Netflix, Open up or die...

For the gadget lover, the DVD is often the end result of what we do with these super-light laptops, LCD TV screens, brushed metal- translucent exteriors and one of the main reasons companies continually push the capabilities of devices, to watch movies. Since 1999 I have been a member of Netflix in some way, and I am worried, I am worried Netflix isn't going to make it.

Now, this isn't an article about Netflix going out of business, this is about Netflix "making it" and by that I mean, making a platform and community, something Blockbuster and Walmart can't do.

Netflix backgrounder...
Netlfix started in 1999, and according to their fact sheet page, they reached 2 million subscribers faster than AOL.

For $21.99 a month, you can rent as many DVDs as you want via the website, keeping 3 out at a time. The benefits are: no late fees, no due dates and you have access to around 20,000 titles. The DVDs are sent out via Postal Mail, usually get to you in a day or so and when your done, you put it in the same envelope it was sent in, bang- you're done.

Two giants enter
Well, after 5 years of Netflix humming along, Blockbuster and Walmart jumped in to the online movie rental biz.

Wal-mart, the world's largest retailer, offers 3 DVDs out for $18.76. They don't have as big of a selection of DVD as Netflix, and of course, it's Wal-mart, the same Wal-mart that has banned selling certain CDs being sold in their stores and "offensive" magazine like Rollingstone and Cosmopolitan. For now, Wal-mart won't make a big deal out of having some "questionable "movies, after all- they need to build a subscriber base, but once they have that, expect to see them not carry certain DVD titles that they deem offensive. In fact Wal-Mart who has over 10% of the domestic CD sales even gets publishers to make a special "sanitized" version for their megastores, a "Wal-mart cut" of a movie might be coming soon.

Next up is Blockbuster, they just released their "public beta" site earlier this month. Blockbuster has about 48 million members for their over 8,500 physical stores, they rent DVDs, videos and game titles. Blockbuster's pricing is $19.99 for 3 titles, with a selection of 25,000 (according to their website) and as a bonus 2 free in-store rentals per month. Anyone can sign up now during this public beta.

The 2 in-store rental thing is a big deal, there are lots of time when you don't front load your Netflix playlist and just want to rent something that just a came out. Also, Blockbuster has video game rentals in-store, it's only a matter of time until they use their online video rental site to rent out video game titles. There is a service now called gamefly which does that now, Blockbuster might be hanging back to see how they do.

Blockbuster has also had some controversy with censoring what movies can be rented, there's even a "Boycott Blockbuster" movement that come and goes every so often.

And don't forget, Blockbuster is owned by Viacom, who owns and operates about 1,400 movie screens, Paramount Pictures, Paramount theme parks, many broadcast television and radio stations (Infinity Broadcasting) , outdoor billboards, cable channels, two broadcast networks, and Simon & Schuster books.

So there's the overview of the other guys, Wal-Mart as usual has the lowest price, but not the best selection and Blockbuster having a slightly lower price with the added bonus of 2 rentals from their stores per month. They all mail the DVDs out and for the most part, the services seem pretty similar.

That's the problem, sameness.

Netflix present
Last week Netflix got slammed in the market, share dropped almost $9 (or 28%) to $23.02 on NASDAQ.


Analysts sited fulfillment expenses as well as an incredibly high cost per new customer ($35.12). That means it costs over $35 bucks to get a new customer on average, and that's up from $30 from the second quarter of 2003. Add to that, they're reporting this is going to go up even more ($37 to $39) as they increase their marketing spend, on TV, TV? They also mentioned spending more on online ads, which we think is a good idea, but it's all about being surgical and going where the most likely new customers are going.

I am a Netflix customer and I know that it's the best service with the best selection out there, but that doesn't mean anything, a lot of people are going to go after price (Wal-Mart) and a lot of people are going to hammered over the head with the reach and marketing Blockbuster has (plus the in-store rental deal). When everyone does the same thing, price tends to win, so Wal-Mart might make some gains this year.

But isn't what Netflix did pretty novel? Almost patent worthy? Netflix does in fact have a patent, in fact there were tons of stories about "the patent" but none of them actually said what the patent was.

So I looked it up, there might be others, but the one I found was the patent on the envelope used. That's right, that self-addressed envelope that Netflix uses is patented, I am pretty sure Blockbuster, Wal-Mart and even Gamefly uses the same thing, so maybe Netflix will cash in on that later, but that's not hard to get around.



