episodes from new seasons of current Disney-ABC series such as such as âDesperate Housewivesâ and âGreyâs Anatomyâ will be made available to Netflix subscribers 30 days after the last episode of each season airs. The agreement also includes shows from The Disney Channel, such as âPhineas & Ferb,â as well as the ABC Family network.
âWe are thrilled to broaden the scope and extend the terms or our relationship,” said Ted Sarandos, Netflixâs chief content officer, in a statement.
Meanwhile, Amazon announced a similar licensing agreement with Disney-ABC Domestic Television, under which members of the companyâs Prime service can stream shows on some 300 devices, including Amazonâs own Kindle Fire. Brad Beale, Amazonâs director of video content acquisition, said in a statement that the company was âworking hard to add even more selection for Kindle Fire customers and Prime members leading up to the holidays.â Amazon expected to have nearly 13,000 titles available through its Prime Instant Video service by early next year, Beale said.
Netflix gave shareholders and analysts a lot of information to absorb during its third quarter earnings presentation Tuesday, not the least of which was the news that more customers cancelled their subscriptions in the wake of a September price increase than the company expected. Yet for all of the recent focus on Netflix in the business press, the company received a single live question during its quarterly earnings Q&A webcast Tuesday evening: What continuing value does Netflixâs DVD business provide to the company? In other words, why should Netflix remain in the DVD business, when it was ready to leave it behindâat least in nameâjust one month ago?
âAt this point,â answered Netflix chief executive Reed Hastings, the domestic disc-by-mail business âis a source of profit funding our international expansionâand itâs a source of satisfaction to the more than 10 million members who subscribe to our DVD service, whether they also subscribe to streaming or not. And so weâll keep [the DVD service] and run it steadily.â
Other comments by Hastings during the webcast made it clear that the discs-by-mail business will have a nuanced relationship with Netflix’s streaming services as the company moves forward.
â˘ On the long-term viability of a DVD business: Hastings reiterated the companyâs expectation for the discs by mail business to decline over time. The trajectory for discs by mail, Hastings said, âwill probably be something like AOL dialup [service] from 2002 to today.â But Hastings noted that the current business consists of âalmost all variable costsâ such as postage. In a letter to shareholders, Hastings and Netflix chief financial officer David Wells noted that the company does not anticipate further investments in equipment for DVD distribution. âA majority of our DVD library is fully depreciated,â the executives added. So at the current monthly subscription price of $7.99, âthe segment is profitable.â
Still, the restructuring of Netflixâs subscription plans is causing a substantial contraction in its DVD customer base. The company expects to end 2011 with between 10.3 million and 11.3 million DVD subscribers, down âsharplyâ from a current level of 13.9 million.
â˘ On reconsidering Qwikster: âIn hindsight,â Hastings said, Netflixâs attempt to recast its DVD business as a separate service called Qwikster âis hard to justify.â During the Q&A session, Hastings defended the rationale for attempting to bifurcate the companyâs services. âHaving separate brands representing really the different audiences that care about those two services can in theory make sense,â Hastings said. âHowever, in practice, post-price increase, Qwikster became the symbol of âNetflix not listening.ââ
â˘ On continuing to service DVD customers in 2012 and beyond: DVD subscribers âwill be very welcome,â Hastings said, âbut we are going to be pushing and promoting streaming.â
The company’s complete third-quarter results and fourth-quarter guidance are here.
Ahead of its Monday third quarter earnings call, Netflix announced that it will bring its streaming video subscription service to the United Kingdom and Ireland in early 2012.
Netflix said that customers in the UK and Ireland will be able to watch streams of TV shows and movies on their home televisions through a range of consumer electronics devices capable of streaming from Netflix, as well as on PCs, Macs, and mobile tablets and phones. The company said it would disclose further details about the service, including pricing, content and supported devices, closer to the serviceâs launch date.
In the UK, Netflix will compete against Amazon-owned LoveFilm, which offers subscribers both DVD rentals and movie streams. Googleâs YouTube also has begun to market a-la-carte online movie rentals in the UK (via The Guardian).
Netflix will release results for its third quarter (ended Sept. 30) after the stock market closes on Monday. Analysts and shareholders are eager to learn whether the company lost U.S. customers after its price increase went into full effect in September.
by Marcy Magiera
As networks and studios take advantage of myriad new ways to distribute content, they face greater challenges in managing windows to extract maximum profit from each transaction, said executives speaking at Variety’s Entertainment and Technology Summit at the Ritz-Carlton Hotel in Marina del Rey, Calif. on Monday.
