Actually, Pricing, Not Content Is King -- and Netflix Might End up Retaining the Throne

What the Movie Retailer's Brouhaha Has Taught Us

By Published on .

Bob Garfield
Bob Garfield
Netflix. What have we learned?

Oh, sooooo many things. When Netflix CEO Reed Hastings announced, sequentially, a 60% price hike and a spinning off of its DVD and streaming businesses, commentators were quick to pile on: "The apparent overnight creation, rebrand and launch of one of its key business components is the sort of move that only a truly desperate company makes," wrote Molly McCluskey of The Motley Fool.

"Yes, Mr. Hastings, you did mess up," wrote David Pogue of The New York Times. "Twice."

And my good friend Brad Berens of iMedia and the USC Annenberg Center for the Digital Future concluded that not only does Hastings not know his customers very well, he doesn't know homo sapiens very well: "Netflix has screwed up, turning unconsidered background choices into front-of -mind considerations. They don't understand how pleasure and satisfaction work."

This is to say nothing of Netflix customers themselves, a million of whom bolted; social media, which hosted such new communities as "I Used to Love Netflix Until They Decided to Rip Me Off"; and Wall Street , which slaughtered the stock. Netflix sits at $132 a share, $174 off of its 52-week high.

Reed Hastings, Netflix CEO
Reed Hastings, Netflix CEO
Of course, much of that plunge was rooted in Netflix's inability to renew its deal with Starz, whose streaming rights for the Disney and Sony catalogues had given Netflix a huge inventory of movies over the past three years for essentially pocket change. Starz wanted 10x this time around, and Hastings said no, go sell to cable, leading Aaron Barnhart of the Kansas City Star to declare a winner in the dispute: "At the rate it's going, Starz might be the real Netflix."

Yes, and the metaphors are piling up. To read the commentary, Netflix is a greedy and oafish flash in the pan that blundered into a sweetheart deal and plummeted right out of it, falling to earth, a victim of its own hubris. Content is king and Netflix is just another toppled pawn.

Or, you know, not.

Me, I'm not splitting, because I love the Netflix recommendation engine (not vastly more but significantly) more than I love my three children. Mind you, I do love my children, but they haven't guaranteed me hundreds and hundreds of hours of viewing satisfaction. Nor have they given me a vast library of foreign films and docs to sample endlessly. Sure, I also streamed a Starz title or two, but Netflix has already cut deals with a number of other Hollywood content suppliers, including Fox. Now, I don't pretend to represent projectable data, but even the most dire predictions of subscriber defection count on 70% of the customer base staying put right along with me. And if they all pay 60% more for the service, the way I do the math, that 's 12% more revenue for Netflix. Sure looks like a subdivision and spruce up for quick sale.

Maybe to Facebook. Maybe to Amazon. Maybe to Hulu. Maybe to Yahoo. Who knows? But when the suitors come a'courting, it won't be with a measly $132 a share -- because the bottom line is that , whoever runs the business, online distribution of content direct to subscribers will continue to grow, at the direct expense of Starz and the cable-TV sector it has aligned with.

Some see the Starz-Netflix negotiation as proof, once again, that content is king. Nope. Pricing is king. The eventual loser will not be Netflix, or its new owner. The loser will be the distribution channels which do not greedily charge $16 per month, but which greedily charge, on average, $80 a month and don't recommend anything but pricier tiers of service. Oh, and if they can ever roll out "TV Everywhere," they'll also serve to your iPad at no extra charge. All the Real Housewives you can stomach! Woohoo. Yo, cable: talking about you.

Oh, there's corporate desperation out there, but I think it's situated more at Comcast NBC Universal Xfinity (stock down 19% from 52-week high) or whatever they're calling themselves this week so people won't know they're Comcast. Five percent of cabled America has cut the cord already. When the rest figure out you can watch Netflix and Hulu right on the flatscreen, bake the matzah. The exodus is coming.

To paraphrase Aaron Barnhart, "At this rate, Netflix might be the real TV Everywhere."

Bob Garfield, now a consultant, has reported on advertising, marketing and media for 28 years. He can be reached at [email protected]

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