CNET's Greg Sandoval took a look at a colleague's queue, only to find "Long Wait" as the expected availability on recent releases like The Dark Knight and Wall-E. Adding insult to injury, subscribers pay $1 more for access to Blu-ray optical discs.
It's easy to see why Netflix charges more for Blu-ray. The high-def optical discs do cost more to acquire. The high costs coupled with the nature of new releases deteriorating quickly in popularity against the backdrop of waning subscriber growth justifies a guarded approach in the number of Blu-ray copies that the company orders.
I saw the writing on the wall two months ago, after too many of my queue-topping new Blu-ray releases got slapped with the dreaded "Long Wait" label. I downgraded back to standard DVDs, and I haven't had much of a problem since.
Worse yet, by charging a premium for a less fulfilling member experience, Netflix risks damaging its brand and its historically high customer satisfaction ratings.
There's an untold asterisk to Sandoval's story, though. His colleague claims to go through 20 movies a month. If he is part of the most popular Netflix plan, charging $17.99 a month for unlimited three-discs-at-a-time rentals (including Blu-ray access), Netflix is losing money on his subscription in roundtrip shipping and packaging costs alone. The sweet spot for Netflix is a movie buff who only goes through a third as many titles in any given month. In other words, Netflix is better off financially without its hyperactive renters.
Sandoval touches on the practice of throttling at Netflix, which also explains the crummy availability. With few Blu-ray discs to go around, it simply allocates them to its higher-margin subscribers: its least active users. If the folks going through 15-20 flicks a month don't like it, Netflix won't miss them. There are too many line items to pay on every rental -- from mailing costs to studio royalties -- for Netflix to realistically make money with its high-turnover clients. Sandoval should have probably compared his colleague's availability to the queue of a profitable Netflix subscriber. Blu-ray availability will probably still be an issue there, but it shouldn't be quite so severe.
This naturally brings us to digital delivery. Will Netflix ever be able to effectively throttle usage there? It doesn't seem likely, but by offering the service "at no additional cost" certainly opens the door for even wider usage. Netflix may skirt postage and packaging costs on digital streams, but it still has costly bandwidth bills and studio royalties to pay.
Watch Now certainly has Netflix standing out from a la carte digital renters like Apple
Some items with immediate availability on your Netflix reading queue:
Can digital delivery ever be effectively throttled, or is an ad-supported model in the works? Post your thoughts in the comment box below.
Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.