Here it is.

Netflix future
So as a customer, a marketer and a developer...I 'm going to outline what I think Netflix needs to do. Yah, Blockbuster and Wal-mart could do this too, but they're too big, but hey- If they pull this off, that's cool too.

Open up. Google did it, Amazon did, Apple did it, Netflix— expose your API so people out there can use www.netflix.com  the way they want to, in new ways, in ways you haven't imagined. What do I mean by that?

RSS Feeds. See that little XML or RSS button on every site out there? That's RSS feed, the quickest way to deliver updated information to folks. No one wants to log in to the Netflix site all the time, let folks subscribe to RSS feeds that have new releases, reviews and more. Netflix has a newsletter, sure, but that stopped getting to me about 2 years ago when I started using spam filters.

My DVD "playlist". If you go to TextAmerica, or use BlogRolling, millions of people add can add a link to their site(s) which is updated from someplace else. For Netflix, it would work like this. A blog site, like this one, or a personal one could easily add their DVD list, what they're watching, what they've watched, and what they're going to watch. Technoraiti tracks about 3 million blogs, these people all index really high in all the things your focus groups are likely telling you. Give them the tools they need to distribute your message for free.

There's a reason Apple make the playlist feature, folks upload their playlists, send to friends, everyone has a music mix their proud of, it's really important that Netflix let's folks expose their movie list.

Let people add items to my playlist, have "always send me new popular releases" each month, things like that really matter.

Integration with Moviefone and Fandango would also be possible. If you're like me, when you buy a ticket to see a movie, you're likely going to one day rent that movie- with an API that others can use, that would all be possible when you buy your movie tickets online.

Social Networks. If the Netflix API was exposed when Friendster, Orkut and all the other social networking sites were released, it would have been easy for millions of people to add their movie list (past, present and future to their profile). Heck, in ALL of these social networking sites they have "Favorite movies". Heck, I might even go visit a pal if I knew they had a specific movie at their how, now that's some real peer-to-peer networking in action.


AOL Netflix Buddy. People IM more than they email now, there are lots of reasons for that, from Spam to more computers being on all the time. So why wouldn't Netflix have buddy anyone can add to their buddy list where they can query the Netflix database and also rent from there. Then they could even send it along to a buddy on their list. Again, this is part of the "Open up" theme, Netflix needs to provide ways for folks to use its service in ways like this.

Here's an example: Add "RecipeBuddie" to your AOL/iChatAV list and tell it you have chicken, it'll give you a bunch of recipes and links to products to buy as well.

One year, $199. One month $19.99. The economics of this are tough, but Netflix has gotta stay below the $20 mark per month and they've gotta have a deal per year. It'll lower churn and keep the price sensitive folks from getting sticker shock. Or hey, at least give this deal to people who have been a member for at least a year.

No TV ads. That's right, don't spend money on TV in the traditional sense. 30 second ads aren't going to reach the best prospects, really. Sponsor a show and make it "commercial free" so it's more like a DVD.

If it cost Netflix $35 to add 583,000 trial users (as reported) that means they spent $20,405,000 in marketing (at least). That's some good media buys.

With the summer movie season here, it's cheap and easy to get some movie slides in specific markets around the USA before the movie comes on. And if Netflix needs to do TV in some way, do a 30 second commercial before a movie, they have those now. It's a great surgical way to educate folks on what Netflix is while their in the movie mood.

Community. Netflix needs to get their best customers on an advisory board, maybe even pick some well known folks out in the web world and have them out. What Netflix can't do is piss off their biggest fans, like this guy.

Wal-Mart and Blockbuster will totally own the whole "ignore the customer" thing with their girth, but Netflix, you can be different, you can be something that folks can rally around. Sponsoring blog sites and sites that talk about movies wouldn't be a bad idea either.

Netflix as a platform. Last up, the big one. Anyone can call up Amazon and make a deal to re-brand their platform (like Target has) same goes for google, Amazon made a deal with them to use google's search for A9, Amazon's search engine. If Netflix made the move to make their system a plaform, anyone could come along and rent any type of DVD media. Video games, specific movies, instructional courses, you name it- it's possible. And in the end, Netflix makes money while still sticking to their core business.




