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Is Netflix in Trouble for 2012?

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3 minute read

It was a rough year for Netflix. The handling of its pricing and rebranding of its DVD service has landed the ‘Flix on several “worst of 2011” lists and sent 800,000 paying members packing. Perhaps its timing couldn’t be worse. With Amazon, iTunes, Redbox, Hulu, Crackle, CinemaNow and even Google holding the potential to break out as serious competition, can Netflix afford the slip up or will the damage to its brand sink the ship as early as this year?

Customer Satisfaction in Decline

Netflix 6-point drop on the annual Foresee E-Retail Customer Satisfaction Index from 85 to 79 is a troubling signal. The Index tracks the top 40 online retailers according to Internet Retailer. Since its inception, Netflix has always ranked near the top, yet had the largest drop in rankings for the survey released last month.

“Satisfaction is a combination of what you give and what’s expected. When you’re the only game in town, everyone’s happy,” says Foresee’s CEO, Larry Freed. “Now, what we see is the commitment to the brand is way down.”

Netflix isn’t the only game in town anymore, and changing its subscription options and pricing was a major blow to customer expectations. In open ended survey questions, the top 2 responses for Netflix centered around availability (titles not available as quickly as they used to be, or not available for streaming), in addition to price.

Content Really is King

“Content is King” was (and is) the mantra of search and website optimization – and the same goes for digital content service providers. While no service reigns as king, Netflix still has a significant advantage. For one, it still has a large and active customer base. An estimated 30% of bandwidth is snagged by Netflix’ streaming fans every evening. Members may supplement their content cravings with the occasional iTunes stream or even local DVD rental, but all in all, the subscription prices for streaming and rental are pretty darn reasonable.

Amazon’s streaming service is cheap (free to Prime members), but it’s slim pickings when it comes to titles. iTunes has variety, but lacks an all-you-can-eat offering. The company that emerges as the leader will fall in some sweet spot of selection and price that no one else can match.

Netflix’ appeal depends on its deals. Next month, its partnership with Starz Entertainment comes to an end – along with new releases from Disney and Sony Pictures. Starz knows it can make more bank going direct-to-consumer, and though studios are slow to innovate, others may follow suit.

Let’s Make a Deal

Customers want a one-stop-shop for the content they want, but will that ever happen? It’s unlikely one service, even Amazon, has enough negotiating power to secure every studio. If Studio A goes to Netflix, Studio B to Amazon, and studio C to Blockbuster, for example, business models will need to become more flexible. There is likely to be a lot of overlapping content between services, so adding an additional service at full price provides less value for consumers. Flat-rate plans will need to become tiered, or allow for piece-meal consumption.

Fragmented content availability means pain and additional cost for consumers. Perhaps a single digital media marketplace will emerge, where royalties and commissions are applied to their respective content producers and partners. Like comparison shopping engine, a single source for finding content and selecting a service channel. Results could be filtered by device, such as Kindle, iPTV, iPad or Nook.

For now, services’ value propositions must emphasize content exclusivity and speed-to-access. In addition to the tagline “we’re cheaper than Netflix,” Blockbuster has worked out one of the best home page value props I’ve seen.

Achtung, Netflix.

Prediction: Netflix Will Swim in 2012

Because the industry is still (relatively) slow moving, and because Netflix still has a strong user base and decent customer satisfaction score, I believe the service is safe for 2012. But it’s Netflix’ advantage to lose should any of its competitors overtake in selection and availability, or should Netflix make any more pricing and service snafus this year. There’s no such thing as “brand loyalty” in the digital world.

What are your thoughts?

Linda Bustos
Linda Bustoshttp://www.elasticpath.com
Linda is an ecommerce industry analyst she specializes in conversion optimization for enterprise digital goods and media companies.
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