Netflix Strategy and House of Cards

Seth Godin makes the argument that Netflix made a marketing mistake with its release of the entire first season of House of Cards:

HBO understands this, and used shows like the Sopranos to build subscriptions. The day after each episode, people at work would talk about what happened the night before. Not two days later, or four days later, but the very next day. If you didn't watch or didn't have HBO, you felt left out....

Today, of course, we don't wait for work the next day. We talk about it now. And the mistake Netflix made was that they didn't drip. They didn't queue it up for their viewers, didn't coordinate and sync the buzz. In short: they didn't tell you WHEN to talk about it. If "spoiler alert" comes up too often, then we're afraid to speak and afraid to listen (depending on where we are in the viewing cycle).

While I agree that Netflix might have generated some buzz by releasing the episodes on a weekly basis, and that the buzz could draw in new viewers, I think that they both recognized the different expectations of their viewers and also the difficulty of establishing the required level of viewership and buzz in that manner. For example, I've read a number of reviews in which the writer commented that he didn't really get hooked until the fifth or sixth episode. Also, it's not particularly unusual for Netflix to provide TV content, one season at a time, so it has viewers who are used to the luxury of being able to watch all of the episodes from a particular season over a short period of time.

If Netflix releases the entire second season of House of Cards at once, I'll agree with Godin - they don't "get it". But if, as I suspect, they start releasing their original material on a week-by-week basis, I think it's fair to say that the release of the complete first season was a strategic move. While Godin may be correct that an HBO-style strategy would have been better from the outset, I think a compelling case can be made that Netflix needs to establish itself as a producer of high quality original programming and get its members hooked on its original, streamed content before it shifts to a more traditional schedule for releasing new episodes.

War of the Platforms

How quickly we forget Microsoft (not that we should).... From an interview of Larry Page,

We are in an interesting place in tech where almost none of the big companies—Apple (AAPL), Facebook, Amazon.com (AMZN)—are working together. Why is that?

Big companies have always needed and cooperated in areas where it made sense. I don’t know that I believe there is some huge, strange change in that.

We were real interested in getting instant messaging to work across networks back in the day, and we worked really hard with AOL (AOL) to do that. You know, integration between Google Talk and AOL Instant Messaging. It ended up being a tremendous amount of technical effort. There were some user benefits generated by it, but I’m not sure it was ultimately worth the effort. I would say that my experience with these things is that they have been somewhat difficult.

As I interpret the first part of the answer, that's the important part: "We (Apple, Facebook, Amazon and Google) don't see cooperation as being in our self-interest." The second part, about technical difficulties, is peripherally relevant - if you are trying to merge multiple platforms into a single interface you will encounter technical issues. But we're really talking VHS / Betamax here - the parties aren't interested in merging their platforms because they all want to win.

A number of years ago, Netscape created an Internet browser. After a sluggish start, Microsoft started listening to concerns that the browser might be the platform of the future, displacing or marginalizing the operating system, and used its massive market power to make Internet Explorer the dominant browser. Judging from their subsequent treatment of Explorer, they apparently then decided that they had killed the threat and went back to sleep.

Also, for pretty much as long as there has been an Internet, there have been efforts to bring the Internet to television. Microsoft was an early competitor for Internet TV, but between poor resolution, a poor interface and a difference in how people traditionally interact with their televisions as opposed to their computers, that didn't work out so well. Which isn't to say that Microsoft has given up - it is trying to turn the Xbox into an interface to television and movie programming.

There was a lot of hype a few months back about the possibility of an Apple television, with a lot of talk about interface. I would not be surprised if Apple is devoting considerable resources to researching television technology, how to improve displays, how to improve streaming, how to improve interface. But I'm increasingly skeptical that they are going to become so territorial about the television space that they attempt to enter the commoditized space of high definition televisions.

If television and movie producers were as eager to sign on to distribution through iTunes in the same manner as the music industry, perhaps there would be a greater opportunity for a premium-priced Apple branded television with an impeccable interface to their store, a brilliant screen, a wonderful interface, and packages of content that would allow owners to avoid subscribing to Cable (although they would have to get high speed Internet access somewhere). But the stars aren't aligning in that manner, so I expect Apple will continue to emphasize its products as an interface to Television. In friendly to not-so-friendly competition with Google, Microsoft and Netflix, with Amazon's recent Playstation deal suggesting that it, also, is entering the game.

Fundamentally, this appears to be a platform war. Microsoft is reportedly fashioning its next OS to integrate well with its relatively unsuccessful smartphone OS and its upcoming tablet OS. Amazon is happy to build its Kindle OS on Android, but strips out the parts of Android that most benefit Google. Google is pushing television integration and Google Play. Facebook is... I'm not sure, but as long as a huge percentage of social network traffic and gaming occurs through their platform, they're a possible contender. And all of them want you to buy entertainment products and software through their proprietary stores, taking a commission on the sale of each new song, TV show, movie or application you purchase.

