Netflix Continues To Save the Movie Industry, So Why Do Studios Continue To Hate It?

It’s always slightly flattering when a ten billion dollar company tweaks its business model just to please me. Well, ok, that’s a slight exaggeration: not just to please me, but to please me and the other writers at TechCrunch.

I’m referring of course to Netflix’s decision to offer a streaming-only subscription package; the first time they’ve allowed members to view movies online without also having to pay for a bunch of DVDs in the mail.

It’s obvious why they’ve made the decision now. Clearly, as avid TechCrunch readers, they read MG’s post about how his purchase of a Macbook Air has killed the optical disc. “Oh crikey” they said (in an inexplicably British accent) “if that’s the way the world is going, we’d better act quickly, or risk being left behind.”

But of course Netflix is a multi-billion dollar company so they’re hardly going to make game-changing decision on the whim of a single TechCrunch writer.

“Wait a minute,” a second person at Netflix probably said, “isn’t MG’s TechCrunch colleague, Paul Carr, currently working his way through all of Hitchcock’s back filmography on DVD? Obviously he is still watching DVDs.”

“Yes, I thought of that,” said the first, “but I’ve checked his queue: he’s just finished ‘Spellbound‘, and ‘The Paradine Case’ is due on Monday. After that, he’s done. And…” – at this point he might have paused for triumphant effect – “AND – according to my source at Apple, he’s getting a MacBook Air this week.”

The second Netflixer could probably hardly contain his surprise. “Wait! Paul’s going DVD-drive-less too?! Well that settles it…” And so it did. Now, for just $7.99 a month, neither MG nor I nor any of the millions of people who ride our opinion-forming coat-tails need pay for DVDs we can’t use.

By sheer coincidence, the move also coincides with the news that for the first time this “holiday season”, Netflix will spend more money in streaming costs than they will in postage. As the New York times puts it, they’ve “gone from being the fastest-growing first-class mail customer of the United States Postal Service to the biggest source of streaming Web traffic in North America during peak evening hours”.

You might think this would be cause for some delight on the part of the movie studios. Sure, eight dollars a month, shared between them and Netflix is a drop in the ocean when compared to the price of a single DVD. But DVD sales are plummeting, while faster broadband speeds have moved casual movie piracy from arduous (two day downloads), to manageable (six hour) to utterly trivial (less than the time it takes to watch a movie). As is the case with iTunes for the music labels, the question is not whether DVD customers are depriving them of revenue by going to Netflix, but whether would-be pirates are instead choosing to consume movies legally from a source that is prepared to write billion dollar royalty checks to the studios.

The answer to that question is, clearly, yes – and for that the studios should be hugging Netflix CEO Reed Hastings, as tightly as book publishers should be hugging Jeff Bezos for creating the Kindle. He’s essentially rescued their business from the very edge of the pirates’ plank.

But as anyone who has had read a Peter Biskind book will tell you, studio execs are not rational people. In fact, when they set their mind to it, they can act – not to put too fine a point on it – like sulky, mentally-subnormal children. And so the New York Times explains that, while gladly taking billions of dollars from Netflix, the major studios are all investing heavily in designing their own streaming services. Never mind that siloing movies in that way is as idiotic as individual studios opening their own cinemas (sorry, America: movie theaters) screening only their own movies. Movie fans almost never shop by label, they shop by movie — and the reason Netflix is so successful is that they offer the whole gamut: from AI to Zulu. Moreover, people won’t want to dick around subscribing to multiple services, or searching multiple sites to find the movies they want: they’ll just drift back to piracy; at which point everyone loses.

And yet, the studios are doing everything they can to mess with Netflix: limiting the company’s access to new releases, and insisting that whole swathes of their catalogues can only be watched on DVD rather than streaming. It’s frustrating for the end-user – especially those of us who no longer have DVD players (attentive readers will recall that I live permanently in hotels so owning a standalone player is impractical to say the least), it’s damaging to Netflix’s business and it’s ultimately counter-productive for the studios.

And so, given all those things, there’s one thing I just don’t understand: why, rather than trying to outfox Netflix, they don’t work together with the company to develop a new, two-tier subscription/pay as you go service. It might work like this…

For $7.99, as is currently the case, subscribers could stream thousands of movies a month for no additional cost. But in addition, they could also – for a slightly higher monthly subscription rate – stream any of the movies that are currently only available via Netflix’s DVD-by-mail service. To allay the studio’s concerns about making higher value movies available by streaming, though, viewers could be limited to watching, say, ten of these ‘premium’ movies a month. That’s roughly the same number they could get through under the current cheapest by-mail plan. For a higher subscription rate, the number of premium movies streamable in a month would increase, much like the number of DVDs in the mail does now.

The studios still get their cut (in fact they potentially make more because they can be paid by stream rather than just by individual DVD) and Netflix saves half a billion dollars in shipping costs a year, all of which can be channelled to licensing payments.

Which just leaves the new release DVDs that the studios are desperately trying to prevent Netflix from offering, apparently to protect bankrupt competitors like Blockbuster. In fact, they should do the opposite. They should allow Netflix subscribers to view brand new DVD movies on the day they’re released, but on a pay-as-you-watch (or 24 hour “rental”) basis. I would gladly – and I mean delightedly – pay $10 to stream a new movie, even movies I would have no intention of buying on DVD. Much like I do for music with the iTunes store, and books with my Kindle, I could easily see myself impulse-spending $50 or more a month on movies – which is more than I’ve spent on plastic DVDs in the last two years. That’s on top of my $7.99 a month subscription.

Of course I know I’m being ridiculous. I mean, I must be. There must be some obvious reason I’m missing why such a deal is impossible for the studios to accept. It can’t be a rights problem – studios regularly negotiate pay-per-play deals for new movies with airlines and hotels – and it can’t be that no-one has thought of such an obvious idea. The only impediment I can think of is stubbornness: that studios are so delusional as to what happens when one makes it difficult for people with fast Internet connections to obtain media legally that they’re willing to drive their business off a cliff in the hope of success where publishers and music labels have failed.

But that too would be ridiculous, wouldn’t it?

So what’s stopping Netflix and the studios agreeing to a hybrid subscription/pay as you go plan? If you work for Netflix or a movie studio, please offer your suggestions in the comments: I’d genuinely like to know.