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Netflix Splits DVD And Streaming Businesses

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Re: Netflix Splits DVD And Streaming Businesses

#181

Post by lsc »

cek wrote: post #57

That Netflix needs to keep making these changes is simply a symptom of a brutal endemic problem: In general, subscription business suck. Most subscription businesses suck because they are dependent on CAC (customer acquisition costs; the cost required to land a new sub) and churn (the percentage of subs that leave the service). For example, a typical gross CAC for a business like netflix is $200. At $10/mo the subscr…

That is an interesting perspective, but it runs directly counter to my experience. I've experimented with many different business models; building hardware and selling it (and then renting co-location) charging a setup fee that covered the parts costs (and then charging a just above cost fee for running the server) and traditional renting.

Renting hardware, for me, has been vastly more profitable than any other option.

I can build a 32GiB ram server with an 8 core opteron, 4 'enterprise sata' disks, etc... for well under fifteen hundred bucks. I could probably sell it for two grand, if I spent a lot of effort on sales.

Alternately, I can rent the thing for $300/month. Heck I can rent a three year old server with similar specs for $300/month. This is without really trying; I thought I was going to have to part out those old servers, but people keep emailing me asking for high-ram dedicated servers. I'm honest about the age of the hardware, and yet I still have more demand for old servers than I have old servers. (I'm working on moving my xen customers on to new servers, so I will have more old servers shortly.) Those old servers cost maybe $60/month for me to host; the new ones? $30/month.

As far as I can tell, you can charge vastly higher prices if you rent your product rather than sell it.

From my perspective, renting is more profitable than selling even if I'm paying credit card rates on the capital.

I self-finance by offering people a discount if they pay 3, 6, or 12 months ahead; 5% for 3 months, 10% for 6 and 20% for 12 months. It works quite well, new signups on a server will pay for the hardware the first month. 20% is kind of costly capital, but it still makes more sense for me to borrow and rent than to sell.

Re: Netflix Splits DVD And Streaming Businesses

#182

Post by WalterBright »

To me, dvd+streaming is worth more combined than separate. I guess Netflix will find that out. Without the DVDs, Netflix is just another streaming company with little to differentiate it. There will no longer be any barriers for me to switch to another streaming service, like Amazon.

80% of what I want to see is DVD only. It is far, far too soon to dump that - I'd dump the streaming first.

Re: Netflix Splits DVD And Streaming Businesses

#183

Post by melvinram »

nirvdrum wrote: post #168
Triumvark wrote: post #107

Earlier quoted context omitted.

> DVDs are on their way out... Streaming has a unique disadvantage: you have to haggle with each individual content owner. Yes, it's cheaper to move bits than stuff. Much. But licensing is a pricey hassle. It's a huge part of the comparison, and as content owners get savvy, it will only get more expensive over time. This should be a signal of how much more right we got the law with physical media. We all want DVDs to…

Maybe the HN crew wants DVDs to die. But none of my non-technical family has any problem with DVDs. They work in just about everything. They're easy to lend out. They're easy to find (both in stores and when sitting on a shelf in your house). For my part, I still prefer DVDs because I actually like owning the disc. But more than that, I have a 25 Mbps FiOS connection and somehow at least once a week when I'm streamin…

That's why I like iTunes, particularly now that they allow TV shows to be redownloaded so now I don't have to worry about using up a ton of space.

Re: Netflix Splits DVD And Streaming Businesses

#184

Post by WalterBright »

hdctambien wrote: post #156
Triumvark wrote: post #110

Earlier quoted context omitted.

> If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one. Depth of catalog is the most important feature for me. I especially like watching HBO shows without paying tons of money for cable. I also sometimes like watching really…

Did Netflix kill independent video stores? Or did Blockbuster kill them?

The local video store owner around here told me when it closed that it was netflix that did her store in.

Re: Netflix Splits DVD And Streaming Businesses

#185

Post by WalterBright »

xinsight wrote: post #149
nihilocrat wrote: post #130

For the record, since Netflix Canada launched sometime last year, it has been a streaming-only service. We have a kind of sucky selection that is getting better as time passes, but I can understand why they went streaming-only. From this perspective, it's pretty odd seeing people disapproving of the choice or showing attachment to the DVD service.

Totally agree. There is so much to hate about the DVD watching experience - the menus, unskippable ads/trailers, poor image quality, getting stuck on a scratch - I can't wait for them to disappear. But, i'm guessing the DVD fans are actually arguing for the larger catalog, not for plastic discs.

For me, it most definitely is the large catalog size, easily 10x the streaming size.

Re: Netflix Splits DVD And Streaming Businesses

#187

Post by absconditus »

perucoder wrote: post #117
frossie wrote: post #80

Earlier quoted context omitted.