Speaking on a “Trendsetters in Entertainment Distribution” panel,Â David Spiegelman, president of domestic television and digital distribution for Relativity Media, discussed the studioâs decision to give its movies to Netflix for streaming in the pay TV window, bypassing cable programmers HBO, Showtime, Starz, and others. âThereâs a huge benefit for us to be on Netflix,â said Spiegelman, noting that while Netflix has a big audience â more than 20 million people subscribe to Netflixâs streaming service â the films will get less consumer exposure than they would in HBO rotation, for instance, preserving value for buyers in the downstream windows including basic cable.
âYou can never have enough buyers,â said panelist Scott Koondel, president of distribution for CBS. âRight now itâs about getting paid the most for every transaction.â
For programmers like Showtime and Starz, that is driving a move to replace theatricals with original content so that they can control both the exposure and revenue of the properties in multiple windows, said Koondel and John Penney, executive vice president of strategy and business development for Starz.
Because of growing international markets and new distribution platforms, âyou can produce shows for network and make money right out of the gate,â instead of waiting for syndication, said Koondel.
âPricing is critical,â said Penney. âWhoever is setting the price has to get it right to generate enough revenue to finance new content.â He used as an example Netflixâs acquisition of the first-run series âHouse of Cards,â which according to Penneyâs estimate, will cost one monthâs revenue from all 25 million Netflix subscribers to finance.
For content owners, that means developing new distribution outlets, such as Facebook, even though it isnât clear whether consumers want to watch movies over social networks, said Spiegelman. âIf you can tap into a very small percentage of that huge platform, you could be generating so much revenue,â he said. âWe want to train behavior now.â
Conference keynoter Kevin Mayer, executive vice president of corporate strategy and business development for The Walt Disney Co., also addressed windows management. As an example, he said the studio now views its ABC network as simply the first window of distribution for its TV content. âNetwork used to be the business,â he said. âNow content is the business.â
When Netflix announced its intention to rebrand its discs-by-mail division as Qwikster, the company also noted that it would add an upgrade option for video game rentals as well. âMembers have been asking for video games for many years, and now that DVD by mail has its own team, we are finally getting it done,â Reed Hastings commented on Netflixâs corporate blog Sept. 18.
But now that Netflix has called off Qwikster, the company is also reevaluating its entry into the game rental business. A Netflix spokesperson tells The New York Times that launch of game rentals is now âto be determined.â No decision has been made, however: âWeâre still considering games,â the company tells the HackingNetflix site.
Responding to outcry from customers, Netflix announced a strategic reversal under which it will abandon its plan to rebrand its discs-by-mail rental service in the U.S. as Qwikster.
âIt is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs,â said Netflix chief executive Reed Hastings in a Monday statement on the companyâs corporate blog. âThis means no change: one website, one account, one passwordâŚ in other words, no Qwikster,â Hastings continued.
Netflix unveiled the Qwikster moniker only three weeks ago as part of its ongoing effort to manage the companyâs domestic disc-rental business while growing global markets for streaming video. Under the plan, U.S. streaming customers who also received discs by mail would have had to manage separate accounts on separate websites.
The company noted that its price increases, which went into full effect earlier in September, would remain in place. More on the move at The New York Times.
The prevalence of piracy in a given market serves as an indicator that consumers are ready for an easy-to-use, âbetter than freeâ alternative, Netflix chief content officer Ted Sarandos told an audience at this weekâs MIPCOM event in Cannes, France (via Home Media Magazine).
Sarandos noted that Netflix now has more than 1 million streaming service subscribers in Canada, surpassing unauthorized file sharing via BitTorrent as the countryâs preferred source for video content.
More coverage of Sarandosâs MIPCOM keynote discussion with Miramax CEO Mike Lang at the conferenceâs blog.
Netflix and DreamWorks Animation announced their completion of an agreement for the streaming video service to begin offering DreamWorks films and television specials in 2013 (via The New York Times). For the studio, the dealâunder which Netflix will pay an estimated $30 million per picture, according to analystsâreplaces a licensing agreement between DreamWorks and HBO.
