B12 Solipsism

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Netflix Hates Its Own DVD business

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Netflix Has Lost Its Way

I don’t understand this corporate logic:

Netflix has given up all hope that there’s a future in DVDs.

…On an earnings conference call with analysts Wednesday, Hastings said Netflix now has no plans to spend any marketing dollars on its DVD-by-mail service, which lost 2.76 million subscribers during the last three months of 2011.

“We expect DVD subscribers to decline each quarter forever,” he said.

(click here to continue reading Netflix sees DVD business withering, gives up on video games – latimes.com.)

especially when the DVD rental is the bulk of Netflix’s business, and generates most of its profits:

While the streaming business is growing (adding 220 subscribers domestically in the quarter), and the DVD business sis shrinking (it lost 2.76 million subscribers domestically), it’s margins are much worse than the legacy DVD business. The streaming business has an 11 percent profit margin, compared to a very healthy 52 percent margin for the DVD business.

Out of Netflix’s total $847 million in revenues last quarter, $476 million came from streaming and $370 million came from DVD rentals (the remainder came from international). The streaming business also twice as many subscribers: 21.7 million versus 11.2 million. But the DVD business contributed the vast majority of Netflix’s profit: $194 million versus $52 million.

If you break that down, each streaming subscriber is worth only $2.40 in profit each quarter to Netflix, compared to $17.32 for each DVD subscriber. The old business was very lucrative. The new business kind of sucks. The economics are very different. The DVD business had fixed costs, while Netflix is forced to negotiate streaming licenses on a case by case basis with each media company.

(click here to continue reading Netflix Streaming Margins Are 11 Percent, DVD Margins Are 52 Percent | TechCrunch.)

Maybe Netflix can sell its DVD business to someone who cares about it still. From my perspective as a long time Netflix subscriber (since September, 2001, actually), the streaming option is occasionally useful, but most films I want to watch are not available as a streaming option, nor are their “extras” included. Often my streamed film is fuzzy, pixelated, the sound doesn’t sync, subtitles are unreliable, or unavailable, and so on. Unfortunately, there is no other solution, or I would have dumped Netflix over the summer.

Netflix Throttling

There is also the issue with the DVD throttling practice. I returned two films at the same time; one was received by Netflix the next day, the second took an extra three days, presumedly because it was supposed to go to Bloomington, IL first. If Netflix despises its DVD rental business so much, perhaps they ought not to care enough to throttle anymore. There is no limit to the amount of streamed video one can view, why the rental restriction?

Written by Seth Anderson

January 29th, 2012 at 1:55 pm

Posted in Business,Film

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2 Responses to 'Netflix Hates Its Own DVD business'

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  1. Hi, I happened across your comment when Bing returned this page on a hunt for “netflix solipsism.” (I’m in the mood to stream a Netflix movie that’s in some eery genre, and I thought the word solipsism might give me a cool suggestion.) …I believe Netflix will do well to honor the movement away from DVD’s. If you think about it, DVD’s are made of tons and tons and tons of plastic – that all must eventually leech toxins into a landfill in someone’s country (and eventually, our drinking water). Streaming video is so, so green. Once the industry gets the hint that things are moving in the streaming direction, of course they’ll allow you to have your Special Features and stuff – and will work harder to sync the sound with the picture and all that good stuff. I’m personally very happy with the no-more-plastic method of instant viewing. I think it’s a major step in the perfect direction. …Next, I’d like to see holograms replace our bulky entertainment centers. …No more TV’s, radios, etc. (i.e., just more “stuff” made of plastic that breaks or gets tossed out routinely). Rather, one computer per person that runs software and projects a hologram of a fancy new model of this year’s fad. You know? …If Sanyo wants to make money, they can sell me new software to project a new holographic “image of a TV” instead of an actual TV. And voila! No more wasted materials and planetary resources! (I wrote about this in a book – wish I was smart enough to invent it for real. All one needs is the business acumen to “manufacture the need” for it, and it’s in. Technology already exists somewhere.) …Go green. Technology will follow. …..Thanks, and be well — bye.

    John Cuttng

    16 Feb 12 at 3:42 pm

  2. Good point. Like Ars Technica said about the recent release of OS X – Lion:

    Apple is so done with stamping bits onto plastic discs, putting the discs into cardboard boxes, putting those boxes onto trucks, planes, and boats, and shipping them all over the world to retail stores or to mail-order resellers who will eventually put those same boxes onto a different set of trucks, trains, and planes for final delivery to customers, who will then remove the disc, throw away the cardboard, and instruct their computers to extract the bits. No, from here on out, it’s digital distribution all the way.

    arstechnica.com/apple/reviews/2011/07/mac-os-x-10-7.ars/2

    Unfortunately, NetFlix isn’t ready yet. Maybe in 10 years?

    Seth Anderson

    18 Feb 12 at 2:00 pm

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