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Netflix apologizes. Is it enough?

The CEO of Netflix, Reed Hastings, send out an email to all Netflix subscribers apologizing for how he handled the recent pricing adjustments. That’s right, they’re not sorry they raised prices, they’re sorry about how they handled the announcement. The apology begins,

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.

I’m not sure people responded the way they did because the announcement was worded poorly. I’m pretty sure it was because the price increase, and the justification for it, were out of line with consumer expectations.

The explanation remains,

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

That’s right, the price increase is necessary because Netflix wants to market the services we’re already paying for to us differently.

Of course I might just be treading old ground here and burying the lead: Netflix will no longer deliver DVDs by mail. That sounds worse than it is. Netflix is rolling out Qwikster (which sounds like a convenience store) for the DVD service, and the Netflix brand will stick with streaming. There will be two different websites, and two different queues (another WTF? for Netflix, though Hastings is aware this is a “negative”).

On the plus side, Qwikster will be adding upgrade options for video game rentals. We’ll discuss the costs when they are announced.

Clearly the handling of the price change was poorly executed. They announced the plans a couple months before the changes happened, and then about a month after that they’re splitting the business in two. In the meantime, they lost millions of subscribers.

But even this apology was handled poorly, because it’s really an announcement for Qwikster, which should have had its own announcement.

How should it have been done? Netflix should have held off any plans for the future until they announced Qwikster, at which point they could have told their Netflix subscribers that Netflix was out of the DVD-by-mail business, and all accounts would become $7.99 per month streaming accounts. Then point their subscribers to the new Qwikster service for those who want to sign up, and even offer coupons for loyal subscribers for free upgrades or a month free at their current DVD limit level.

Hey Reed, I’m available any time you want advice. Hit me up.

Netflix tries “Kids” menu

Several months ago, I sat through several meetings with a particular movie server company who had felt the effects of the economy decline just like everyone else. Instead of shrinking back in the face of the new economic reality, they refocused their brand through the use of market research in order to actually increase business even in these times. Their results were surprising.

This company surveyed their clients to see what movies are actually being watched the most. It wasn’t Gladiator, The Matrix or Iron Man. In fact, of the top 5, 4 of them were Pixar, and one was Dreamworks Animation. And this was by a lot. As it turns out, children love watching the same content over and over again. And often.

Considering the market I’m in tends to target the techie guy, this was like a splash of cold water.

What this company did was create a new menu for children, and even a new child-friendly remote control. This way a child only has access to kid-friendly content, and they have it quickly and easily without having to learn how to read.

This is the general concept behind the new feature Netflix is testing. Called “Just for Kids,” the new Netflix menu only shows children’s content, and in an easy-to-use interface.

Scrolling across the top of the page horizontally is a small icon of dozens of famous children’s characters, like Sesame Street’s Big Bird, Hello Kitty, etc.



Once selected, a new menu appears with only episodes from this series.



There is no indication if this will roll out to everyone, or if they’re just testing it out. There is also no news on if the kid’s menu will lock out access to adult content so parents can let their kids have full reign without worry.

UPDATE: August 16, 2011

Netflix has rolled this out today. movies.netflix.com/Kids

Netflix raises prices

Netflix announced today a new pricing structure for plans to separate disc delivery and instant streaming. In essence, the price has doubled for their most basic subscription service as a result.

Netflix is presenting the change as offering their customers choices, but in reality it is just raising prices on an already profitable business plan. They write, “we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.”

What’s wrong with making streaming a $2 add on to a DVD subscription? Why not a bundle price like every other subscription provider offers?

While I admit I don’t watch the disc movies as often as I had in the past, that’s mainly because the only optical disc player I have at the moment is in my computer. But most of Netflix’s catalog is still on disc, including everything from HBO. Doubling the price of the basic 1-disc subscription to add streaming just doesn’t make sense.

How does it satisfy customers who only wants discs to gouge their existing customers who want both?

Judging by the response to the announcement, nobody is happy with this. It seems like a $0.99 rental per movie from another service added on to the Netflix streaming will be the way a lot of people go … if only Redbox had a better selection.

I just don’t see how they will increase their business by alienating loyal customers. They even seem to realize this fact by ending the announcement by reminding everyone how to cancel their account.

Complete Netflix statement after the jump.
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Warner streams movies on Facebook

Warner Bros. is testing video-on-demand through their Facebook movie page. Currently the only movie being tried is The Dark Knight. Simply “Like” the movie’s page and it offers to use credits to watch the movie.

The credit system is a little confusing. A lot of companies have used a credit system to mask the actual cost of the sales, most notably is the PlayStation Store on the PS3 where you purchase credits ahead of time and redeem them for purchases.

The Dark Knight uses 30 credits, which amounts to $3.00 USD. Access to the rental will be available for a 48 hour window after the movie is activated.

Warner Bros. CFO John Martin said social media is an opportunity to not only add revenue, but to mine their customer’s behavior and trends, which could affect how movies are made in the future. Think of Facebook as a giant test market.

This isn’t a special deal made with Facebook, simply an application utilizing Facebook’s API, just like thousands of other Facebook applications.

Warner may not be the only studio to be looking towards Facebook for distribution. Sony Pictures has also hinted at the possibility.

Amazon adds unlimited video streaming to Prime members

This week, Amazon.com announced unlimited movie and TV streaming to its Prime member subscribers. Prime is a premium membership at Amazon which provides free two-day shipping to all orders placed on Amazon.com for a yearly fee of $79.

