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Netflix: The Streaming Gamble


I’m getting dizzy reading all the contrasting views from business analysts trying to make heads or tails of what Netflix is up to. My conclusion: unless they figure out the content piece of their streaming services, they’re cooked.

First, they angered their customers by unapologetically raising their rates 60%. Their stock price tumbled and they managed to lose a million subscribers. Then this week, Netflix CEO and co-founder, Reed Hastings, sent a belated e-mail apologizing for all the arrogance and announcing the company would be split in two. Setting the PR debacle aside, the strategy is quite the riverboat gamble.

Netflix will now be streaming the TV Shows and horrible movies you’d never see in theatres that you can access on everything from your lap top to your Xbox 360. Qwixter is the new name for the DVD-delivery service that was the initial business model that put the company on the map and helped bury Blockbuster and similar companies that charged the outrageous late fees for movie rentals that Netflix didn’t.

The services will be completely separate, from billing to menus to websites. You’ll no longer be able to go to one place to figure out whether the video you want to see is streamed or available by mail delivery. Terribly inconvenient and done so on purpose. They apparently see their future in streaming not the resource-intensive mailing and processing of DVD deliveries. They seem to think Netflix, the streaming model, will survive and thrive and the DVD business will sink of its own weight and eventually go away.

I think they’re right about the DVD’s. Not so sure they’re right about the streaming. If you think for one second you can give up cable TV, FIOS or dish services and still watch streaming movies you’ve actually heard of for 7 bucks a month, you’d be sadly mistaken. Netflix and Starz failed to renew the deal that provides about 20% of the streaming content and the few movies they have that are worth watching. That content will be gone as of early next year.

And Hollywood cheered. The folks who make our motion pictures would prefer to make money from a public that will pay anywhere from 5 to 8 dollars through their cable systems for a single movie. They are not so keen on having their product made available to an outfit that allows unlimited monthly viewing for the price you’d pay for one on-demand cable TV movie.

So who is going to work with Netflix to provide any decent content? Where in the world are they going to get it? Streaming would work if you had the same variety you have with the DVD deliveries. But it doesn’t have that variety and it never will.

Netflix was about the DVD’s delivered to your home that you could keep as long as you wanted. It was genius. But it’s hard to see any scenario in which the streaming portion of Netflix will ever be more than garbage in and garbage out. And that’s too bad because I’m rooting for these guys and their ability to make movie-viewing an affordable proposition. Unfortunately, I’m afraid the old axiom is applicable here. You get what you pay for.

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