More?
Sure, there's lots more which would really get Netfix away from the pointless street brawl they're in with the 2 big guys—from leading the charge in downloadable movies, to partner deals with iTunes + Netflix integration, to working out a system of movie viewing on the new Portable Video Players— all these things will happen in time, maybe with Netflix, hopefully not Wal-Mart, but probably Blockbuster.

No matter what, Netflix can open up and should—what's the point of all this unless more people can share their favorite movies with each other, in better ways, using all of what technology has to offer. Movies are just as much a part of our lives as childhood memories and shape our culture, even defining it at times, it would be good to see the company that has fueled my movie addiction for the last 5 years continue to do so in amazing ways for more people.

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Phillip Torrone can be reached at his personal website www.flashenabled.com

[Barton Quigley @ Dec 19th 2005 2:26AM]

"Method and apparatus for renting items"

http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=/netahtml/search-bool.html&r=1&f=G&l=50&co1=AND&d=ptxt&s1=6,584,450&OS=6,584,450&RS=6,584,450

[joeTEK @ Dec 19th 2005 2:26AM]

Yes yes yes!!!

All of the points you mention are fantastic and great ideas. I've often thought about the business model of these companies (we have a couple here in Oz) and came to similar conclusions.

If they would only wake up and focus on the people who have been subscribed for years - then their business will grow. These people are the "go to" people for their friends when it comes to technology. This way - when Blockbuster etc... release their version they'll raise the profile of the whole concept. Joe Pleb then says to his friend "So what do you think of this whole thing?" and he says - "It's cool - but try Netflix they've been doing it for ages and they rock!!!"

If they try to integrate themselves into online communities it can only lead to more business!

Ah well ... rant over. If only I had the money to start up my own version :)

J

[Ed Gore @ Dec 19th 2005 2:26AM]

I'm surprised that you ignored the most obvious thing that netflix could do to make themselves immune from competition...it's the same thing that keeps independant video rental places in business.

Rent porn. Do it in a non-intrusive way - keep the recommendations for porn sperate from regular movies. Maybe even require adding the option for porn to your account as a seperate step. After you do, you default to the normal site when you log in, but can always click over to the adult section and add items into your queue from there.

Porn is what made the video rental business int he first place, and I can pretty much promise thaat Walmart and Blockbuster are not going to be offering this option...

[Tavish Baker @ Dec 19th 2005 2:26AM]

Great article and excellent suggestions.
I sent the link to some of the marketing & promotions people over at netflix, I hope their minds are open.

Netflix is actually looking to hire some online marketing and brand marketing positions, perhaps one of your readers can get in and implement these suggestions.
http://www.netflix.com/Jobs?id=5246

[shoobe01 @ Dec 19th 2005 2:26AM]

I say you were close with the platform idea. Why not allow anyone else to brand the Netflix engine their own way, allow their customers onto it, and even have a special selection of movies? Some potential competitors would probably be perfectly happy to not build warehouses in order to get a share of the money.

All other suggestions are good. I have simply given out my login to trusted friends so they can add movies and see my playlist. Why is there no community system of any sort?

Netflix is as shy about porn as any right wing media conglomerate. They don't even carry racy Anime, though they used to at the start.

[tarun @ Dec 19th 2005 2:26AM]

Greencine is perhaps a little further along in those things you mentioned. Unfortunately only in SF right now, so getting movies from them takes a long time in NYC...

[Chris @ Dec 19th 2005 2:26AM]

I've been a netflix customer for awhile, and recently (past few weeks) the service went down the hole. Suddenly, instead of my new movies shipping the day the receive my returns, they ship the next day, or the day after (even going so far as to say "shipping monday" when they receive the return on a wednesday or thursday, or "shipping tomorrow" for 2-3 days). I've heard that they flag certain users as "high volume renters" and then "slow down" access to those users. I admit that I watch a lot of movies (I usually only keep movies 1-2 nights), but if they advertise "unlimited" rentals, but then go out of their way to give me fewer rentals than when I was a new customer, that's not unlimited, and it's not the way to keep me as a customer.

