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While it seems like big news to report that Netflix (NASDAQ: NFLX ) is losing 2,000 -- wait, maybe closer to 1,000 -- titles from its video streaming service, the loss may be emblematic of an important underlying issue facing the king of streaming video: the lack of "new release" content. As other services like Amazon (NASDAQ: AMZN ) Prime and Redbox Instant, the joint venture between Coinstar (NASDAQ: OUTR ) and Verizon (NYSE: VZ ) , continue to join the fight, the importance of new content seems to be missed. The effort by Netflix to introduce exclusively produced content -- like its current hit House of Cards -- is a testament to what viewers really want.
Content is king
In response to one of my recent videos on Netflix, one commenter said "I would gladly pay triple if [the] streaming selection was the same as the DVD selection." The biggest difference between the two catalogs is that the DVD selection contains many of the most recently released movies, while very few of these are available as streaming options. The idea that the loss of a collection of titles that date from 1986 and earlier can generate so much ink speaks of the limited availability of content to streaming customers. That is not to say that older content lacks either watchability or appeal, but some perspective seems warranted.
Where did the content go?
Just to be clear, there seem to be two primary drivers of the loss of content that is impacting Netflix. First, a portion of the titles are owned by Time Warner, which is starting its own streaming video service. Under its offering, subscribers will get access to TV shows and movies from the 1920s through the 1990s. With a starting price of $10 per month -- about $2 more than the cost of a streaming subscription to Netflix -- the company is clearly banking on the appeal of older content to drive traffic.
The second reason for the departing titles is tied to the relationship between Netflix and content-provider Epix. Netflix lost its exclusive relationship with Epix not long ago, so the content that it gets is subject to change. Whereas Netflix once received all of this content, Amazon Prime has become another significant partner and receives a good deal of Epix content.
Netflix commented that "This ebb and flow happens all the time," highlighting the dynamic nature of the company's catalog. Still, particularly when it comes to TV series, if users cannot count on the availability of these shows being somewhat stable, getting hooked on a new show only to have it disappear could breed ill will. This is another reason that original content is gaining in importance.
Can I just watch what I want?
The lack of new releases should not be overlooked as a critical factor is shaping how this industry will develop. While Redbox Instant has chosen to focus heavily on movies over television, subscribers to this service have access to Redbox kiosks to find those new-release titles that are not available elsewhere. This could become a big draw for the service and could also give the company enhanced bargaining power to bring more new releases to the streaming side over time.
For some viewers, the ability to find something to watch, no matter how old, has an appeal for the relatively low cost of $8 per month. For others, however, the lack of current movie choices pushes the service into the category of "not really worth it." Netflix has been doing a great job battling back from its self-inflicted problems, but this is an issue to watch. This collection of lost titles probably doesn't deserve the hype it has gotten, but may call attention to a bigger issue.
Want to read even more about Netflix?
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.