DreamWorks Animation chief executive Jeffrey Katzenberg tells the Times that the deal is âgame-changing,â in that it represented the first time a major Hollywood studio chose a video streaming service over a pay-TV network for distribution of its films. But others see the announcementârumors of which first surfaced in Julyâas more of a stopgap publicity measure for Netflix, which is still responding to customer outcry over its price increases and further separation of the companyâs discs-by-mail and streaming services.
CNET contends that the company needs to land major-studio streaming content sooner rather than later, as Netflixâs distribution pact with Starz (under which the company has offered streaming films from Disney and Sony Pictures) is due to end in February 2012.
Stepping up its competition with Netflix, pay-TV provider Dish Network said on Friday that its subscribers will be able to add a premium âBlockbuster Movie Passâ package for streaming access to thousands of films.
Ira Bahr, Dish Networkâs chief marketing officer, said that the Blockbuster Movie Pass will be offered as a $10 per month add-on to any Dish Network pay-TV subscription. The new service will launch Oct. 1.
Blockbusterâs discs-by-mail service, which offers rentals of DVDs, Blu-ray discs and video games, will be included as part of the Movie Pass package. Bahr said the serviceâs $10 monthly price compares favorably with Netflixâs discs-by-mail (Qwikster) and streaming video services, which together cost subscribers nearly $16 a month.
The integration of Blockbuster Movie Pass with Dishâs pay-TV service also would offer customers a single-bill advantage over maintaining separate Netflix and pay-TV subscriptions, Bahr said.
Content distributors participating in the Blockbuster Movie Pass launch include Starz, which recently declined to renew its streaming distribution agreement with Netflix.
With Facebookâs new âTimelineâ interface, users will be able to see songs that their friends are listening to in real timeâand click to listen to the music themselves.
Such âsharingâ of music on Facebook requires users to have accounts with the same digital music service, such as Spotifyâwhich joined Facebook in announcing the integration at the social networkâs developer conference on Thursday (via Gizmodo).Â Users can share forms of entertainment via their personal Timelines as well, including Vevo music videos and Netflix streamsâalthough the latter is available only to Facebook users outside the U.S. (via Light Reading).
With Discovery Communications agreeing to bring seasons of its popular TV series such as âMan vs. Wildâ to Netflixâs streaming service, the video renter has gained an opportunity to refocus its marketing message on offering hit content (via Reuters).
Speaking at a Goldman Sachs media conference in New York on Wednesday, Discovery chief executive David Zaslav said the two-year deal with Netflix holds âmeaningful economicsâ for the company, and is purposely short-term so that Discovery can determine the effects of Netflix availability on its other distribution channels (via The Wall Street Journal). Discovery has an option to renew the agreement for a third year; other terms of the deal have not been disclosed.
While Netflix spends this week marketing the âQwiksterâ rebranding of its discs-by-mail service to customers and shareholders, rival Dish Network is planning to announce further details of its anticipated Blockbuster streaming-movie service on Friday, according to reports.
The Friday announcement from Dishâfirst reported by Bloombergâwill reveal pricing for the new streaming service, which is expected to launch in October. The Blockbuster-branded service could first launch as an add-on package for Dishâs pay-TV customers. More details on the planned press event at CNET.
Meanwhile, Netflixâs Sunday announcement of further changes to both its streaming and DVD services has sparked a new round of analyst speculation and customer commotion. Splat F and The Street offer the analystsâ perspective: both articles address whether the reorganization points to Netflixâs preparation of the DVD business for an eventual spinoff or sale. The New York Times and PC Magazine cover Qwiksterâs consumer marketing challengesâevidently among them, distinguishing the service on Twitter.
After apologizing to Netflix customers for not personally explaining the companyâs rationale for its recent price increases, Reed Hastings announced that his company would be making further changes to its discs-by-mail service.
In a blog note to customers on Sunday, the Netflix chief executive said the the company would soon rebrand its U.S. DVD business as âQwikster,â further separating the discs-by-mail division from Netflixâs streaming video service. Hastings added that Qwikster would offer rentals of video game discs as a new option for subscribers, similar to the companyâs current upgrade option for Blu-ray videos.
Pricing of the video game upgrade option is yet to be announced. A competing games-by-mail service in the U.S., GameFly, charges its subscribers $15.95 a month to rent one game disc at a time. All of Blockbuster’s discs-by-mail plans, meanwhile, include Blu-ray and video game rentals; Blockbuster’s plans start at $9.99 per month for one disc out at a time.