[Nicholas Frota @ Dec 19th 2005 2:26AM]

some time ago i made a netflix bookmarklet... you could select any movie, actor, or whatever from any page, click on the bookmarklet and go straight to your netflix page.

i sent it to them, but no answer.

another good idea is a netflix confabulator widget, it shows the next 3 dvds on your queue... sadly, it didn't work on my mac... i guess opening their API (as amazon, ups did) would be an advantage...

[Mathew @ Dec 19th 2005 2:26AM]

These are great ideas. Be sure to check out Netflix Freak (http://www.thelittleappfactory.com/software/netflixfreak.php) if you are a Mac user, which is an awesome program for managing your Queue. I absolutely concur in opening the API and letting more programs like Netflix Freak work. One of the easiest things Netflix could do is be a central database for all your movie and TV watching, whether or not the show/movie is out on DVD. I would like to be able to keep track of all the movies I've seen on DVD, in theaters, even on TV with easy access to my ratings, and comments. It should better integrate with IMDB, Moviefone, etc.

No, I don't think Netflix needs p0rn to survive, and it is more likely to keep families away.

[eliot h @ Dec 19th 2005 2:26AM]

Another benefit Blockbuster has that you only touched on is that for new movies, they guarantee availability in-store (don't know if they do this with their mail-order version). So maybe Netflix could add some kind of specific order special system, like you forgo having two discs once to get the newest movie guaranteed by a certain day, that sort of thing.

I assume that Netflix already puts packages together with DVD players, but if they don't, they should. Sort of like an AOL-disc type situation. Only maybe it's a DVD describing Netflix which the trial user then sends in, postage prepaid to get their first movie (assuming they write their credit card number in the envelope or something.

Maybe they could also do some kind of bulk replication of an obscure title, promote it as something that the first x thousand users get the next day as a bonus disc, and then for anominal fee, they can keep the "special edition" disc.

Netflix should also definitely find films that no-one else will publish but that a core of people are fanatical about and find out if the model would work to create a DVD of it.

Finally, Netflix could really trump the other guys by working out a way for non-computer folks to get discs (i assum ethey don't already have this):

Make a catalog of DVDs, say 1000 popular ones, and make it available for free at grocery stores. each disc has a code. Then, you call in give your info to sign-up, and select your discs by punching in the codes.

For a fee, you can get a bigger catalog, maybe even a book-quality one, of all the available titles.

Because you see, as much as many people have gotten online and use it, there are still mor people who aren't online. But DVD players are $50. Although there would be a cost involved in this, it would be nice to have, and would expand the user base. Moviefone still has ther phone system, and lots of people use it.

[Bradley @ Dec 19th 2005 2:26AM]

Pr0n is ok by me. Yes, even desirable. There's one or two or three (been a while since I went looking) sites alreading doing Netflix style pr0n rental. I've yet to go for a membership because 1) I'm too cheap to go for dual membership. 2) Trust factor. Netflix is Netflix. Who are the other guys? I don't know them from Adam...

All this suggesting - have you done a Whois lookup on NetfliXXX.com ? Yep, it's registered to Netflix. It's either a holdout to protect their image (lest someone grab it and use it - most likely), or a potential in their future (less likely).

Netflix, get off your bumm and show us some, er, bumm ;)

[Franco @ Dec 19th 2005 2:26AM]

I gotta say, netflix is pretty sweet with delivery times. In my area (I hear from friends, Brooklyn NY) it takes about a day to come, and a day to go back. Unfortunately, I'm really into asian movies (Korean, HK, Japanese) so I'm signed up to Nicheflix.com . Sure, it takes 3 days to get here, and 3 days back, but the selection is incredible. Usually nice things like Limited edition sets, most movies have their 2nd extras disc to rent. The selection beats that of cinflix, greencine, and another one I can't remember. If NetFlix had that same selection, I'd switch. It's cheaper and faster.

[Angela @ Dec 19th 2005 2:26AM]

Not surprisingly, you're all missing the obvious. I was a member of Netflix for just over a year and canceled my subscription. I never got an "exit survey" or any other indication that they cared that I left. Most marketers know it costs 60 times more to get a new customer than it does to retain an existing one. I say do something to focus on the loyal, existing customers like offering a bonus 4th DVD every few months.

If they would've asked, they'd have found out I quit in the summer -- the weather and longer days plays a big factor in the number of movies I rent. So why not offer a seasonal program? Or a student program just for the school year? Or summer discounts? They can get creative with their pricing without getting radical.