The iPad has turned out to be an amazing platform. Although people talk about Facebook as a potential advertising company, it is only profitable by virtue of the commission it charges to third parties for the use of its platform. Microsoft understands that Windows for PC is eroding as a platform, and is hoping to reestablish itself through the Xbox and various Windows 8 products. Google is taking a gamble with Android as a platform, with Amazon demonstrating how a third party can take full advantage of its work in developing a fully featured, stable mobile operating system and swap in its own web store, but they'll keep pushing it as a platform and will probably try to come up with a revenue sharing model to keep other smartphone and tablet manufacturers from following Amazon's suit or switching to Windows.

And yes, those platform wars are going to creep into your living room. If you have a gaming system, Apple TV or iPad, arguably even a smart phone, they're already in your living room looking for opportunities to expand their reach. Huge numbers of TV viewers already have a second device running while they watch TV - how do you bring the two (or more) screens together? How do you make your smart device the default interface or control for the television and, from there, perhaps the default source for premium, purchased or rented video content? And as server-based games get more powerful, can even the promised exceptional graphics performance of the next generation of game stations continue to hold n advantage over app-based purchased, subscription or freemium gaming? Take your game from tablet to TV, back to tablet, to smartphone, to car, to friend's house, to friend's TV.... It's going to be interesting.

What's Going On With Netflix

I read today that I probably have an email, buried somewhere in my inbox, telling me that Netflix is cutting itself in half.

For those of you just catching up, Netflix CEO Reed Hastings sent out an email early this morning announcing that the DVD and Internet Streaming services in the Netflix plan would be split off into two separate companies. Netflix will now be all streaming, while DVD’s will be delivered via a new company called Qwikster.

(The changes are scheduled to occur on April 1? Whose idea was that?)

Okay... So I subscribed to Netflix to get DVD's, they added on a streaming service "whether I wanted it or not," revised their pricing to make it less appealing (IMHO) to continue to get DVD's, and are now telling me that if I want what I purchased from them to begin with I will have to do so through the new company? To me, this smacks of a company telling consumers, "Don't worry about what you think you want - we know what you really want." No, you actually don't.

Across the Internet, I see that all's not well at Netflix. Their stock market valuation is half of it was at its July peak, and they're expecting to lose about a million subscribers over the short term. I suspect that the change has a lot to do with their vision of a future in which streaming dominates the market, and that they perceive their continued DVD offerings as complicating their anticipated business model, both in their pricing model and in their efforts to obtain content.

Right now, I don't find the streamable content on Netflix to be particularly compelling, but they have quite a few kids' TV shows and movies such that there's always something that can entertain my daughter in a pinch. I occasionally scan through their streaming options, including the films available in my queue, and typically find that the most compelling content is either stuff I've seen or falls into the broad category of, "That looks interesting... Maybe I'll watch it some other day."

What do I expect from the "new" Netflix? I expect that they'll offer a basic streamed subscription and premium streamed content. I expect that they'll offer pay per view choices that, unlike their DVD service, will be able to offer movies for viewing the same day they're available through other pay per view providers. Why spin off the DVD side? Because you don't really want to have your customers see in their queue that a movie will be available starting in three weeks, at which time they will have a "long wait" before it is mailed to them, if you're going to be offering the same movie by instant streaming for $3.99.

I expect that the past - once Netflix's entire business model - is being pushed into the new company for two reasons: First, all of Netflix's existing customers will be subscribers to the new all-streaming service and, second, the company sees the DVD business as part of the past. Spin it off and let it turn into a boutique-level service on somebody else's watch.

Declining NetFlix Service

(I'm not talking about their intentionally slow service for people whom they deem to be returning movies too quickly. I'm also not speaking of their seemingly chronic problem with ordering too few copies of newly released films to reasonably satisfy customer demand.)

Over the past two months my experience with NetFlix has involved repeated problems with movies being lost (and ultimately found) in the mail. They made an unexplained mistake in shipping one of the movies on my queue which, as a result, shows a "Shipped" date of "3/06/06" and a "Est. Arrival" date of "3/28/06" - twenty-two days! I have had two other movies "lost" in shipment to me, one due to an envelope coming apart in the mail (I received the portion of the envelope with my address on it - the part you tear off and discard before returning the movie) and another that simply didn't arrive (but was later found by NetFlix).

The processing time for returns is often much longer than it used to be, and now often seems to be three or four business days, and I don't believe that the USPS is responsible. It also seems to be more common for them to mail the new movie one or two business days after their receipt of a return.

I will grant that this could just be bad luck - a statistical anomaly which is unfortunately affecting my account. Are other Netflix subscribers having a better experience?