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After turning in an absolutely stellar Q4 and 2010 overall, Netflix’s star has never been brighter. But some of the attention that the company’s killer numbers are attracting comes from Hollywood studios, who are taking an increasingly critical look at Netflix’s success.

One standout bit of information revealed by Netflix yesterday was the fact that a third of its new subscribers have opted for its cheap, streaming-only plan. Hollywood, which never hesitates to proclaim the value of its content, believes that Netflix’s streaming service devalues said content by offering too much for too little. Sound familiar, Redbox fans?

Warner CEO Jeff Bewkes, whose rhetoric towards Netflix has evolved from dismissive to vaguely hostile in recent months, is a particularly outspoken critic of the streaming provider:

“…[Netflix] isn’t really paying anything close to what the value of the programming is . . . and they are essentially devaluing the product…”

Netflix’s problem is summarized thusly: as it continues to rapidly add subscribers, many of whom are users of its streaming service, the company will need to greatly increase its content offering to keep those subscribers happy. Hollywood, which licenses the content to Netflix, is growing ever more reluctant to “devalue” its product by allowing Netflix to stream it to millions of people at a low monthly rate.

There’s definitely some conflict shaping up here, and it will be interesting to watch as the studios wrestle with their decision on how to deal with Netflix. Comment away on how you think the relationship between Hollywood and Netflix will evolve in the coming months, Insiders.
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(via Marketwatch)

21 Responses to “Could Netflix be Hurt by its Own Success?”

  1. Visitor [Join Now]
    tinybrat [visitor]

    You can bet the studios are watching how much money Netflix is making. They watched Redbox and hit them when they got too big. They watched NCR, and hit them when they got too big. Now with Netflix shifting away from physical dvds (which hurts studio sales tremendously), and moving towards streaming, which doesn’t pay the studio execs very well, you can bet you’ll see more and more pressure to increase prices. Look at HBO, stating they won’t offer their content unless more money is ponied up. Now with Comcast buying Universal, you can bet they are going to want to keep Netflix from streaming universal content.

    My prediction for 4th qtr 2011:
    Netflix streaming only package: $15 / month
    Netflix dvds by mail: no longer offered

    What are you going to do if that happens? You can’t get dvds by mail from them, most video stores are gone, and you bought your equipment specifically because it streams netflix! You gotta get your money out of it, so you’ll pay the $15 price, because hey, its the only one being offered! It still beats paying pay-per-view $4/movie!

    I’ve been right before, its possible I’m right again :)

    If only there was a machine, a ‘kiosk’ if you will, which could be put on every major street corner in America, where I could simply slide a credit card, pay $1 per night for a dvd, and the dvd would just pop right out a little vending slot. Ahh to dream…

    • Member [Join Now]
      WingTipSchu [wingtipschu]

      You’re overreacting tinybrat.

      Only about 15% of Netflix’s subscribers are *stream only* and fewer than 45% of its subscribers are streaming at all.

      Do you think that netflix will gut its core business and cut its own throat?

      Yes, Netflix’s monthly streaming fees will rise, who knows even double over the course of the year for unlimited content. The current pricing is just pump priming.

      VoD won’t take off until the Internet II initiative is fully deployed [within about five years] and large packet streaming becomes more realistic.

      • Visitor [Join Now]
        sdsurferinvesto [visitor]

        That 45% of subs are people who have not yet streamed yet, but 100% of subs have the capability to stream. I believe that at the present time, the 55% number of people who have watched content via streaming has grown.

        • Visitor [Join Now]
          xknight [visitor]

          100% of subscribers do not have the capability to stream. If you want to stream to your TV, you need a computer setup and connected to your TV. And even if you want to stream just to your computer, you still need a high speed internet connection. I am sure there is a sizable percentage of Netflix subscribers who don’t have a set top Netflix enabled device, and many who don’t even have an internet connection that is fast enough to deliver the content well. I just encountered someone last week who lives in a rural town in the midwest and recently upgraded from DIAL UP! lol Now they are on the only highspeed connection that is offered in that town, DSL. And the DSL speed is around 300K there (I had the person do a speed test). So I am sure there are many people who will only subscribe to the “via mail” option.

        • Visitor [Join Now]
          Ann D [visitor]

          I’m a subscriber and I don’t stream. I don’t have the capability to stream to my tv, and I don’t want to watch movies on my monitor. Netflix will lose a good deal of its customers if it goes to streaming only.

          • Member [Join Now]

            I could live with out streaming if it meant Netflix still offered DVD’s by mail. I think Netflix streaming has a long way to go before they can truly give up DVD’s. I think we will see a change in the subscription plans before that happens. Netflix could switch to tiered streaming plans with DVD and Blu-ray add-on options. Something like $1 extra a month for DVD’s and $3 for Blu-ray. Personally, I would like to see a DVD only plan for those of us who are not interested in streaming.