[John @ Dec 19th 2005 2:26AM]

While they aren't phenomenal the last two times I've joined Netflix within months they try to make it seem like it's a great deal when they jack up the price. Really as a customer they can't sell me on the idea that paying more for the same or less is good for me.

[Eduardo @ Dec 19th 2005 2:26AM]

I wish I could have some service like this in Argentina...

[dwlt @ Dec 19th 2005 2:26AM]

I'm not sure that Netflix does need go offline, since they don't have the same obvious advantage as Walmart and Blockbuster do. However, if they do decide to compete there, I'm not sure catalogues are the way to do it. How about kiosks instead? They could have a card swiper on the side, so you can set up your account. Thinking about it though, you might end up with some long queues of people as they kept adding new movies to their rental queue.

Even better, how about making access to the site available via your cellphone? Maybe partner with the operators to add the subsciption charge to your phone bill as well.

[Cesar @ Dec 19th 2005 2:26AM]

+ Just one suggestion regarding the 'community' factor. I have many people whose taste in movies is very similar to mine. I would like to merge their lists with mine. This feature would stay 'on', meaning, any future movies that they put into their queue would go into mine.

[Ivan @ Dec 19th 2005 2:26AM]

Netflix is now sending generic, re-branded and stripped-down movies w/out all the bonus material that the normal, on-the-shelf DVDs have!

Netflix also counts a double DVD as two rentals - check out Gangs of New York and others that (for space or director's wishes) are split onto two DVDs. So, one movie eats up two rentals.

Not good.

[Joshua Hoover @ Dec 19th 2005 2:26AM]

It's quite simple. If one of these big boys does video games and DVD rentals on the same subscription, then they'll have a winner on their hands. My biggest gripe with NetFlix (I'm a customer) in comparison to the traditional video store is that my video store let's me rent games and NetFlix doesn't. Sure, I can join Gamefly or another service, but why should I put out another $20 just to rent games once in a while? Maybe games are too much of a risk because the target market is younger and less likely to return the goods either at all or in good shape. I don't know, but I think offering both DVDs and video games is a winner for any of the big DVD by mail services.

[Keith Woods @ Dec 19th 2005 2:26AM]

GameZnFlix.com has both movies and games. $222 per year plan is a great deal and they give you and extra 2 months. You get 6 dvds/games out at a time. It's a new company thats still working out the "bugs". I like the convenience of getting it all in the mail.

[saul klein @ Dec 19th 2005 2:26AM]

great article and much food for thought - thought you'd be interested in the fact we're pursuing this approach in the UK with www.videoisland.com - we offer a direct-service a la Netflix but also allow major brands like MSN (http://www.msn.co.uk/dvdrental) and Tesco (http://www.tescodvdrental.com) to brand our platform - we also love the RSS notion and have begun to allow people to tap in (see http://videoisland.com/user/affiliateRSS.php)

[Rob @ Dec 19th 2005 2:26AM]

I had subs to both netflix and gamefly. I quit both as Blockbuster and Hollywood now offer unlimited video game and movie rentals (no restrictions) for flat rates ($19/month for video games, change as often as you want, any store and $24.95 for movies, same deal). With this method, I can be watching new movies 24 hours per day and when I am waiting for new release Tuesday, I can be playing through all the games I want. No waiting for the 2 or 3 day round-trip to NetFlix (Gamefly is even worse as they only have one warehouse). Why why why would you do anything else unless you, (a) don't drive, or (b) don't have a blockbuster near you (in which case, move...) ;-)

[Micah Parrish @ Dec 19th 2005 2:26AM]

I am Netflix's biggest problem. I am the guy who rents movies, watches them, and sends them back right away. Because I want more movies!

Sometimes there's a movie with a lot of demand. Say the latest Farscape disc. Netflix has flagged me as high volume and makes me wait quite a while for it. I want the movie now, not 2 weeks from now. I should be able to pay a dollar or two and bump my priority up to immediate.

The other thing Netflix should do is rent games. I would keep a game for weeks, during which time I would not be costing them postage in sending me movies.

The other thing they should do is merge with Tivo and distribute movies over the internet.

