CES 2012: Window Dressing

The home video distribution divisions of the major movie studios are instituting lengthier windows for newly released movie videos. What this means is that the 28 delay you may experience at Redbox or Netflix (by mail) will now extend to 56 days. The delay is the time between when the DVD or Blu-ray is available for sell-through compared to the rental release date. The studios’ objective is to encourage consumers to purchase the video at a premium price, as a physical disc or a digital file for ownership.

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Reversal of Fortune

Reversal of fortune is a term competitive eaters use to describe a bad day; polite society calls it biting off more than you can swallow. It’s a term becoming unfortunately linked with Netflix, whose “Team” has sent customers a series of emails detailing price increases and the creation of a separate DVD/Blu-ray by mail service called Qwikster. Netflix has now reversed course, and like Coke before it, has killed “New Netflix” and returned to “Classic Netflix.”

Qwikster, the stand-alone DVD/Blu-ray rent-by-mail business has now officially been relegated to those lists of “Top 10 Business Mistakes.” In fairness to Netflix, Qwikster actually made some sense. Wall Street would eventually show its dislike for entertainment businesses with a physical component (see Blockbuster). As their ongoing global expansion continues, Netflix is poised to become a streaming video company. Our expanding use of connected devices will inevitably usher in a new age of acquiring and watching movies and TV shows, so when Netflix separated physical discs from digital rentals, they appeared to position themselves for the future.

The problem is that future is still a few years away. American consumers continue to watch a lot of movies on DVD and Blu-ray. By separating their physical and digital businesses, Netflix strayed from its foundation — a deep catalog of movie titles, accompanied by today’s hits, supported by a seamless interface, and promptly delivered to your home. And all this on a format that is used by the majority of Americans. According to NPD’s latest “Entertainment Trends in America” update, 75 percent of U.S. consumers watched a movie on a DVD or Blu-ray in the past three months, compared to 22 percent who rented using video-on-demand (VOD), 21 percent streamed via subscription, and only 4 percent who rented a temporary download.

There’s nothing wrong with a company striking new ground, of course, but the trick is timing. In the weeks following Netflix’s announcements, NPD’s VideoWatch tracking service revealed significant declines in subscriber ratings of their overall experience and value scores. In other words, customers were angry. In NPD’s ongoing tracking of music and home video, we’ve seen a direct relationship between those customer scores and market share trends.

Netflix works because there was that one-stop shop with a unified website. If you couldn’t get Hitchcock’s Rear Window on a stream, it went into your DVD queue and you watched something else. Separating the services not only diminished the consumer experience, it may have put the streaming business at risk. Lacking a deep catalog, as well as current titles, Watch Instantly as a stand-alone service was at peril of being perceived as a direct competitor to Hulu or on-demand television channels. Even YouTube is a major challenge on small screen devices. Unifying the physical and digital markets provides the best customer experience and differentiates Netflix from its competitors. Happy customers will migrate to their streaming offering when digital video becomes mainstream and as multi-screen watching evolves. Don’t let the price increase bother you, either: Though some people are complaining, Netflix customers in general spend a lot more than average on movies — even for physical discs, and TV VOD.

I’ll offer these three predictions: First no more announcements from “The Netflix Team” for a while; second, a reversal of falling customer satisfaction scores, and finally a return to expanding domestic subscriber growth.

Dear Mr. Katzenberg . . .

Dear Mr. Katzenberg,

Thank you for saying what we all have been thinking. When the “art” sucks (your words apparently), we stay away. Though you were referring to 3D Movies, your comments echoed something NPD’s entertainment research has shown for more than a decade: Despite all the distractions in the entertainment business, ultimately it is content that will determine success or failure. Read more »

Death to Discounts?

“Death to Discounts” a recent Wall Street Journal article about the designer clothing business, got me thinking about the continuing decline in CD sales. According to the article, clothing designer Eileen Fisher is rethinking the way her clothes are sold:

“In department stores these days, Eileen Fisher clothes ‘get marked down before they even have a chance to sell,’ she told me recently. Perhaps it no longer makes sense to give Saks, Bloomingdales and other department stores so much control over the brand, she posited. She has asked her staff to consider a new model: renting department-store space in order to control prices and inventory.”

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