Baffled by NetFlix

I like Forbes very much but was baffled by this smersh.

I used to be a Netflix subscriber, but then I learned something revolutionary. Netflix pays for all its movies and TV shows. They rely on people giving the a credit card number and billing it every month to buy new content. Places like Megavideo and VideoBB steal their content and so do not require credit card numbers. That means they have much better content. Megavideo usually gets new releases the day the hit the theaters. Netflix might not get some for two years.

Do buyers of Netflix stock not know that vastly more content is available for free and Netflix is a decidedly inferior product to stuff you can get for free? Why would anyone subscribe to Netflix or, worse, buy their stock?

NB: I would never watch pirated videos. Never ever. Not me. No sir.

I was going to say bittorrent… but then you threw in that last line.

netflix is a flawed business model regardless.

not sure about a “flawed” business model…their service is actually quite good, i say A grade. in terms of other “sites” giving out better content, i’m sure they exist, but its not the same in terms of reliability and selection over all. megavideo is not anywhere close to netflix…

Well, basically a bunch of things are going on. 1) People don’t know how to access “alternative” video sites. Joey, you might know about MegaVideo, Bittorent, FilesTube, and other places like that. However, do your parents know about these? Does your girlfriend know? 2) Finding this content online for free is inconvenient, and the cost of Netflix is relatively insignificant. I can get 5 seasons of SpongeBob in 10 seconds on NetFlix. Everything is sorted, quality is consistent, and it’s already set up to run on my PC/TV whatever. Some effort is required to find the same content on MegaVideo and company. It’s not a lot of effort, but people might be willing to pay $0.50 a day for greater convenience. 3) Moral issues - apparently, some people care about the ethics of piracy. Who knew? Note that this is not NetFlix specific. This can also be applied to iTunes, Zune, Amazon, or DVD/BluRays in general.

Let’s see what happens with SOPA on Wed. If it passes, I would imagine NetFlix will get a nice boost. I hope the bill gets killed though.

  1. I don’t know about investing in something because people are not yet savvy enough to know that they can get the same stuff for free. These free sites are getting easier and easier to use. I especially like for watching premium cable shows free. In a recession, people will learn quickly and drop Netflix in no time. 2) Do you also get in trouble for watching SpongeBob at work? Anyway, there was a rebellion when Netflix raised their prices. You can argue that people left there are relatively price insensitive, but clearly a large amount of their previous clientele did care about $0.50/day. That means Netflix’s growth has to come from newly price insensitive or people who didn’t like movies, now do like movies and are price insesnitive. Oh yeah, they have to be too stupid to use Megavideo, VideoBB, bittorrent, etc… Doesn’t sound like lots of growth to me. 3) Shiver me timbers. Are you calling me an unethical pirate?
  1. We need to consider that sites like this will be shut down if they get too big - similar to what happened to Napster, Limewire and others. People will always find ways to access pirated content, but the more rampant piracy becomes, the more companies will be willing to spend on legal fees to shut down sources of piracy. So there are legal and economic barriers that prevents websites like those that you mentioned from becoming truly mainstream. 2) My opinion is that Netflix could have pulled off the price hike if they did it gradually and with more tact. But lets ignore that for now. The broad argument is not necessarily about Netflix only - it’s about the economics of pirated vs. non-pirated media sources. Even if Netflix messed up the price hike, this doesn’t mean that there isn’t another price point that other fee based media services can use profitably. 3) The important point is whether people in general consider the ethics of piracy when making media consumption decisions. It might not be a make-or-break factor, but it probably matters somewhat, just like any other factor. Also, I should point out that your argument assumes that where media consumption is concerned, the increase in piracy due to tech savviness outweighs the combined effect of i) the proliferation of smart devices (there is not going to be a MegaVideo iPhone app any time soon), and ii) the cannibalization of the cable TV industry by IP based services. Even if the rate of piracy increases, this does not mean that the uptake of Netflix or similar services must decrease. Additionally, consider that there is probably an equilibrium ratio of piracy to non-piracy. Netflix or similar services are probably not at a long term equilibrium ratio outside the US, where these industries are in relative infancy. So even if piracy increases in the US, this might be overshadowed by growth in other countries, even if the ultimate ratio of piracy to non-piracy is higher than what it currently is in the US. This is particularly pertinent given the topic of the article that you posted. I don’t know if Netflix is a good investment, but your analysis based on the existence of piracy alone is uncharacteristically simplistic and naive.

Totally agree. Also, I’m baffled why people use the checkout lanes at grocery stores. I just put stuff into my backpack and walk out the front door. Not only cheaper, but faster too.

You guys are familiar with SOPA right? Stop Online Piracy Act? It’s amazinly applicable to this conversation. It’s a bill sponsored (unofficially of course) by the MPAA and RIAA. The Internet’s been blowing up about it for a month now. If it passes, and if it’s upheld by the courts, it’ll put a stop to all those sites really fast. Google won’t be able to link to them and your ISP will block them. Sure, some one will figure out a way to work around it, but in the near term those sites will dry up fairly fast. Stopping piracy is good in theory, but in order to get there we pretty much have to let the government say what’s allowed online. Not a good road to go down. This bill needs to die, fast.

So it’s back to the legal economics, right? Bills like this will pass if there is sufficient lobbying. Companies will pay for sufficient lobbying if piracy becomes too rampant. Sure, the legal costs will drag on earnings, but with media companies vs. piracy websites, which side do you really think is going to win a legal battle?

It’s pretty much the MPAA/RIAA vs everyone else (Google, Apple, Mozilla, FB, etc.). It’s shaping up to be an interesting fight. The companies that want to defeat the bill aren’t being overly vocal about it. They don’t want to appear to be pro-piracy. But, it’s a huge issue for someone like Google, since the bill makes them liable for linking to or bringing up any search results to sites that give away copyrighted material for free. Plus that whole free speech thing.

Wow…I should short some grocery stores! Thanks Wendy…

Piracy will usually find a way, and generally the harder you push down on it, it adapts and makes it even harder to kill in the future. Napster was killed, it was easy because it was a centralized server. That spawned the new age of peer-to-peer where everyone is essentially their own server, and instead of sharing a file at a time, each file is cut up into hundreds of pieces allowing simultaneous transfers from dozens of people at the same time. Even if you kill that off the public trackers, a new wave of private servers will be spawned. There’s nothing to officially stop me from sending a file to you.

No one is saying that there will be no piracy. The question is whether or not there will be enough piracy to kill off Netflix, iTunes, Amazon video, etc. Probably not.

No there won’t be. Otherwise iTunes wouldn’t ever become popular

What absolutely kills me about either argument is the pure inefficiency of it all. People for netflix raise a great point - legal and convenient. Instead of dumping resources into eliminating piracy, why not dump resources into making their content easier to access with ads? I’d happily sit through commercials online if I was guaranteed to see my shows right away. I look forward to the failure of stodgy content providers who put emotion in front of reason. Gizmodo posted a neat article about the spike in piracy of fox shows following a decision to delay their online release after airing. Great move Fox!

Apparently the morality of theft is an issue of magnitude and whether or not you work in a related industry.

I don’t know if ease of access is really an issue. Netflix is extremely user friendly. They need more content, not better ways to access their existing content.

Also the probability of being caught. Going back to the grocery store analogy, people are not likely to shoplift even small items (like $1 chewing gum), because there is a significant likelihood that the shop clerk will finger you (figuratively, not physically). However, people are likely to pirate $30 movies because the likelihood of being caught is extremely small.