In Shift To Streaming, Netflix Customers Find Holes

Laura Sydell August 11, 2011

Netflix boasts that it's the place to go for users to "watch instantly." But licensing fees and deals with other companies prevent it from streaming a good deal of its content online. (AP)

It seems like Netflix is on top and it's everywhere. Users can watch it on their computers, game consoles, smartphones, or Internet-connected TV. Netflix boasts some 25 million subscribers, which is more than big cable companies like Comcast and Time Warner.

Although the company started as a mail order DVD service, these days it does the lion's share of promoting for its online streaming service. The company says it's the place to "watch instantly."

Most Netflix users love watching movies and TV programs whenever they want, but they can also tell you that the experience has some big gaping holes in content.

Take Marlene Saritzky, Tom Corwin and their seven-year-old son Jake. Saritzky says they canceled their DVD-by-mail subscription more than a year ago.

"But, I'm sure there's a DVD under a couch cushion somewhere that has never been returned," she says with a chuckle. "Sorry, Netflix."

Gaps In Content

Now they don't have to worry about lost DVDs. For $7.99 a month they stream TV shows on the MacBook Pro. Their son Jake loves to watch Avatar:The Last Airbender, an animated program from Nickelodeon about a boy with special powers.

The adults have made some great new discoveries too. "Downton Abbey is a great series," Saritzky says. "There's only six episodes now; I think I watched them all in two days."

Saritzky says she can't wait until season two comes out.

Back in the days when they were losing DVDs under the couch, Corwin and Saritzky knew they could always count on Netflix for a copy of anything they wanted, from the most obscure foreign film to the latest blockbuster DVD release. But with the streaming service there are big gaps.

A disappointed Jake couldn't find Harry Potter and the Sorcerer's Stone from 2001.

And Saritzky and Corwin like to watch Academy Award-nominated documentaries like Inside Job, the expose on the financial crisis. But, when they looked on Netflix it wasn't there.

"There are a number of those, and it's frustrating that it's not available," Corwin says.

Making Deals

There's also no guarantee they will see Inside Job on Netflix anytime soon because of the way Netflix makes deals.

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Michael Pachter, an analyst at Wedbush Securities, says Netflix has to "negotiate the rights to each piece of content separately."

Pachter says DVD rentals were easy — all Netflix had to do was buy a copy of a DVD and rent it out. But streaming a film like Inside Job is more complicated.

Netflix has a deal with Starz, a premium cable channel that has its own deal with Sony, which owns the rights to Inside Job. And for a little while Inside Job and other Sony pictures like The Social Network were on Netflix. Then they just disappeared.

Pachter says no one is certain why that is, but he can make a good guess. He thinks Sony had some type of cap on viewers with Starz. He says the cap probably kicked in when Netflix hit 20 million viewers.

Pachter says Netflix has deals with Nickelodeon that make it possible for Jake to see Avatar: the Last Airbender. But not everything on Nickelodeon is there because the companies negotiate in packages.

"They might have certain seasons of some of the series and not have seasons of the others," Pachter says.

Increasing Prices

The bottom line is money. Studios have been willing to deal with Netflix because it's so popular. But Netflix is getting more competitors in the world of streaming video from services like Hulu, Amazon, iTunes and YouTube.

"All the content owners are going to figure out that they can get a lot more money out of Netflix if they just hold their breath and negotiate a little tougher," Pachter says.

Recently, Netflix upset a lot of its own customers when it raised its rates 60 percent for users who want both its streaming and mail order services. Some customers even canceled their subscriptions.

And no matter how hard Netflix negotiates, there is some programming they aren't likely to ever get.

Take HBO — the company wants to keep people paying for its cable channel. And Pachter thinks HBO sees Netflix as a huge threat.

"What they fear the most is that people who have Netflix will say, 'We have enough and it's good enough,' and they'll cut off HBO."

Tom Corwin and Marlene Saritzky haven't cut off cable and HBO because they do want certain shows that they can't get on Netflix.

But there is a tipping point for this family when it comes to how much they will do to find a program. They could have found Inside Job on Amazon or iTunes. But, Corwin says, "we don't go to other services." He laughs and adds, "We're lazy."

But if Netflix is going to remain popular it's going to have to find ways to give its customers enough variety at just the right price. And going forward it's clear that is going to be a lot harder.

Transcript

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And I'm Renee Montagne.

It seems like Netflix is everywhere. You can get the service on your computer, game console, smartphone, or your Internet-connected TV. Netflix now has some 25 million subscribers, more than big cable companies like Comcast and Time Warner.

NPR's Laura Sydell reports the some estimate Netflix streaming could account for nearly a third of Internet traffic. That doesn't mean that all of its customers are satisfied.

LAURA SYDELL: Marlene Saritzky and Tom Corwin decided over a year ago to stop getting Netflix DVDs by mail.

Ms. MARLENE SARITZKY: But I'm sure there's a DVD under a couch cushion somewhere that has never been returned. Sorry, Netflix.