The attack surface for other companies has just doubled If anything, that is an underestimate. I really can't understand what they are thinking. Since I am interested in both DVD and streaming, up to now I was completely locked into Netflix because of the integrated system - my "Instant" queue is just the subset of my DVD queue that is streamable. If they break that link, and I derive no gain from being BOTH a Netfli…

What's to stop you from switching to Amazon? Have you tried watching a movie on Amazon? Way less usable and its hard to find movies sometimes. Netflix has a way better interface and what I find myself doing is checking on Netflix first, and then only if they don't have it, do I go to Amazon.

Amazon's online collection is much, much larger than Netflix's online collection. Are you referring only to their Prime service?

Re: Netflix Splits DVD And Streaming Businesses

#188

Post by mcao »

arithmetic wrote: post #83
foobarbazoo wrote: post #62

Qwikster is a terrible name, and this is a terrible move. Hastings is now in competition with that guy running HP to see who can destroy their company first. Maybe Ballmer will get in the game and spin off Windows/Office from Microsoft, and rebrand them "Facetown", while proclaiming Bing to be the future of the company. Unbelievable. Update: I predict Qwikster is dead and buried within 5 years, and someone else pushe…

Netflix employee here. I've been reading all the comments here and at Reed's blog to understand what everyone has to say about the split. Internally, we've known about the split for some time now. Why do you think this is a terrible move? Your comment has a lot of unflattering comparisons, but doesn't explain why the move is stupid. Also, you're probably right that DVD as a service will not last forever, and Reed und…

Netflix customer here.

It's a terrible move because how I go about finding a movie to watch is very important to me. I want to be able to search for movies, browse a genre, or rate movies and get recommendations all through one easy to use interface. I will decide whether I want to stream the movie or wait for it in the mail. How you handle it internally I don't really care. I'm even willing to pay for the services separately.

Now, let's compare to cable. If I sign up for Comcast cable with HBO, I would also pay for the services separately. But, I don't want to have two boxes with two remotes sitting next to my TV just so I can watch HBO separately.

When I log into amazon.com I can buy physical items like DVDs, or purchase digital items like eBooks or MP3s, or I can stream movies. Maybe they're handled internally by different departments. I don't know and I don't care. All I know is that I can do everything from one interface with one account. I don't need to go to amazulu.com to watch movies and kindlebooks.com to buy books.

Simply put, convenience is a HUGE value. Something that I am willing to pay for. I didn't even sweat the Netflix price hike because the value was still there for me. But if you're going to make it HARDER for me to find and watch a movie, I don't see how that's worth paying for.

Re: Netflix Splits DVD And Streaming Businesses

#189

Post by pivotal »

Jun8 wrote: post #59

It seems I'm in the minority who thinks this is an over the top reaction to Wall Street pressure. It was clear for a number of years now that Netflix saw streaming as the future. But cutting off the DVD business like that... it's extreme. A lot of the movies are not available for streaming. Yes, their streaming portfolio is probably still the best (and has excellent children's content, my son watches it every night)…

Regarding the API, Netflix announced several months ago that the API was going stop supporting DVD options all together: http://techblog.netflix.com/2011/06/upcoming-changes-to-open.... This makes me wonder how long they knew that this split was coming, or if it is just a coincidence.

Re: Netflix Splits DVD And Streaming Businesses

#190

Post by lsc »

cek wrote: post #69
BrandonWatson wrote: post #65

Earlier quoted context omitted.

Oh dear...where to start: * 37Signals * Salesforce * of the month club (you said profitable - not Fortune 500) * membership * Does Amazon Prime count? * Costco - you need to pay to be a member, whic his, by definition, a subscription business * Successful hosting providers - I myself use the great Bluehost.com Though you could argue that paying for and building a gym gives you exclusive right to a physical asset. Out…

I have no way of knowing whether 37signals is actually profitable or not, but perhaps Salesforce is a real example. You found ONE. Your gym membership does not count: Physical asset. Amazon Prime is not a business. And I guarantee you it is NOT profitable anyway. It's a marketing program. Hosting does not count: It's a physical asset. Costco is not a subscription biz. It's a retailer that uses membership as a marketi…

>Hosting does not count: It's a physical asset.

If, instead of 'subscription business' you mean "businesses that rent access to software without much by way of per-user physical infrastructure" then yeah, I think some people would agree with you. I would. businesses think that because they have a low marginal cost per user, they think they can rest on those high margins. This might be what you are talking about, and if so, I agree. I mean, if you have a business with margins that are very high, investors notice, and they start trying to horn in on your market; either investors are willing to throw gobs of cash at re-writing all your software then saturating the market with marketing, or maybe someone open-sources something that can do a lot of what you can do, and suddenly you have a bunch of small competitors using the open-source software willing to compete with you at a more reasonable margin.

I was thrown off by your use of apple's hardware business as an example; I mean, selling intellectual property divorced from infrastructure is a hard problem, really, it's a different problem from the subscription vs. one time payment business models.

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