Why Netflix's Lousy On-Demand Library Is Beating iTunes and Everyone Else
Mar 17, 2011 5:00 AM PT
For a company that's been criticized for hanging onto an old-school movie rental business -- DVDs and Blu-ray disks -- Netflix seems to be surviving just fine. A year ago, Netflix stock traded for less than US$70 per share, while today it's been up well over $200.
Sure, it seemed to have taken a hit with the news that Facebook might start streaming movie rentals, but it's not like Netflix is laying down so competitors can kick the company around: Netflix is said to be working on acquiring the rights to an original TV series called "House of Cards" that would star none other than the Oscar-winning actor Kevin Spacey. It's this kind of investment and vision that spawned the company in the first place, and it's just the latest reason Netflix has managed to win over my respect, both as an Apple-appreciating consumer and a Netflix customer.
Meanwhile, the NPD Group has reported that Netflix now dominates the home video streaming market in the U.S. Netflix's share of digital movie units -- downloaded or streamed -- reached 61 percent between January 2011 and February 2011, followed by Comcast at 8 percent and a three-way tie for third at 4 percent among DirecTV, Time Warner Cable and Apple.
Back to the rumored "House of Cards" show that might turn Netflix into a television production company. It doesn't matter if the show is even a good show. By doing so many things right, Netflix has captured the most important element of the TV world -- distribution, and more importantly, the habit of consumption. And if there's one thing we know about TV viewing, it's more about habit than finding "the best" content. As Netflix's 20 million customers increasingly turn to Netflix for finding video, that habit is going to drive a lot of eyeballs.
But What About Apple?
Sure, Apple gets all the attention with its iTunes and blockbuster movies and HD television show rentals, but when it comes to active watching volume, Netflix has an absolutely astounding lead: Six out of 10 digital videos watched are delivered via Netflix.
If you're not impressed by that kind of volume, how about Apple holding onto just a tiny 4 percent? I don't know how often I hear Apple haters grumbling about how Apple controls so much content and dictates pricing, but I'm sure this doesn't exactly add another proof point to their box of hate and fear.
The Netflix On-Demand Video Library Sucks
I don't think there's any real way around this point: The Netflix on-demand video streaming library sucks. It's packed with lots of really old titles, it's full of "B" and "C" movies, and there's a massive lack of hot new Hollywood blockbuster releases.
If this is true -- and it is -- how in the heck has Netflix managed to capture so much of the digital video market? There's no doubt that Apple employs some of the most visionary and audacious executives around, so how come Apple, with millions of iOS devices and Macs in the world, isn't in the decisive lead?
I see five huge reasons for Netflix's success:
- Netflix movies aren't shackled by irritating digital rights limitations on playback times. If I want to rent a movie from Apple, for example, I'm stuck with a 24-hour viewing period. This means that if I start a movie, I have to finish it within 24 hours. In my world, I don't often have two full hours that I can dedicate to movie, start to finish. I get interrupted, and occasionally I sleep. I know other people who have similar problems: They start a movie but their small children wake up with a cough and congestion, and everything hits pause. By the time they get back to the movie the next night, they've run out of time.
For TV shows, Apple has upped the viewing period to 48 hours, which is much more doable. Still, this limitation is less about Apple and all about the digital video rights holders who don't really want you to rent movies and TV shows in the first place. They want you to spend a lot more money and buy DVDs. Or sell the content to cable channels or other networks for the rerun dollars such deals generate.
So even if I start a dumb movie on via Netflix, I have peace of mind: I can come back to it in the future and finish watching it, without having to pay for it all over again.
- Netflix gives you a set monthly subscription price. Because Netflix is a subscription service, you don't run the risk of blowing out your media-watching budget. If you have kids, they aren't going accidentally rent $60 worth of cartoons, either. At the same time, because you've committed to a monthly investment (starting at $8), you're more likely to want to get use out of the investment. So you'll troll through the Netflix video offerings or see what you've got lined up in your queue.
Oh, and the queue, that's a fantastic feature. Apple's Wish List feature? Sucks. Sorry. Apple just doesn't get the idea that consumers would like to browse for content and create a list of what they might like to consume ... but not right then ... and then go back to it. Same goes for apps.
- Playback devices and mediums are everywhere. Netflix has partnered with lots of other companies in order to deliver applications and devices that let consumers access the Netflix video streaming servers in the sky. You can play Netflix movies with your Xbox 360, PlayStation3, Nintendo Wii, with your computers, streaming set-top boxes, Blu-ray players, DVRs, with Windows Phone 7, with iOS devices like the iPad and iPhone, along with the Apple TV itself. If you want Netflix access, you can find it, without hassle, even on the go.
- Older TV show seasons make fiscal sense through Netflix. What happens when you stumble upon a television series midway through the second, third, fourth or fifth season? You can catch old episodes that have been syndicated to other channels, slowing building up your knowledge of the characters and their histories. To do that via iTunes rentals can get expensive, and to buy DVDs, that's expensive, too. Relatively speaking, you cost per hour of enjoyment for hour-long dramas is actually pretty good, but still, the personal demand is usually pretty low. So buying or renting is tough to swallow.
But catching streaming episodes via Netflix is perfect for rounding out those odd moments when you want to be entertained. I've caught up on "Man v. Wild" and "Survivorman," and I'm toying with the idea of starting back to the first hour of the hit TV series "24." That's right, Jack Bauer back when he was young and more hopeful.
- Netflix has lots and lots of kid-friendly content. Like the fixed monthly budget, there's lots of content that children can watch and it won't cost extra. Parents don't care if their daughters are watching old Mary Kate and Ashley movies if it's not costing them extra. But if the daughter asked to rent a bunch of dumb Mary Kate and Ashley movies at $3 a pop? No freaking way.
Similarly, kids can watch the same cartoons and movies over and over again (I have no idea what this does to their little brains), so buying movies can make a lot of sense. Still, there's only so many cartoons and movies that a parent on a budget can buy. Enter Netflix.
How Can Apple Compete?
Who says Apple isn't already competing? If Apple is profitable, that's a good thing. Apple still gets some of my new release movie rental dollars, plus if I'm traveling, I'm going to rent from Apple vs. assume I can stream Netflix somewhere else. And it's not clear how Netflix is turning those six out of 10 video views into hard and fast cash. Profit has to come from somewhere. I'm not implying that Netflix isn't profitable; I'm just saying the volume is not nearly as important to "success" as it appears to be on the surface.
More specifically, what do we need out of Apple? First, we need Apple to convince digital rights holders to let us have a 48-hour viewing window for movies. Apple already delivers consistently better quality -- at least at my house -- of video. When I want to invest in an action blockbuster, I want it crisp and clear. So streaming like Netflix isn't necessary, but it wouldn't hurt. Instant is good. A subscription service would help too, because it would create a fixed monthly investment. There are millions of iOS devices, and families like to share services yet control the costs.
Someday, maybe when spinning optical disks truly die out, we'll get these options through Apple, too.