SYDELL: For $8 a month no more lost DVDs. They just stream TV shows and movies over the Internet to their MacBook Pro. Their son Jake, who is seven and a quarter and don't forget it, loves to watch Avatar: The Last Airbender. It's an animated program from Nickelodeon in the style of Japanese anime about a boy with special powers.

(Soundbite of TV show, "Avatar: The Last Airbender")

Mr. ZACH TYLER (Actor): (As Aang) I'm Aang.

Unidentified Man: You just sneezed and flew 10 feet in the air.

Mr. ZACH TYLER: (As Aang) Really? It felt higher than that.

Mr. TOM CORWIN: When you go to watch "Avatar" there's 52 episodes in order ready to watch. That's an advantage. You can really keep the continuity of the storytelling.

SYDELL: And the adults discovered new shows on Netflix, too.

Ms. SARITZKY: "Downtown Abbey" is this fantastic English series.

(Soundbite of TV show, "Downtown Abbey")

Unidentified Man #2: I'll take it up there now.

Unidentified Woman: Don't be stupid. One of them will our friends. What difference would it make? Jimmy'll do it when he comes in.

Ms. SARITZKY: There are only six episodes now. I can't wait for the second season.

SYDELL: You get it on Netflix.

Ms. SARITZKY: You can get it on Netflix. I think I watched them all in two days. Don't tell anybody that.

SYDELL: But streaming Netflix has its disappointments. Back in the days when they were losing DVDs under the couch, they knew they could always count on Netflix for a copy of anything. Really anything. The most obscure to the most popular. And they'd get it by mail in a day or so. Now there are big gaps.

JAKE: Harry Potter number one.

SYDELL: You couldn't find Harry Potter?

Mr. CORWIN: Not to stream. Not to stream.

JAKE: Bummer, bummer. D.D. Bummer.

SYDELL: Bummer indeed. And there are a lot of other bummers. Academy Award-nominated documentaries.

Mr. CORWIN: "Inside Job."

Ms. SARITZKY: Especially "Inside Job." And I think we went and looked for it three or four times and then I just gave up. I'd still love to see it on Netflix.

Mr. CORWIN: Yeah, there are a number of those. It's sort of like, oh, we'd love to see that. And it is frustrating that it's not available.

SYDELL: And there's no guarantee they will see "Inside Job" on Netflix anytime soon because of the way Netflix makes deals.

Mr. MICHAEL PACHTER (Industry Analyst, Wedbush Morgan Securities): They have to negotiate the rights to each piece of content separately.

SYDELL: Michael Pachter is an analyst with Wedbush Securities, who follows Netflix. DVD rentals were easy. All Netflix had to do was buy a copy of a DVD and rent it out. But streaming "Inside Job," that's more complicated.�

Netflix has a deal with Starz, a premium cable channel that has a deal with Sony, which owns the rights to "Inside Job." And for a little while "Inside Job" and other Sony pictures like "The Social Network" were on Netflix. Then they just disappeared. Pachter says no one is certain why this is, but they can make a good guess.

Mr. PACHTER: That Sony had some type of a cap on what they would give to Starz. And I think that when Netflix hit 20 million viewers, I think Sony's, you know, contractual ceiling kicked in.

SYDELL: Pachter says Netflix has deals with Nickelodeon that make it possible for Jake to see "Avatar: The Last Airbender." But he can't see everything on Nickelodeon.�

Mr. PACHTER: They may go to Nickelodeon and say we want a package of television content. And they'll pick some series and not pick others. And they might have certain seasons of some of the series and not have seasons of the others.

SYDELL: The bottom line is money. Studios have been willing to deal with Netflix because it's so popular. But as Netflix is getting a lot of competition for streaming video - like Hulu, Amazon, iTunes, YouTube - the studios realize that they can charge more.�

Mr. PACHTER: All the content owners are going to figure out that they can get more money out of Netflix if they just hold their breath and negotiate a little tougher.

SYDELL: Recently, Netflix ticked off a lot of its customers when it raised its rates 60 percent if you wanted both streaming and mail order. Some customers canceled their subscriptions. And there are likely to be some programs Netflix will never get. HBO wants to keep people paying for its cable channel.

Mr. PACHTER: I think they see Netflix as a huge threat. And what they fear the most is that people who have Netflix will say, we have enough and it's good enough and they'll cut off HBO.

SYDELL: Tom Corwin and Marlene Saritzky haven't cut off cable and HBO because they do want certain shows that they can't get on Netflix. But, there is point at which this family doesn't want to go any further. They could have found "Inside Job" on Amazon or iTunes.�

Mr. CORWIN: Yeah, we don't search other services.

SYDELL: So you don't go to Apple?

Mr. CORWIN: No.

Ms. SARITZKY: Why not? Why don't we?

Mr. CORWIN: We're lazy.

(Soundbite of laughter)

SYDELL: But if Netflix is going to remain popular it has to give its customers enough variety at just the right price. And going forward that's definitely going to get a lot harder to do.

Laura Sydell, NPR News. Transcript provided by NPR, Copyright NPR.