Netflix Creates Separate DVD Unit - "longer and bigger life than most people think" - High-Def Digest Forums
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Old 07-25-2011, 08:58 PM
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Default Netflix Creates Separate DVD Unit - "longer and bigger life than most people think"

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Netflix Creates Separate DVD Business Unit

25 Jul, 2011
By: Erik Gruenwedel



CEO Reed Hastings says disc rentals have a ‘longer and bigger’ life than most people think


Netflix has created an internal corporate division that will solely focus on operating and marketing DVD and Blu-ray Disc rentals going forward.


The division, which will employ an undisclosed number of employees, was announced July 25 during a Q&A session with Netflix co-founder and CEO Reed Hastings and CFO David Wells. The unit is set to roll out a new marketing campaign in the fourth quarter in addition to updating the website going forward.

“DVD rentals will become less important to those people working on streaming and more important to those people working dedicated to DVD,” Hastings said, adding that the decline in packaged media sales might mirror that of music CDs.


“We are going maximize our efforts there,” he said, adding that the DVD team already has come up with some “pretty neat ideas” for the fourth quarter.

Indeed, beginning with the fourth quarter Netflix will separate physical rental and streaming results and related costs in its financial reporting.

The executive admitted that the churn rate among streaming subscribers is higher than for disc.

Hastings said the commitment among subscribers to streaming is lower due to the fact the service can be started and stopped more easily than with disc rentals, which have to be ordered and returned by mail.


“DVD is a very profitable domestic [rental] plan,” Hastings said, adding that the $7.99 DVD-only plan targets consumers in rural areas with limited broadband access.

He said physical rental could last a long time producing “lots” of profit.


“We think it will be a smart investment, or at least that it will shrink slowly with a little bit of investment,” Hastings said. “The low-priced DVD-only plan was the right plan to carry forward.”

CFO Wells said that the prosperity of disc rentals during a time when the company focused on streaming underscores the strength of packaged media. He said making it easier to rent discs would be a priority going forward.

“This is a step in that direction,” Wells said.

Richard Greenfield, analyst with BTIG Research in New York, in a blog post before Netflix released its results, marveled at the challenges it took to create a disc rental membership with Netflix.

Indeed, to register for the $7.99 disc-only rental plan requires visiting a separate URL (DVD.Netflix.com), which Greenfield said isn’t listed on the Netflix home page or found when searching “DVD Netflix” on Google. Meanwhile, registering for the hybrid (and more expensive) streaming/disc rental plan is much easier.

“You simply have to ‘know’ the website,” Greenfield wrote. “While the website was mentioned in the Netflix corporate blog post on the price, we highly doubt anyone new to Netflix would know to read their corporate blog. [This is] not exactly making it ‘easy’ to find DVDs without streaming.”

Wells said the focus on the DVD business going forward would be on operating profit and maintaining or growing that profit, if possible.
http://www.homemediamagazine.com/net...ess-unit-24590
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Old 07-25-2011, 09:02 PM
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It should be pointed out that Netflix also stated they expect the DVD-by-mail business to decline, but are making investments to stem that decline.

Just want to share facts beyond the spin.
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Old 07-25-2011, 09:17 PM
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Reed Hastings on the DVD business:

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One of the aspects that we wanted to get is that the DVD can last a long time as a successful service and generate lots of satisfaction and lots of profits if we give it a platform to succeed on. And it is true that we haven't marketed it much in the last couple of years, but by now, having it as a division within Netflix, we've got a way to measure the P&L and we think it will be a smart investment in its growth and sustainability. And whether -- if growth was probably a bit overstated, that would be an aggressive case. But at least that it will shrink slowly as opposed to rapidly with a little bit of investment. And we'll figure that out over the next couple of quarters.
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Old 07-25-2011, 09:23 PM
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All of us blu ray renters (and streaming fans) were hoping to hear something like this now that Netflix has split itself into two distinct divisions. The recent price increases sound excessive on paper - two of my coworkers cancelled their subscriptions due to the increase - they really only add up to a few dollars increase on most existing subs and the formation of such a division to focus on disc (dvd/blu ray) rentals should lower churn and may increase subs longterm.

Just from an end user perspective, I think all of us who use the service just want to see a dedicated focus to Netflix stocking catalog blu ray discs as well new day and date releases. If the DVD Unit can accomplish that then I feel the increases in prices will be well justified.
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Old 07-25-2011, 09:27 PM
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I think all of us who use the service just want to see a dedicated focus to Netflix stocking catalog blu ray discs as well new day and date releases. If the DVD Unit can accomplish that then I feel the increases in prices will be well justified.
I would fully agree with that.
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Old 07-25-2011, 09:30 PM
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Originally Posted by PSound View Post
It should be pointed out that Netflix also stated they expect the DVD-by-mail business to decline, but are making investments to stem that decline.

Just want to share facts beyond the spin.
Who in their right mind would ever expect their DVD business not to decline over time?

Of course it inevitably will.

The question is how fast and the answer in the mind of the Netflix CEO Reed Hastings is that disc rentals have a ‘longer and bigger’ life than most people think.
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Old 07-25-2011, 09:38 PM
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Quote:
Originally Posted by Kosty View Post
Who in their right mind would ever expect their DVD business not to decline over time?

Of course it inevitably will.

The question is how fast and the answer in the mind of the Netflix CEO Reed Hastings is that disc rentals have a ‘longer and bigger’ life than most people think.
There are plenty of people who would seem to think it won't decline over time (especially just reading the post title and red highlights). IMO, that sort of spin serves zero purpose as it actually taints very good information about Netflix's plan to extend DVD-by-mail even during the decline by investing in the service.


Netflix speculation is about a 10% yearly decline. Which means losing about 1.5 million subs in the first year.
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Old 07-25-2011, 09:59 PM
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I certainly think it will decline over time, so does Reed Hastings.

But it seems we both do not think it will decline as fast as you have been preaching all the time around here and at AVS.

I just do not think either Netflix DVD rental nor packaged media in general will decline as fast or be reduced in its revenue impact as fast as you always seem to imply in commentary or your consistent positive spin about Netflix streaming and consistent pessimism on packaged media.
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Old 07-25-2011, 10:27 PM
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Quote:
Originally Posted by Kosty View Post
I certainly think it will decline over time, so does Reed Hastings.

But it seems we both do not think it will decline as fast as you have been preaching all the time around here and at AVS.

I just do not think either Netflix DVD rental nor packaged media in general will decline as fast or be reduced in its revenue impact as fast as you always seem to imply in commentary or your consistent positive spin about Netflix streaming and consistent pessimism on packaged media.
Where have I stated any thoughts on the rate of decline of DVD-by-mail? You made an accusation so I hope you have links to back it up.

And it is not pessimism to observe the declines. It IS PR spin to try and downplay the real trends.
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Old 07-25-2011, 10:31 PM
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So this means Netflix will actually buy some more BD Catalog titles? Doubtful.
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