Netflix Sings the Blu-ray Blues

Bravestime · 12-17-2008, 01:18 PM

Quote:

CNET's Greg Sandoval took a look at a colleague's queue, only to find "Long Wait" as the expected availability on recent releases like The Dark Knight and Wall-E. Adding insult to injury, subscribers pay $1 more for access to Blu-ray optical discs.

It's easy to see why Netflix charges more for Blu-ray. The high-def optical discs do cost more to acquire. The high costs coupled with the nature of new releases deteriorating quickly in popularity against the backdrop of waning subscriber growth justifies a guarded approach in the number of Blu-ray copies that the company orders.

I saw the writing on the wall two months ago, after too many of my queue-topping new Blu-ray releases got slapped with the dreaded "Long Wait" label. I downgraded back to standard DVDs, and I haven't had much of a problem since.

Once Sony's (NYSE: SNE) Blu-ray platform conquered HD-DVD as the high-def format of choice, it seemed as if the end of the format war would be a godsend to the rental industry. Netflix and chains like Blockbuster (NYSE: BBI) began dedicating more room to Blu-ray releases. However, even though prices have fallen on Blu-ray players -- and even on Sony's Blu-ray compatible PS3 video game consoles -- it will be several years before most consumers make the switch. DVD players are even cheaper and far more ubiquitous.

Worse yet, by charging a premium for a less fulfilling member experience, Netflix risks damaging its brand and its historically high customer satisfaction ratings.

There's an untold asterisk to Sandoval's story, though. His colleague claims to go through 20 movies a month. If he is part of the most popular Netflix plan, charging $17.99 a month for unlimited three-discs-at-a-time rentals (including Blu-ray access), Netflix is losing money on his subscription in roundtrip shipping and packaging costs alone. The sweet spot for Netflix is a movie buff who only goes through a third as many titles in any given month. In other words, Netflix is better off financially without its hyperactive renters.

Sandoval touches on the practice of throttling at Netflix, which also explains the crummy availability. With few Blu-ray discs to go around, it simply allocates them to its higher-margin subscribers: its least active users. If the folks going through 15-20 flicks a month don't like it, Netflix won't miss them. There are too many line items to pay on every rental -- from mailing costs to studio royalties -- for Netflix to realistically make money with its high-turnover clients. Sandoval should have probably compared his colleague's availability to the queue of a profitable Netflix subscriber. Blu-ray availability will probably still be an issue there, but it shouldn't be quite so severe.

This naturally brings us to digital delivery. Will Netflix ever be able to effectively throttle usage there? It doesn't seem likely, but by offering the service "at no additional cost" certainly opens the door for even wider usage. Netflix may skirt postage and packaging costs on digital streams, but it still has costly bandwidth bills and studio royalties to pay.

Watch Now certainly has Netflix standing out from a la carte digital renters like Apple (Nasdaq: AAPL), Blockbuster, and Amazon.com (Nasdaq: AMZN), but the more popular it gets, the less sustainable its current form may be.

Some items with immediate availability on your Netflix reading queue:

Netflix began charging a dollar more for Blu-ray access two months ago.
Throttling has been the norm at Netflix for years.
Maybe this is the opportunity that you've been waiting for.

Link: http://www.fool.com/investing/genera...ray-blues.aspx

GLOW · 12-17-2008, 01:42 PM

I've been with Netflix for over 5 years and this "Long Wait" stuff has been going on with DVD for as long as I can remember. What, is Netflix supposed to overstock BD's just to please everyone that wants to watch a BD on its release date? Give me a break. It's $12 a year. That is less than 2 cheap lunches.

Stew4HD · 12-17-2008, 02:06 PM

Quote:

Originally Posted by GLOW

I've been with Netflix for over 5 years and this "Long Wait" stuff has been going on with DVD for as long as I can remember. What, is Netflix supposed to overstock BD's just to please everyone that wants to watch a BD on its release date? Give me a break. It's $12 a year. That is less than 2 cheap lunches.

12$ a year? OMG, I am being ripped off at $15.99 a month!!

**PFC5** · 12-17-2008, 03:57 PM

All my new release BD movies have "Long Wait" in my queue. I have been a member since about 2003-2004, and I have to quit then instantly talk to a rep to reinstate my account on the last day (no pro-rating if you quit on the 1st day of a new month) of the plan to start getting popular movies sooner.

This throttling is really my only gripe with Netflix right now. I have been keeping all my movies on average over 1 week each (3 at once), yet they still seem to be throttling me.

scsa · 12-17-2008, 04:01 PM

Stew nice one though that was dumb since you knew he was talking about 12 a month extra for Blu and the 1 dollar fee per month.

12-17-2008, 03:57 PM	#4
PFC5 Super Moderator Join Date: May 2005 Posts: 28,055	All my new release BD movies have "Long Wait" in my queue. I have been a member since about 2003-2004, and I have to quit then instantly talk to a rep to reinstate my account on the last day (no pro-rating if you quit on the 1st day of a new month) of the plan to start getting popular movies sooner. This throttling is really my only gripe with Netflix right now. I have been keeping all my movies on average over 1 week each (3 at once), yet they still seem to be throttling me. __________________ Denon AVR-887 Klipsch RP-5 Pwred Towers (mains) (525 watts peak each 12"Subs) All Klipsch RC-25(ctr),(2)SS1(surr),(2)SS1(rearSurr) Toshiba (2)HD-A20,PS3,BD35 For SACD/DVD-A Samsung HD-841 Panny 50pz80u plasma SETTINGS RCA HD50LPW162 50"DLP w/HD2+ SA 3250HD 47" LCD+Yamaha5790+HD-A1(bedroom) Harmony 680 + (2) 670s (amazing remote/support) Game room with Onkyo receiver & B&W Speakers The_Cable_Game Take the high ground and be happier

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12-17-2008, 01:42 PM	#2
GLOW IN-THE-DARK Join Date: Jan 2006 Posts: 7,600	I've been with Netflix for over 5 years and this "Long Wait" stuff has been going on with DVD for as long as I can remember. What, is Netflix supposed to overstock BD's just to please everyone that wants to watch a BD on its release date? Give me a break. It's $12 a year. That is less than 2 cheap lunches.

12-17-2008, 04:01 PM	#5
scsa High Definition is the definition of life. Join Date: Jan 2008 Posts: 1,091	Stew nice one though that was dumb since you knew he was talking about 12 a month extra for Blu and the 1 dollar fee per month.