Netflix, Online Movies, and Movie Tasting

We’ve been bullish on Netflix surviving the post-DVD era (see Netflix, Community, and the Death of DVDs and Netflix Using Community Intelligence), and now it looks like Netflix is taking the next step in the process.

On Tuesday… Netflix is introducing a service to deliver movies and television shows directly to users’ PCs, not as downloads but as streaming video, which is not retained in computer memory. The service, which is free to Netflix subscribers, is meant to give the company a toehold in the embryonic world of Internet movie distribution.

(from Netflix to Deliver Movies to the PC by Miguel Helft of the NY Times)

Clearly, downloadable movies will be a major disruptive force once they are fully viable. The real question for Netflix is whether it can convert its success in mail DVD rentals to on-demand rentals. One of the weapons Netflix is poised to deploy is “movie tasting” - their service currently is based on viewing time, so if you get twenty minutes into a movie and find it’s not what you expected, you can bail out having used only twenty minutes of your monthly allocation. From Helft’s article:

The bulk of Netflix’s subscribers, who pay $18 a month and are allowed to keep three movies at home at all times, will receive 18 hours of free watching every month. Those with cheaper plans will have fewer free hours and those with premium services will receive more.

By comparison, typical movie rentals cost $3 to $4 on Amazon, and $3 to $5 on MovieLink, though special promotions are available. Mr. Hastings said he chose the instant delivery afforded by streaming technology over downloads, which can take a while, because it would encourage subscribers to use the system to browse the catalog and discover new movies. If they do not like a movie, they can stop it and will be charged only for the minutes they actually watched.

It’s a nice feature, but presumably one that could be copied by competitors. Still, we like the idea, particularly if it allows Netflix customers to get more adventurous with choosing movies.

Buzz is mostly positive. Paul Colligan’s blog terms the announcement important, but thinks, “It won’t be them who does the same thing to Internet video (I expect that will be a small little upstart that we probably haven’t heard of yet).” The Live Digitally blog thinks one of the key aspects of this announcement is that it is one more indicator that “Hollywood has clearly stripped all public fears of distributing content over the ‘Net.” And Davis Freeberg’s Digital Connection is concerned about the gradual rollout of the service and the quality of the downloaded content.

From our standpoint, the key differentiator is still the Netflix community. By leveraging user ratings, reviews, collaborative filtering, and other community factors, Netflix has the opportunity to stay one step ahead of its competition. In particular, if it tweaks its recommendation engine the combination could be a big winner. We’ve criticized their recommnedations in the past as being a bit too bland and obvious. (They are always suggesting that I rent The Godfather, for example. Not a very adventurous or helpful idea.) More aggessive recommendation ideas combined with encouraging “movie tasting” could introduce customers to new movies and serve to both increase utilization and total rentals as well as to retain customers.

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