Netflix's Loss Is Really Netflix's Gain

There's finally a settlement in the two-year battle between Netflix (Nasdaq: NFLX  ) and the National Association for the Deaf.

Netflix -- which is currently providing captions for 82% of its online videos -- will be providing the transcriptions as an option on all of its videos by 2014 within 30 days of general availability.

This is naturally a major victory for deaf video buffs that can only enjoy some of Netflix's offerings. Even though Netflix will be the one burdened with the cost to provide the text option on its streams -- and shell out a small settlement now -- it's also a winner here.

For starters, it's now an ally instead of an enemy for the National Association for the Deaf.

The class action lawsuit was certainly controversial. Was Netflix violating the American with Disabilities Act by offering its video service without a complete range of captions? Will the organization now go after the device makers where Netflix streams still won't be available with visible captions?

Let's not go that path. The resolution is a win-win, but it may be a bigger victory for Netflix than you think.

It's not just about the spike in deaf subscribers that Netflix will attract as a result of the settlement. The real interesting nugget here is that Netflix just raised the bar in terms of what it takes to be a video service. (Nasdaq: AMZN  ) may be Netflix's closest competitor in terms of a premium streaming video service, but it has a long way to go make its catalog available with closed captioning. If you're Coinstar's (Nasdaq: CSTR  ) Redbox, your plans to roll out a digital video service with Verizon (NYSE: VZ  ) later this year just got a bit more complicated.

Transcribing streams isn't easy, and automated solutions are buggy.

Sure, a company can choose to ignore Netflix's settlement and collect the ire of the hearing impaired community. It would drum up bad press and an inferior product.

Some may be congratulating Netflix for doing the right thing, but from a tactical perspective it's also doing a brilliant thing.

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Rick Aristotle Munarriz owns shares of Netflix. The Motley Fool owns shares of and Netflix. Motley Fool newsletter services recommend and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (12)

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  • Report this Comment On October 12, 2012, at 8:09 AM, adhill wrote:

    This articale reeks of confirmation bias. Rick, you are taking what is essentially a mildly negative event and putting a positive spin on it with virtually no factual basis. How big is the deaf community? How many already subscribe to Netflix? I doubt there are millions of potential deaf subscribers out there who were waiting to subscribe once Netflix went from 82% closed-captioning coverage to 100%. Netflix did what it had to do. It was not a brilliant decision, they saw the writing on the wall and chose the least costly option. So yes, this is a loss for Netflix and a big win for our deaf friends in the community. And do you really think this ruling will discourage Amazon??

  • Report this Comment On October 12, 2012, at 10:21 AM, pauldeba wrote:

    The only victory is for the blind community, that can't read this article.

  • Report this Comment On October 12, 2012, at 10:49 AM, BioBat wrote:

    LOL pauldeba,

    Look there are less than 5 in 1000 deaf people in the United States and that's only if you include those old enough to not even know what the internet is (ie. the disproportionately deaf). If you include those that are able bodied and use the internet regularly, the number is closer to 1 in 1000, or at most a few thousand people in the United States. The market is nil.

    Netflix had to comply because they didn't have the money or resources to combat and obviously frivolous lawsuit, settle out of court, or take any more heat from negative press after the Qwikster debacle.

  • Report this Comment On October 12, 2012, at 7:38 PM, kel4003 wrote:

    I like the captions on netflix and Im not even deaf or hard of hearing. lots of shows get too quiet in the quiet parts and too loud in the loud parts. It can be very hard to discern what actors are saying especially if they have accents, and they help you to know the characters names that are speaking.

    I find you get more and miss less of the story. Traditional closed captioning is so spotty and slow it can be downright comical, but Netflixes captions are right on time and say exactly what the characters are saying.

    Sometimes I cant sleep and like to watch with no volume so I dont disturb household slumberers. Totally doable. I dont have cable anymore(Yay!). I tried some other streamig services and noticed right away that the quality of streaming isnt as good, and there are no captions available. As soon as the actors start muttering quietly amongst themselves onscreen, I find myself clamoring for my mouse to click the captions on but it aint happening, and the movie plays on with me wishing i knew what was just said.

    Netflix provides the best streaming experience by far.

  • Report this Comment On October 12, 2012, at 11:24 PM, mountain8 wrote:

    Well, didn't I just read that we hard-of-hearing old farts are the largest segment of our population... and growing daily. Thank you netflix. Thank you deaf association. My grandparents were members for years.

  • Report this Comment On October 19, 2012, at 11:59 AM, IlanBigfoot wrote:

    Don't forget the non-native-English-speaker market. We love subtitles!

    Also good for improving your kids reading ability, by the way.

  • Report this Comment On October 21, 2012, at 12:19 AM, EversoNovice wrote:

    I just turned 60 and noted that i can no longer hear the low tones. If the male actor has that deep voice i am dependent on the CC for the dialog. My hearing certainly will not be getting better so my choice will be the best CC with the best variety of content.

  • Report this Comment On December 01, 2012, at 2:06 PM, hrosenthal wrote:

    First of all, Netflix had to comply because it really isn't an option, but the law (in USA). Amazon and others will be pressured to meet the legal requirements of ADA laws as well. Netflix deciding to comply without getting into a legal battle was both smart as well as the right thing to do.

    Secondly, captioning is not something that is used exclusively by the deaf community, but by the hearing impaired community as well (not to mention a segment of the normal hearing community as mentioned above by kel4003).

    BioBat is assuming that only 1 in 1000 people benefit from closed captioning based on deafness. However, the more accurate figure is 1 in 10 Americans experience some degree of hearing loss. That translates into over 30 million Americans. Many of those people, like myself, have been petitioning Netflix to provide captioning on their streaming video.

    Netflix did the right thing because they knew they had to, but in the process have opened themselves up to many new streaming subscribers and provided improved service to many existing subscribers.

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