Netflix streaming subscribers in the U.S. who also receive discs by mail will have to manage their rental queues, movie preferences, and account information on two separate websites. Hastings conceded the lack of integration between the sites would be a ânegativeâ for subscribers; but on the plus side, he said, âEach website will be focused on just one thing (DVDs or streaming) and will be even easier to use.â
Netflix veteran Andy Rendich, who has overseen the companyâs DVD business for the last four years, will lead Qwikster as CEO, Hastings said.
âSome members will likely feel that we shouldnât split the businesses, and that we shouldnât rename our DVD by mail service,â Hastings acknowledged. âOur view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail.â
When Netflix announced its intention to split its discs-by mail and streaming video services in the U.S. into separate subscription plans, the company estimated that 3 million of its customers would subscribe solely to the discs-by-mail service by the end of the third quarter (Sept. 30). At the time, NetflixÂ also said its newly created discs-by-mail division would help ensure that the company’s DVD business remainedÂ âas healthy as possible for as many years as possible.â
Today â two weeks after Netflixâs service changes and concomitant price increases went into effect â the company announced that it was lowering its starting subscriber expectations for its new discs-only service as well as its streaming-only plan in the U.S.
Netflix cut its end-of-quarter projection of discs-only subscribers by 26.7 percent, from 3 million to 2.2 million. The company also trimmed the number of U.S. subscribers projected to opt for its streaming-only service to 9.8 million, from an original expectation of 10 million.
Netflix still expects 12 million of its U.S. customers will subscribe to both its discs-by-mail and streaming services by the end of September. The company also left unchanged its financial guidance for the third quarter.
In a Sept. 15 note to shareholders, Netflix intimated that customer pushback on the price hikes prompted the companyâs guidance revisions. In defending its splitting of services as âthe right long-term strategic choice,â the company reiterated its four key objectives:
â(1) to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
â(2) to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
â(3) to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
â(4) to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.â
Netflix plans to share more on its third-quarter performance in October.
Dish Network plans to launch a Blockbuster-branded movie streaming service next month, in a move timed to coincide with Netflixâs price increases, Bloomberg reports.
Dish, which acquired nearly all of Blockbusterâs assets in April, could ratchet up dealmaking between streaming video service providers and content distributors for top movies and television series. Netflix, for itself, says that it is looking to spend money that it had previously earmarked for renewal of a streaming agreement with pay-TV channel Starz. That deal, which had brought Disney and Sony films to Netflix subscribers, is now set to expire in February, 2012.
While it implements its price increases in the U.S., Netflix is rolling out its streaming service to countries in Latin America, beginning with Brazil (more atÂ paidContent).
With Starz deciding not to renew its licensing deal with Netflix next year, the online video company faces more pressure to secure streaming rights to top-shelf movies and television series. Under the current agreement with Starz, which runs through February, 2012, Netflix streaming subscribers receive access to movies from Walt Disney Co., such as âToy Story 3â (via The Wall Street Journal).Â Subscribers also enjoyed streams of Sony Corp. films under the deal until the studio pulled its programming from the Starz service in June.
Analysts are divided over how significant the loss of the Starz deal will be to Netflixâs streaming service (more atÂ Reuters). A Netflix spokesman told Bloomberg, “We are confident we can take the money we had earmarked for Starz renewal next year, and spend it with other content providers to maintain or even improve the Netflix experience.â
In related news, the company’s much-talked-about price increases took effect Thursday.
Media analyst Richard Greenfield contends that Huluâs owners would be wise to retain their interests in the online video site âto have direct control of their digital futureâ (registration required). But in what looks to be a likely sale of the site by Comcast, News Corp., Walt Disney Co. and Providence Equity, Greenfield says that YouTube owner Google âis the most compellingâ buyer.
Among the factors Google has in its favor, Greenfield says, are the companyâs âincredibly deep pockets,â which it would use to acquire more content for Hulu. For content owners, the analyst says, a Google-owned Hulu could further develop the marketplace for digital rights âbeyond Netflix currently and to a lesser degree Amazon.â
Greenfield speculates that Googleâs size, however, could stir seller concerns that they would be ceding too much control over their business to the Internet company.
Initial bids for Hulu are due this weekend; other companies reported to have an interest include Amazon, DirecTV, and Yahoo.
