Netflix Bids Farewell to DVDs?

If you thought Netflix (Nasdaq: NFLX  ) was exporting its concept to Canada as a streaming-only service, it may be the other way around.

"We are looking at adding a streaming-only option for the USA over the coming months," CEO Reed Hastings wrote in a blog post last night.

Hastings made the comment as part of a larger apology after calling Americans "self-absorbed" relative to its Canadian pricing in a Toronto interview. Yes, Netflix has stumbled quite a bit in its first international rollout.

However, it's clear that the product now being sold in Canada -- an unlimited streaming option available for $7.99 a month -- may very well make its way back home to the United States.

It's going to be a hard sell.

Right now, folks can pay $8.99 a month for unlimited streaming and unlimited DVDs (with only one disc out at a time). The streaming is cool, but not universal. Just 61% of Netflix subscribers streamed at least 15 minutes of video this past quarter. Put another way, 6 million of Netflix's 15 million subscribers don't care -- for now.

There is also a problem with content. Roughly a fifth of Netflix's DVDs are available in its digital catalog. In other words, odds are that the movie you really want to see is only available on DVD or Blu-ray. Who would pay $1 less for an 80% reduction in available content and the perpetual requirement of a healthy Internet connection?

One can argue that Netflix can always go with a more viable price point -- say $4.99 -- but it can't. The move would be yet another Netflix insult in Canada. It's a serious pricing quandary. Netflix has to price its digital offering low enough to attract new accounts, but not low enough to force existing subscribers to migrate to cheaper plans.  

There's also Coinstar's (Nasdaq: CSTR  ) Redbox to consider. Its DVD-rental kiosks may face eventual extinction, but revenue there spiked 44% in its latest quarter. It has promised to reveal a long-anticipated digital strategy next month, and you just know that a company renting discs for a buck is going to price its streaming buffet aggressively. Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) have set-top boxes coming out in a few weeks. Apple's box is already playing nice with Netflix, but it may not be long before Apple and Google are the architects of their own streaming subscriptions.

Netflix's advantage is that it has years of building up its content library. Just this morning, it announced a deal with General Electric's (NYSE: GE  ) majority-owned NBC Universal to serve up a ton of televisions shows from NBC, USA, and SyFy.

Either way, waiting a few months will give Netflix a fair read on how Canada takes to its service and time to assess the seriousness of Coinstar's digital offering.

I can just picture the new ad campaign: Netflix, no mailbox or DVD player required!

Will Netflix work as a streaming-only offering? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers pick. Apple and Netflix are Motley Fool Stock Advisor choices. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2010, at 3:55 PM, AllNamesRTaken75 wrote:

    Netflix has been a tremenous disappointment to me. I can't figure out why somebody has not sued them for false advertising, because it's blatant false advertisement that they practice. They do not stream unlimited movies and TV shows. They only stream older movies, no brand new movies unless they're the poor straight to DVD movies. So unlimited flys out the window with that alone. Next, their movies expire. If you have a lot of movies in your que, you might not watch them. If you're a horror fan, you'll be upset this Halloween. For an odd reason they expire all Friday The 13th movies on October 1, the start of the Halloween month.

    The advantages of sticking with Blockbuster far outweigh anything Netflix or Rebox offers, and you get way more for cheaper if you do Blockbuster Online, plus they're renting games now. Which saves gamers money on expensive games. Instead of buying one you may not like you can rent online. Blockbuster allows you to trade mail movies in the store for brand new movies. Blockbuster has movies 28 days to a month before Redbox and Netflix. And people will miss a walk in store where you can see the movies in front of you instead of having to know what to look for online. And Blockbusters customer service is genuine in person and online. Netflix has no customer service online.

  • Report this Comment On September 24, 2010, at 3:58 PM, AllNamesRTaken75 wrote:

    I forgot to add. If you're a fan of a particular show you're be lucky if it's on NF. And if it's on NF, it might not be a complete season. They break Seasons up. You have to rent by DVD many TV shows, so you might as well use Blockbuster online so you can swap TV DVDs quicker to watch them at a faster pace. Example... DEXTER only has 2 seasons on NF. So I had to start renting the DVDs instead of streaming. I started to think, "Why don't I just rent these off the Blockbuster site, then swap the DVD by mail for an instore DVD so I can watch the season faster to catch up?" Which is one of many reasons why I went back to Blockbuster. Plus at Blockbuster you can buy 3 concessions for 3 dollars or less. How much popcorn or candy can you buy at Netflix? Oh yeah.. you cant.

  • Report this Comment On September 24, 2010, at 4:05 PM, emptygestures wrote:

    Good luck with that streaming only plan NFLX. I see them having a lot of trouble with competition from Apple and Google over the next couple of months. I like that CSTR is taking their time with streaming and focusing on generating good money flow through kiosks. They are expanding into the midwest wisely where not as many consumers have access to broadband.

