What the Hell, Netflix? How the #1 Video Rental Service Sold Out
In the middle of the dot-com boom, a Los Gatos start-up firm with an upstart attitude called Netflix.
CEO Reed Hastings inspired by late fees after renting Apollo 13, had the novel idea to rent movies out over the internet and through first-class mail.
When the bubble burst, and the economy went belly up, critics wrote the concept off completely. Not Hastings.
Netflix held on, and with an IPO that provided $8.2 million in 2002, the company began to adopt many of the features we take for granted today.
In 2004, two-thirds of American households had DVD player and Netflix capitalized heavily off of that, eroding Blockbuster’s dominance through brick-and-mortar stores.
In 2007, Hastings unveiled Netflix “Watch Instantly” and a plan to have their full catalogue available for streaming by 2014. Hastings wanted to lose those little red envelopes for good. An ambitious plan indeed.
But since then, the MPAA has watched helplessly while DVD sales plummeted and rentals became more of the norm. The blu-ray format, which studios shoved down our throats, is tanking badly, causing merchants to discount the media heavily.
It is more and more common to stick to renting, buying a digital copy, just torrenting the damn thing, or waiting for it to show up on TV. Each of these options is probably cheaper too.
Rather than adjust to consumer demand, the studios have instead been increasing their demands of rental services like Amazon, iTunes, Redbox and Netflix.
Redbox drew fire from studios for its $1-a-day kiosk model, prompting three of the Big Five to delay new releases a full month to the rental service. They have an antitrust lawsuit with the three studios pending.
Apple and Amazon have taken previous stands against the RIAA and MPAA in the past, although Apple reneged with their acceptance of tiered pricing and Amazon itself, has benefited from industry support. And let’s not forget the infamous $1-per-Zune debacle back in 2006 from Microsoft.
Meanwhile, Netflix quietly continued on their own way, partnering with hardware makers like Roku, adding their service to Xbox Live and recently, the Playstation 3. They cut a deal with Starz! in 2008 and added 2,500 more titles to their online library with low restrictions. Their streaming software was worming its way into “broadband HDTVs”. It was looking good.
Then the wheels started to come off.
Netflix already agreed to studio demands to ship “rental-only” version DVDs back in 2004. “Rental-only” DVDs were pitched as a way to save costs for all parties, and Netflix acquiesced. These DVDs did not come with many bonus features, if any at all. Since then, more studios have been requesting the same practice.
But that move didn’t stack up to this month’s decision to delay new release title from Warner Bros. in order for the studio to encourage more DVD sales.
Standing up to the Big Five requires a unified front; you’re only as good as your weakest link.
Redbox, who pales in comparison to the size of giants like Netflix and Blockbuster, seemed to be it, but has so far not stood down in the face of lawsuits and harsh business practices (It’s rumored that they are buying bulk DVDs from Wal-Mart). Who expected the 800-pound gorilla of DVD rentals to cave so easily?
Now, the old adage “give them and inch and they take a mile” is frightfully shaping up. Netflix’s consent for the deal could soon come back to bite us all in the ass.
On Jan. 15, Disney and Starz! entered negotiations to renew their content lease. Disney is lobbying to retain its digital media rights or force a premium charge on third parties, which means Netflix could be in stormy waters real soon.
On top of all of this, Chief Content Officer, Ted Sarandos, is frantically trying to placate studios still angered by the Starz! deal. When their agreements with the cable channel come up, they could very well make the same move.
No matter what happes, it does not bode well for Sarandos, Hastings or shareholders.
Poor Netflix. The #1 rental service in the United States is now at the mercy of a greedy, vengeful industry – and they have no one to blame but themselves.
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