Ruminations on Netflix and Blockbuster

It's been a good couple of months for Netflix. They've been bringing in record revenues quarter after quarter, driven Blockbuster and its brick-and-mortar competitors to the brink of obsolescence, and they're holding their own against upstarts Redbox and Hulu. Yesterday Netflix announced a deal with Epix, a premium cable channel, that will give them the rights to stream content from Paramount, Lions Gate and MGM. Consequently their stock price jumped 6% while the rest of the market contracted.

I'm one of Netflix's fifteen million subscribers, and I can fully vouch for the their DVD-by-mail rental and online streaming services. It's by far the best deal out there for the subscription fee. For my $8.99 a month, I average six or seven DVDs a month by mail, and at least two dozen films and TV episodes streamed on my computer. Consequently, it's just about replaced my television for casual watching purposes this summer, aside from the evening news, late night, and the new episodes of "Futurama." There are currently over forty titles in my "Instant Watch" online streaming queue, and I keep adding more every day.

It's not perfect, of course. When I first started exploring DVD-by-mail services, I also tried out Blockbuster Online and Greencine, a Bay Area alternative that specializes in indie and art house titles. Both of them have much better selections of available DVDs for rental. Blockbuster's brick-and-mortar stores are still the best bet for the newest releases thanks to licensing arrangements that let them make certain titles available before anyone else, and they'll often treat films with multiple discs as a single rental, so you don't have to shell out extra for the second half of "An Evening With Kevin Smith" or the bonus disc of "TRON."

Before Netflix, I occasionally used their "Total Access In-Store" plans that let me rent as many films as I wanted for a monthly flat fee, the only limitation being that you could only have a certain number of rentals out at a time. I did this about once a year, usually in late summer, after all the prestige titles from the previous Oscar season were available, so I could work through a glut of them at once. I think it's still a good deal for renters who like their DVD extras and live close to a Blockbuster store, and depending on how rabid a cinephile is and their proximity to a store, some of the plans could actually be comparable in cost as well.

And there's something to be said for the experience of browsing through selections at video rental places. Being the media junkie that I am, I usually know exactly what I'm looking for, but for the causal viewer it's harder to get a sense of what's out there. Netflix does its best by cycling through a lot of different categories every time a user visits the site, but it's not the same as being able to walk through a physical space and being able to tell at once what's popular from the number of discs in stock, or randomly spotting something that was released six months ago that you never got around to seeing.

You also lose a lot of the spontaneity. The film that you wanted to watch two days ago might not be the one you want to watch when the disc shows up in the mail. I think this is why Netflix's Instant Watch streaming service has taken off so quickly - the consumers' desire for instant gratification. Blockbuster, along with Redbox, are the better option for those who don't rent very often, or don't want to put up with the hassle of a monthly plan, or prefer the ability to pick up rentals immediately. Despite all the forecasts of doom and gloom for Blockbuster, I doubt they'll go away soon. They have a lot of fat to trim, but once they figure out how to innovate I'm sure they'll endure, probably in some hybrid retail/rental service form. They've just announced a partnership with Comcast for a new DVD-by-mail service, which might help.

Of course Netflix won't make it easy for them. Their current push is for more content online, and the new Epix deal is a big, expensive step that will almost surely pay off in the long run. They're already looking ahead to a business model focused on streamed rentals instead of their DVD-by-mail service. The margins are better when you don't have to deal with the costs of transporting physical media, though I'm sure a good portion of their customer base would still prefer DVDs. None of the streaming movies have any extras to speak of, for instance. I've rented several DVDs just for director commentaries. But it bodes well for Netflix that they're already planning for the obsolescence of their current business model while Blockbuster is still struggling to catch up to it.

As for consumers, I think we're the big winners for now. The market is still in flux, we have a broad choice of media formats and payment plans, and a greater amount of content is getting cheaper and easier to access. I doubt it's going to last, so let's enjoy it while we can.