Last Updated Jan 19, 2011 7:08 PM EST
Better to show than tell
In a very short post from Netflix Director of Product Management Jamie Odell, the company says that it will be removing the "Add DVD to Queue" option from all streaming devices. In other words, it will not be possible to add a movie selection to your DVD list when using Netflix on, say, an Apple (APPL) iPod, which of course doesn't have a DVD drive.
We're doing this so we can concentrate on offering you the titles that are available to watch instantly. Further, providing the option to add a DVD to your Queue from a streaming device complicates the instant watching experience and ties up resources that are better used to improve the overall streaming functionality.
It makes perfect sense. In fact, it's unclear why the "Add DVD to Queue" option was on streaming devices at all. Transparent corporate decisions are the in-thing to do right now, but Netflix would have been better off just quietly removing the unnecessary button.
However, the post was the equivalent of yelling "Fire!" in a crowded theater, racking up 3172 comments over the past two days. Customers appear convinced that, based on the DVD button removal, Netflix is aggressively pushing its traditional media customers into the streaming age.
Hey, they're half right.
Not so fast
The DVD button in itself isn't a big deal, but Netflix has already announced a price increase up to $3 for DVD subscribers and has made it clear that it doesn't expect DVDs to have a lifespan beyond a few years. CEO Reed Hastings recently told USA Today "Netflix is now primarily a streaming video company". This may be true in the near future, but it is a huge mistake to forget about the DVD customers.
First, according to the U.S. Department of Commerce, only two-thirds of American households have access to broadband -- a virtual requirement for live streaming shows from Netflix. The other one-third of America either cannot afford broadband or, worse, lives in a rural area where broadband is not available at all.
Second, leaving the DVD crowd behind leaves Netflix vulnerable. The $1 per movie DVD dropbox Redbox is gaining ground, especially now that it offers Blu-Ray and video games, and it's popping up in non-conventional locations like airports. Redbox seems tailor made for the rural areas where broadband doesn't exist. Another competitor, Amazon (AMZN), now lets customers watch a streaming movie for free when they purchase the DVD version, easing users into the virtual age.
Will Hollywood strike back?
Third, the rapid growth and popularity of Netflix are causing rumbles in Hollywood, which could beef up the cost of Netflix licensing streaming content. As a recent report in The Hollywood Reporter notes, major content providers are afraid that the Netflix Watch Instantly all-you-can-eat buffet model is devaluing their material.
The company has already spent billions of dollars to license content from Starz and other providers, and those prices will skyrocket once the older contracts expire and the deals are reflective of Netflix's current worth. The less-sexy DVD market could keep Netflix stable, even if it brings in less money because of postage and other fees connected with shipping and purchasing physical media.
Everyone from the porn industry to brick-and-mortar retailers realizes that streaming media is the future, but Netflix has to maintain positive, supportive relations with its physical media audience. Competitors like Redbox and Amazon are circling, which makes it the wrong time to piss off the company's core constituency.
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