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Is the Subscription Model ‘Broken’?

5 Dec, 2011 By: Stephanie Prange

What a spectacular fall the industry has seen in the past few months with Netflix. Once the darling of Wall Street, the company is now turning into a cautionary tale. Once a shining example of the new world of all-you-can-eat streaming entertainment delivery, the company has now been termed a ‘broken’ model.

“In our view, the company’s business model was broken when it raised prices [in September] for its hybrid [disc and streaming] customers,” Wedbush Securities analyst Michael Pachter wrote in a note, as he downgraded the stock.

Wow. The change in Netflix’s fortunes could give you whiplash.

Recently, I wrote about the ownership model that had dominated our business with the advent of DVD. As I said, ownership is a very efficient way to get consumers the movies they want — without making them pay for a bunch of titles (via licensing deals with Netflix) that they don’t ever want to see. As long as consumers can access those titles they buy, not only on their big-screen TV via Blu-ray disc, but on any device they want — perhaps via the newfangled UltraViolet cloud-based locker — the ownership model seems to be the most viable way to serve the consumer.

When I like a song, I own it, and I play it for friends so that they, too, can appreciate it. The same holds true for a movie. When I like a film, I would like to own it, both on disc and in the cloud, so that I can show it to friends that they may also appreciate it and perhaps buy it themselves.
This only works in the subscription model if Netflix offers ALL the movies and TV shows that I like — and that all of their subscribers like. Frankly, there isn’t enough money in the world to satisfy that constituency. Netflix can try to satisfy enough subscribers to keep them just happy enough not to quit the service, but the content owners soon will squeeze Netflix to the point where even that is not possible.

I don’t envy the Netflix team as they try to make the subscription model pay dividends. Pleasing everybody may prove impossible.

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