The streaming video isn’t the same as Amazon Instant Video, with its collection of over 90,000 movie and television titles (allegedly the largest streaming collection in the USA). No, it’s a new service for Amazon Prime which includes 5,000 movies and TV shows, which initially include The Girl with the Dragon Tattoo trilogy, Amadeus, Syriana, and Chariots of Fire, documentaries such as Food Inc., March of the Penguins and Ken Burns’ National Parks, TV shows, such as Doctor Who, Farscape, Fawlty Towers and children’s shows, such as Arthur, Caillou, Super Why! and Mister Rogers’ Neighborhood.

At $79 per year, this service is comparable to monthly subscription services from Hulu Plus and Netflix, which are $7.99. The math makes Amazon Prime $6.58 per month. However, Hulu and Netflix have a much larger collection of titles available to them. The Amazon press release doesn’t make it clear if these Prime videos are available for streaming on electronic devices such as Samsung Blu-ray Disc players or Vizio HDTVs the way Amazon Instant Watch is currently available.

Personally, this seems more like an incentive to sign you up for Amazon Prime two-day shipping than a real challenge to Netflix. They must think members of Prime are more likely to purchase items on Amazon.com than other websites or brick and mortar stores. And for existing Prime members, a way for them to be introduced to Amazon Instant Watch where they might rent or purchase movies. But this is worth keeping an eye on.

Press Release after the jump.
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UltraViolet gets Hollywood support

All it took was a near-collapse of the movie industry, and the bankruptcies of Hollywood mainstays like MGM, but the major studios look to be catching up to the 21st Century. Digital Entertainment Content Ecosystem announced multiple industry partners at CES 2011 to include all of the major Hollywood studios except for lone wolf Disney.

“The most highly skilled users are already downloading content, making copies and watching on any device they want,” said Mitch Singer, the chief technology officer of Sony Pictures, who has been the key executive behind Ultraviolet. “We’re trying to build a business model for everyone around that behavior.”

UltraViolet is a cross-industry cooperation to provide digital rights ownership by consumers in a simple way. It was developed due to the frustrating way every manufacturer seemed to have their own digital rights management (DRM) which didn’t play well with others.

Each consumer will have a “rights locker” that will receive the DRM information at purchase or rental. The content will be streamed or downloaded from the provider in accordance with the rights stored int he locker. The digital content may be transfered between devices or shared without obtaining additional rights.

Digital content providers signed up so far include Best Buy, Comcast, Microsoft, Panasonic, Sony and Toshiba. The content can be shared with up to six friends or family members, and can be transfered or streamed to up to twelve devices. They may also be copied to DVD or flash media for back up.

The studios and distributors retain the right to decide where and how to sel their content with UltraViolet technology, but the retailers will set the prices. Digital copies of movies and TV shows may be purchased or rented with computers, Internet-connected televisions, and with Blu-ray Discs. The estimated cost will be $11 or $12.

The coalition has been hard at work obtaining partnerships with phone, tablet, HDTV, Blu-ray player, video game console and computer manufacturers. Software will need to be implemented on any device to support UltraViolet DRM technology.

The CES 2011 announcement was for content availability from the major motion picture studios. Hardware and retail availability will come later this year. The studios wanted to provide the content now so there are no hurdles to getting the hardware and retail market up and running.

There were hints that UV technology would allow for ripping of DVDs for storage on local hard drives, and possibly in the cloud, with an UltraViolet license. UV-branded Blu-ray and DVD discs would come with a digital “copy-in-the-cloud” for streaming ro downloading. The stored content would be subject to the same terms as downloaded or steamed content.

Notably absent from this major consortium are Disney and Apple. (Apple CEO Steve Jobs is the largest share-holder of Disney.) These companies always went their own way, but they do it incredibly successfully so time will tell if they come to support UltraViolet in the future. Disney has been developing their own system for cloud-based rights management called Keychest. Just like they ad their own layer of encryption on DVDs and Blu-ray Discs, Disney will certainly try to do their own thing here.

Unless Apple joins the group, iPhones, iPods and iPads – and maybe even OS X – won’t have access to the UV ecosystem. The die hard Apple fans will justify why they rent movies from iTunes while the rest of the world enjoys lifetime ownership of their collection.

Time Warner Cable Video-On-Demand coming to HDTVs

At CES 2011, Sony announced that their new Bravia HDTVs will have access to Time Warner Cable Video-On-Demand without a cable receiver. This is a most unusual development for a cable operator to provide their content over IP services, but it makes sense considering they make a lot of money renting movies, and they have secured rental windows for their service making new releases available 28 days before rental kiosks.

There isn’t a lot of detail about this partnership yet, but I am assuming this will only be provided to Time Warner Cable subscribers – at least initially. They don’t want to give away their strong VOD leverage to satellite subscribers. It also makes sense that they would want to gain VOD sales from subscribers without cable receivers. Certainly they understand a lot of people are giving up their DVRs in favor of IP services like Hulu and Netflix.

Following Sony’s announcement, Samsung also announced partnerships with both Time Warner Cable and Comcast to bring VOD to their HDTVs and Galaxy Tab. The Galaxy Tab features sound similar to the Xfinity Remote for iPad, and should include seamless sharing of video back and forth between the TV and tablet.

There is more information from Samsung than from Sony concerning their partnership. It is confirmed the cable VOD will be available to cable subscribers. They also announced a cool feature that allows content recorded on a DVR (presumably the Samsung DVR) to be played on a Samsung HDTV in the home connected to the local network.

These are very exciting announcements. The converged home is closer and more affordable than we know.

Samsung press releases below
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