The midyear home entertainment data from DEG: The Digital Entertainment Group shows Americans spending more money on video rentals than purchases of packaged media for the first time since 2000 (via BusinessWeek). But the trade group is quick to qualify that it included subscription plans such as Netflixâs DVD and streaming service within the rental category for the first time this year.
For the first half of 2011, the industryâs total rental revenue â including subscription services, automated kiosks, video-on-demand, and brick-and-mortar outlets â topped $4.1 billion, an 11 percent increase from the first half of 2010. Increases in subscriptions, kiosks, and video-on-demand offset a 28 percent decline in rental revenues from brick-and-mortar chains during the period (largely brought about by Blockbusterâs store closures).
In comparison, sales of DVDs, Blu-ray discs, and electronic downloads declined by 17 percent from 2010, to $4.1 billion. The DEG points out that the industry dealt with difficult year-over-year comparisons with 2010: last year, Twentieth Century Fox Home Entertainmentâs âAvatarâ sold more than 12 million discs in the second quarter alone.
DEG also reports that the total household penetration of Blu-ray devices now stands at 31.6 million U.S. homes;Â consumer spending on Blu-ray (including both sales and rentals) increased by 10 percent during the first half of 2011.
Announcing its quarterly earnings on Monday, Netflix said that it would resume marketing of its DVDs-by-mail service in the fourth quarter of this year â even as disc shipments for the company âhave likely peakedâ amidst subscribersâ increasing preference for streaming video.
Netflix offered shareholders more details on the dedicated DVD division that the company is establishing in San Jose, Calif., stating that the division already is planning improvements to the discs-by-mail service. âBecause we believe we can best generate profits and satisfaction byÂ keeping DVD by mail as a division, we have no intention of selling it,â the company states in the letter.
âOur goal,â Netflix says, âis to keep DVD as healthy as possible for as many years as possible.â
Netflix estimates that its total U.S. subscriber base will reach 25 million by the end of the third quarter. Of that number, Netflix expects 12 million will subscribe to both DVD and streaming services, notwithstanding the companyâs recently-announced price increase. Some 10 million subscribers are expected to choose the companyâs streaming-only plan, while an estimated 3 million will opt exclusively for discs by mail.
Still, DVD shipments during Netflixâs second quarter were lower than the company expected, in part due to the popularity of the companyâs streaming-only plan. Some 75 percent of new Netflix subscribers signed up for the $7.99/month streaming service during the quarter.
Netflix is close to securing exclusive streaming rights to films from DreamWorks Animation SKG, in a deal that would spell the early termination of a pay-TV pact between the studio and Time Warnerâs HBO, Bloomberg reports.
A new agreement certainly would be high-profile for Netflix; the studioâs films include the âShrekâ and âKung Fu Pandaâ franchises. But one analyst notes that with the DWA-HBO agreement running through 2014, âAny earlier deal would clearly need HBOâs consent, which it would obviously not provide unless there was a financial benefitâ (via The Hollywood Reporter).
If the Netflix deal was the result of HBO offering the studio an early-exit option, says Janney Montgomery Scott analyst Tony Wible, it would âbeg the question of whether Netflix won a DWA deal or was the buyer of last resort.â
Speaking at a conference last week, DreamWorks Animation chief Jeffrey Katzenberg didnât hint at changes to the studioâs streaming distribution. But the executive did sound off on everything from the quality of theatrical films to 3D television and studiosâ forthcoming UltraViolet digital rights initiative. See BTIG Research (registration required) for a link to Katzenbergâs comments.
Digital Media Pundit: Netflix Making a âLeverage Playâ for First-Run Streaming Content with New Pricing Plans
Netflixâs decision to drop DVDs-by-mail from its streaming video subscription service may prove to be no less momentous for the media industry than Appleâs decision to market its first iMac computer without a floppy disk drive. So contends Eric Garland, CEO of digital media tracking company Big Champagne, in a Q&A with CNET.
In forcing customers to reconsider paying to rent DVDs, Netflixâs Reed Hastings âis deliberately creating dissatisfactionâ to press studios for wider digital distribution deals, Garland says. Given his companyâs commanding share of the streaming market, Hastings seems in a prime position to make the move. âThis is a leverage play,â says Garland. Hastings âis trying to remove the complacency that comes from an easy dependency on [a] legacy product. If you take the comfort of that DVD away that dissonance is going to demand remedy.â
A little more than a month ago, Netflix content chief Ted Sarandos conceded at an investorâs conference that there were âa lot of markets that are terribly underserved for DVD rental, and [that] donât have the kind of broadband speeds yet to backfill with streaming.â Accordingly, Sarandos said, Netflix would be âputting a little bit more of a focusâ on disc rentals in the near future.