[Pat @ Dec 19th 2005 2:26AM]

I live MILES from any Walmart. Blockbuster, yeah right!! For those of us who don't have (and thus don't care)about in store rentals Nexflix is GREAT!! I have no trouble getting my stuff in good time & have increased my movies in to 5. If they want to make me happier they could send me a free movie "coupon" every once and a while, but pretty much they have my business for life. I like some of the older stuff & also use them for documentaries. (we homeschool)NOBODY has their selection, but they should keep adding more. I have no problem with them adding porn, as long as they keep it at a seperate (password controlled)site. Games would definately slow down our return rate as mentioned before. I think a yearly price would also be a great idea!!(as long as I can pick the renewal month)

[RAYMOND KNIGHT @ Dec 19th 2005 2:26AM]

There are several things they should do to increase the value of NETFLIX to the user. (1) Start up Saturday processing (BLOCKBUSTER does it), (2) Tracking - Arrange tracking with the POST OFFICE so you can see the status of your sent and returned DVDs, (3) Available now doesn't always mean - available now (List where your DVD will come from.

[Thomas @ Dec 19th 2005 2:26AM]

As a Netflix user since March 2004 (Sept now) I must say that when the service works - it's great. When you have problems, dealing with DMV is more pleasant. Netflix does not have customer support. None.
Try getting through to a real person over the web (their support is over the phone? please! who wants to be on hold?) - forget it.
You get canned idiot messages from your "friends at Netflix". How condescending...

My problems have been - movie never arrived (they sent a note telling me it wasn't available - but two weeks later it was back on their site again - but they didn't tell me about that - that's lame) - one disc was in the wrong envelope - and there's no "you shipped the wrong disc, I'm returning it" option - so you have to go through a tedious routine of labelling the sleeve - since I also reported this problem online - I wound up getting TWO copies of the same flick sent to me - i.e. they have a less than smart system). If a competitor comes out with the same range of flicks, and real customer support - I'll switch in a heartbeat.

[poptones @ Dec 19th 2005 2:26AM]

I signed up justa couple of months ago and loved it. The first month was 'free" but I was so busy I had those first three movies pretty much the whole time. When I was un-busy and could send them back I got three more, returned them within a day or two and got three more. Returned those and after a week with only two discs I am STILL WAITING for one of the movies they said had been shipped! Enough of that - I cancelled two days ago; I'm not paying more than $20 a month to rent 5 or 6 movies.

I like old movies too. Most of what I rent can be found in the 99 cent section, but I also love foreign movies and I went to them simply because they had a couple russian films I've been wanting to see. but now I see wal-mart has a couple of those films as well - and, despite having less of a selection than netflix, still seems to have most of what I want. And wal-mart will turn around your DVDs while your returns are still in the mail because they use online tracking. Will netflix do this? of course not - their goal is to have you rent as few as possible, and speeding up the service only defeats that.

Wal-mart is all over the country and their bread and butter comes from rural america; I'm pretty sure if netflix can't keep us as customers, wal-mart will be only too happy to.

Screw all the online stuff. If netflix wants to succeed, the first thing they need to work on is improving their quality of service - and delivering the product they advertise.

[Josh @ Dec 19th 2005 2:26AM]

Netflix will not break up a movie that spans 2 discs. I rented GoNY in 2003 and remember getting both at the same time. I just checked the description on Netflix, which still says "This film spans two discs; both discs will be shipped to you simultaneously."

They do obviously split apart bonus discs, which I think is great when I don't really care about them for that particular movie. If I want them, I'll put the bonus disc near the top of my queue after watching the movie.

[goldleader71 @ Dec 19th 2005 2:26AM]

8 dvd's at a time for the 15.85 a month (year plan) paid quarterly is the best deal going for
www.gameznflix.com.

I already received 76 titles in the mail since
FEB 05

[Automega Auto Accessories @ Dec 19th 2005 2:26AM]

Offering a large selection of body kits, wood dash kits, auto graphics, nerf bars,hood scoops and loading ramps.

[Joshua D @ Dec 19th 2005 2:26AM]

I think netflix is getting less anal about things if you search just right title's like Emanulle story's (skin) Dr alien or (I was a teenage sex mutant) and other racy B movie's and yes some of the anime is hot just check out titles like Maze, Nuku Nuku and vol 3 of OUTLAW STAR THINGS THEY ARE GETTING MUCH GOODER