    • Visitor [Join Now]
      firstlawofnature [visitor]

      My prediction for 4th qtr 2011:
      Netflix streaming only package: $15 / month
      Netflix dvds by mail: no longer offered

      I’d bet a million on either of those predictions proving wrong. Studios are well aware of netflix’s inceasing power. Question is what if anything can they do about it.

      • Member [Join Now]

        What they can do about it is manipulate the flow of content to Netflix.

      • Visitor [Join Now]
        Firstlawofnature [visitor]

        Prisoners delimma. Someone will sell to them. They don’t need every studios content.

        • Visitor [Join Now]
          Mike [visitor]

          No, but they certainly need a good portion of them or why would anyone want to pay for their service?

          What can they do? They can simply up the cost for them to carry their content. They are the ones who own the legal right to the content they are licensing to Netflix.

          I have no idea on the numbers obviously, but say they are paying on average $1 per customer to carry the studios content. If the studios feel that this low value is affecting it’s business in other ways, such as DVD sales of catalog titles or licensing rights from other forms of distribution such as cable, then they are going to attempt to gain this lost revenue back from Netflix.

          Instead of $1 per customer, someone like Universal could say, we want $3 per customer. Now assume the other major studios do the same type of pricing increase. Instead of having the $5 licensing cost per subscriber, you are all of a sudden having $15 licensing cost per subscriber. So much for pricing your plan at $8 for the month. That is going to increase the cost significantly.

          This combined with increase costs from ISPs due to changes in ways that consumers will pay for massive video content on the internet will definitely put a kink in Netflix’s profits.

          Why do you think Netflix is campaigning so hard against these bandwidth caps and screaming Net Neutrality? They don’t want to see their low cost business model incur additional costs.

          However, there is no reason that major ISPs should subsidize Netflix just so that they can turn a profit. Netflix wants to get out of paying postage and think that they can use the internet for free. That isn’t going to work out long term for them.

        • Visitor [Join Now]
          Firstlawofnature [visitor]

          Simply up the cost? Gee why don’t the studios ‘up’ the cost for everything? That way they can make a lot more money than they do now.

          I get it. Netflix is worth more than any of the studios that make the content. They are hopping angry about that. A lot of folks have netflix envy nowadays.

  2. Visitor [Join Now]
    Carson [visitor]

    Netflix’s streaming content isn’t that good, they only have movies that wouldn’t otherwise make much money anyway, like old movies or new releases that no one wants to watch.
    It’s really only a sweet deal for people that like to watch B movies, documentaries, black and white movies, and the occasional award winner that no one really watches.
    I have access to Netflix streaming, and I always check for new adds, but there’s never anything I want to watch, so I get every movie from kiosks (for free) or the library.

  3. Member [Join Now]
    Bikemiles [bikemiles]

    The Friday night 01-28-11 Nightline had an interview with the Netflix’s CEO.

  4. Visitor [Join Now]
    Jack [visitor]

    Only watch streaming for a couple tv episodes that I missed or some documentaries. If they stop sending out the disks or continue to raise prices, I’ll drop them all together. As of January 1st I’ve already cut my 3 @ a time to 1@ a time. I’ve gone back to renting the new releases at redbox/bb express and pay less than I was paying for 3/time last year ($15/month or so). The internet as it is now can simply not handle the additional streaming load that we’re beginning to throw at it.

  5. Visitor [Join Now]
    Jack [visitor]

    I’m sick and tired of hearing all of this “devaluing” crap. It’s ONLY worth a buck a night to me. It’s not devalued at all.

  6. Visitor [Join Now]
    Darrell [visitor]

    If not for the streaming option, I wouldn’t ever consider watching most of the movies I’ve seen, so put that in your pipe and smoke it, you greedy Hollywood Moguls.

  7. Visitor [Join Now]
    Carole [visitor]

    My fiance and I like to watch the streaming videos. Some are so old that we forgot all about the movies and would not have watched them again if it weren’t for streaming.
    I do like the physical aspect as well. We travel and love to be able to bring some movies along…and we use redbox a lot for newer releases.
    The price increase in Netflix is ok, but just don’t take away the physical dvds.
    Lots of people don’t know how to hook up their computers with their TVs and might just drop Netflix if they go to streaming only.
    At $20 a month…with the new increase…we’re sticking to Netflix and using Redbox. Cable for our family would run us about $80 a month…do the math!

  8. Member [Join Now]

    I absolutely love my Netflix subscription! The deal is amazing. :) I both stream and request dvd’s in the mail. It would be great to have unlimited titles streamed and a higher price is worth the instant access. .I hate having to wait a few days after a cliff hanger episode! But hey, whatever you gotta do to keep it going..