Who could have guessed from Sarandosâs comments that Netflix would soon split disc rentals and streaming access into separate subscription plans, in a move to contain the costs of maintaining physical distribution operations?
The bifurcated subscription services have irked customers, none of whom want to hear how streaming rights to hit movies and TV shows are only getting more expensive for the company. Those who currently subscribe to Netflixâs $9.99 streaming-plus-DVD plan admit that disc rentals are a rarely-used, but nice-to-have option â especially given what some characterize as a spotty streaming library (via CNET). Faced with a 60 percent price hike for both services, more than a few DVD-plus-streaming subscribers have threatened to cancel their memberships entirely.Â That could bring new customers to Redbox kiosks, argues one analyst (via the New York Post).Â Rival streaming services, such as those from Amazon and Hulu, could see upside as well.
Consumer outcry to higher prices is hardly a surprise. But at the time of this writing, âDear Netflixâ was trending so high on Twitter that HBO had piggybacked on the publicity with a promoted tweet for its own streaming offer, HBO Go. More on the social network backlash and its ramifications at Seeking Alpha.
In any event, Netflixâs âgraceful degradationâ strategy for DVD is now apparent. The “gracefully degrading” term comes from the companyâs announcement in mid-June that it would no longer support third-party apps that enabled subscribers to manage their DVD rental queues. (Netflixâs own app allows subscribers to manage their streaming queues only.)
Investors, for their part, seem to have applauded Netflix for the price changes, as well as for the companyâs renewal of a TV-show streaming deal with NBCUniversal. Netflixâs stock price topped $304 per share on Wednesday (via MarketWatch).
Under Netflixâs modified pricing plans, customers who want both DVDs and streaming videos will pay $15.98 a month. But unlimited DVD rentals, like streaming-only service, will be available as a $7.99-a-month subscription â in what the company says is a renewed focus on the DVDs-by-mail market.
Previously, Netflix offered a combination plan for $9.99 a month, as it touted the growth of its streaming service. âGiven the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,â says Jessie Becker, Netflixâs vice president of marketing, in a corporate blog post. âCreating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering.â
Becker adds that Netflix also is establishing a separate management team for its DVDs-by-mail business, led by Andy Rendich, the companyâs chief service and operations officer.
The price changes take effect on Sept. 1 for existing subscribers. More on Netflix’s move at the Los Angeles Times.
Netflix unveiled plans to launch its subscription video streaming service in 43 countries throughout Latin America and the Caribbean later this year, further expanding the companyâs reach beyond the U.S. and Canada. How large of a market is Netflix out to capture? One Frost & Sullivan analyst has estimated that the countries collectively represent more than 156 million Internet users with access to a 3.2Mbps connection (via CNET). Argentina, Brazil, and Mexico are among the regionâs most connected countries.
Pressing ahead with plans to allocate more resources to its streaming services, Netflix announced late last week that it would begin to phase out support for third-party apps that let subscribers sort their disc rental queues from mobile devices.
The companyâs application programming interface (API) âwill be focused exclusively on offering content and functionality from the streaming catalogâ by mid-October, according to a June 17 post on the Netflix developer blog.
Netflixâs own mobile apps only allow subscribers to modify their âinstantâ streaming queues. Subscribers who want to manage DVD or Blu-ray rentals from a mobile device have had to either install a third-party app, or deal with accessing the Netflix website from a mobile browser.
Disc queue management features have helped third-party apps grow in popularity. For example, theÂ Queue Manager app for Android devices had garnered nearly 50,000 downloads by December 2010, according to its developer; the app now claims more than 100,000 installs on Google’s Android Market.
But for Netflix, continuing to support such features would cramp the companyâs plans to expand its streaming services, both in the U.S. and Canada as well as new markets abroad.
Daniel Jacobson, Netflixâs director of engineering, stated that the change âclears the path for us to add new features to the API to support international catalogs and languages.â
Some nevertheless urged Netflix to reconsider its decision. âI wrote an app specifically to manage my DVD queue,â griped one developer in response to the announcement.