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Netflix Makes a Move

While I don’t normally spend a lot of time discussing the consumer streaming world, this was too interesting to pass up:

Netflix Is Abandoning DVDs, Customers Who Prefer DVDs

A few things to note about this.  First, Netflix has seen the writing on the wall and is proactively changing their business model.  Obviously it’s a lot more expensive to pay for the mail, buy physical copies, replace broken & lost DVDs, etc.  Streaming is clearly a simpler distribution model, and fits the modern conception of getting what you want without having to wait.

Second, this has the potential of a public relations and social media disaster.  There’s not much these days that says “we don’t care what our customers want” like ignoring the discussion and letting people stew.  Now, I don’t know that a series of complaints on a company blog is really a “firestorm”, and this may simply be the diehards venting.  It’s actually an interesting question – are most Netflix subscribers the dialed in people mad as hell about this, or are most of them people like me who forget to send their stuff back for months at a time and really won’t notice announcements like these?  This was clearly deliberate – nobody puts out a significant announcement on a holiday weekend if they feel good about it, and they don’t ignore comments if they’re truly open to dialogue with their customers.

[Parenthetically, let me admit to being what I suspect is Netflix’s favorite type of customer.  I get the movies, forget to watch them for weeks or months, then eventually send them back.  Paying the 15$ a month or whatever the whole time, and clearly not getting all I could out of it.  Though I admit to discovering old Top Gear episodes in the on-demand service, which has made me a more active user.  I think they much prefer me to the people out there getting a new movie virtually every day, costing them a lot more in postage, etc.]

Third, and of most interest to me, is the claim at the end that Netflix will destroy America’s bandwidth capacity.   I don’t buy it for a number of reasons.  For one, this maneuver by Netflix is a positioning move to take them towards their next generation.  By the time they drop DVDs completely (which I think is unlikely to begin with), there’s no telling where the bandwidth of the US will be.

For another, the discussion of the launch of streaming service to Canada indicates that it was during the first week of launch that use spiked dramatically.  It’s a bit tenuous to extrapolate long-term use from an initial offering.  I grant it could be an indication of where things are likely to go, but it could just be a mad rush by everyone to see what the fuss is about.  Give me some hard data over an 18 month period and I’ll feel more comfortable making sweeping generalizations about the end of all bandwidth.

Finally, the original Slate article referenced by the Yahoo article above was followed quickly by two very significant corrections, which I choose to copy wholesale here:

Correction, Nov. 3, 2010: An earlier version of this article erroneously claimed that Netflix accounted for 90 percent of traffic on one Canadian broadband network. While Sandvine’s report did indicate a substantial increase in Netflix traffic on the Candian Internet, it did not reach 90 percent. (Return to the corrected sentence.) This article also erroneously stated that at peak hours Netflix accounts for one-fifth of North American broadband capacity. It accounts for one-fifth of all traffic, not of all available bandwidth. (Return to the corrected sentence.)

There’s a big difference between “substantial increase” and “90% of traffic on one network” and “1/5 of all traffic” vs. “1/5 of all bandwidth.”  Yes they corrected the article, but predictions like these are notoriously unreliable and I would be cautious about taking this too seriously.  Netflix is looking to reinvent themselves and save a lot of money, and it will be interesting to see how this plays out.

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