  • Report this Comment On September 24, 2010, at 5:00 PM, BioBat wrote:

    AllNamesRTaken75,

    No where does Netflix say "unlimited number of movies available for streaming". They say unlimited streaming, which it is. It's not false advertising.

    And while they have an abundance of older content, they've ramped up the number of new streaming movies in the past few months and continue adding new content weekly. Start Trek, GI Joe, District 9, Iron Man, Up, Wall-E, Benjamin Button are but a few of the new movies ALL on streaming.

    And emptygestures, Apple isn't going to be offering a streaming subscription service, they're including Netflix on AppleTV instead. I'll believe Coinstar will get in the streaming game when I see it. They've been talking about unveiling a digital strategy for a few years now and it's still just that - talk.

  • Report this Comment On September 24, 2010, at 5:26 PM, mattack2 wrote:

    You have to pay EXTRA to be able to return to the (disappearing) Blockbuster stores.

    There are movies from the past few years on netflix streaming. I have only recently started dabbling with the streaming, I still prefer DVDs (I get commentaries, subtitles, etc.). But even with DVDs, I don't care that there's a 28 day delay. I just watched "The Grid" from 2004. Entertaining miniseries, btw.

  • Report this Comment On September 25, 2010, at 12:19 PM, Mstinterestinman wrote:

    Netflix has a huge lead and dominate position in its niche does this guarantee them forever no but for at least the next five years I am quite bullish.

  • Report this Comment On September 25, 2010, at 7:55 PM, JDTroit wrote:

    I belong to netflix but I have to say I've used redbox when I can't get the movies I want to watch. I get three movies at a time and time my returns to arrive tuesday mornings and still don't get the ones I want often enough. I find I've grown very dissatisfied, so I am considering switching to redbox 100%. The movies I've tried to watch through streaming have pretty much all been 2nd or even 3rd rated and I already dvr the tv shows I wish to view. What is appealing about redbox is they allow you to reserve movies online and are now offering some blu rays at select kiosks nearby. I I'm starting to prefer the coinstar model. Streaming is worthless if you can't get new releases or 1st run content.

  • Report this Comment On September 26, 2010, at 12:04 AM, koolkrissy wrote:

    We cannot get cable tv or high speed internet where we live; it is not available to us. We have to rely on satellite tv and satellite internet. Satellite internet will not allow us to streamline anything! We cannot even watch youtube or news videos. We would not presently have any use for Netflix if they dropped the dvds. We have a dvd subscription and love it! There are a lot of areas in this country that also rely on satellite for internet, etc. streamlining does not work when you have to rely on satellite connections. I hope that Netflix will be smart enough to not "kill the golden goose." Ending their dvd mail service could do that.

  • Report this Comment On September 26, 2010, at 3:32 AM, rhobytalltree wrote:

    NFLX is also on Xbox 360 with a wireless connect from your computer network. It has a problem now that can't be fixed until NFLX offers up newer movies and fixes the wine_ing in the Xbox consoles. It drives you crazy. Streaming movies over wireless connections also won't work until the download file can be saved to a hard - drive to play for at least a month .

  • Report this Comment On October 04, 2010, at 7:52 PM, easyavenue wrote:

    Mr. Reed Hastings:

    IMHO, Netflix's inability to supply new release movies timely, either by mail or especially by streaming is hurting them right now. For most of us 'by mail' is dying and streaming is becoming a reality, so I'm focusing on streaming.

    First, I don't believe the NF site currently provides a decently comprehensive new release schedule (the schedule of when studios release movies on DVD). I can't find one. So now I have to go to Metacritic to learn the major studios movie release schedule, and then switch back and forth between Meta and NF entering new title names I want to see to my NF queue.

    Also, currently most of the movies on the new release schedule do not become available on NF on the day the studios release them. This has to change for them to remain competitive. By this time next year we will have NF clone companies as options (Redbox, Goog). Whoever provides the most streamed newly released movies the fastest will have an advantage over its competitors. I think it will be a significant advantage. So far NF has not been able to get this job done.

    BTW, I think movie theaters are all but dead already. In the next several (10) years they will cease to operate as they become obsolete to streaming as a first run movie marketing strategy. For which we will have to pay a premium to watch, of course. Another aside: I wonder how much, if any, the new virus and germ strains will keep people away from theatres in the next ten years? Mutants....

    Finally, the NF site isn't set up particularly well. They seem to push too much on their 'recommended movies.' This, of course, helps cover the fact that they don't have many of those hot new movies you really want to see and steers you to content they already have, regardless of how old that recommended movie is. Don't get me wrong, their recommended movies still serve a great purpose for the user by informing him of movies he may not have known or thought of.

    So it seems the game of who streams the most new releases the fastest is still quite open. And the prize of winning that important demographic is yet to be won. As a fan I hope the studios and the Netflixes can figure out revenue sharing quickly. I know NF recently made a deal with some studios. I hope to see many more new releases streamed on NF ASAP.

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