Amazon, Pepsi and Sony; Netflix Streaming

[FX120]

I can't help but see this as Amazon using the billion songs as a loss-leader to generate interest in its store. Granted, in this case, it's clear that Pepsi is helping out, but anyway you cut it, it's the same principle. Pepsi gets advertising out of the deal, so it's at least reasonable from that perspective, but Amazon has to be taking some of the hit as well.

A number of big-box stores will take a hit on DVD sales to get customers in the door and in the mood to spend. This seems to work pretty well for retailers.

But I can't, off the top of my head, think of any instance where taking losses on a product to boost market-share has been particularly successful at generating repeat business in that product-arena after you jack up the prices and begin turning a profit. It seems just the opposite. Consumers turn elsewhere.

I don't have numbers to back this up, but my general impression is that loss-leaders only work when one product's losses subsidize a different product's sales. And perhaps that's Amazon's angle: "Shop at Amazon; get a free song; buy something else while you're here."

That might be a great promotional idea, but in the long run for a music store, I don't see it working.

Here's a bad analogy:

A lot of bars in the D/FW area will have big opening parties. They advertise free booze every Tuesday for a month or something. They get slammed every Tuesday for a month, report a huge volume of "business", and that, generally speaking, the grand opening gala was a smashing (or is that smashed?) success.

The problem is that after a month, they've lost a huge amount of money. Now they have to start charging. I don't go to these places after the free booze dries up, for a couple of reasons:

1. You pay the "New! Chic! Happening-Place! Tax." Drinks are pricier than other places that have been around longer.

2. I can't stand "New! Chic! Happening-People!"

As far as the (lack of) DRM incentive goes, I think a couple things can be briefly pointed out in gross generalizations:

1. The vast majority of consumers don't mind Apple's DRM. Either they don't run into the limitation very often, or they don't care about them. If they did, iTunes wouldn't be successful.

2. An even greater majority of consumers fail to make their purchase decisions on "Principle." If they did, retailers like Wal-Mart wouldn't be in business.

The idea of what the consumer wants vs. what a retailer is offering is hugely complex, and I won't attempt to address it all now. Just boiling the idea down to its barest concept marks this as a losing proposition for Amazon and the companies that partner with it to distribute music.

I still belive to this day one of the only reasons the iPod and iTunes really became sucessfull is due to Pepsi and Apple, and their billion free song giveaway. Prior to that, I only really ever saw iPods being used by hardcore Apple users who had the money to spend on a $400 player, afterwards, the first gen shuffle and mini were everywhere. Hell, I hate iTunes and even I downloaded it and installed it because I won a few free songs.

It worked for Apple.

 

[kironin]

So this extra $8.99 doesn't include the regular movie swapping? Interesting...

No, you have it wrong. It does include DVD's. The way it was reported here is not clear. What is meant is you have to have at least the $8.99/mo membership to get unlimited downloads. It's not an extra charge.

$8.99 is the membership service of 1 DVD checked out at a time/ unlimited per month. That's the membership I have and before now I was limited to 9 hours per month and contrary to what some else said I have been hitting that limit every month so this is good news!

I just got an email from Netflix informing me that my download streaming in now unlimited. My account no longer shows a countdown on streaming time left. Awesome!

If there is new movie release I want to see I just pop it to the top of my queue and it's the next DVD I get.

$4 movie download rentals ? AppleTV blows. what a ripoff.

 

[MacViolinist]

I still belive to this day one of the only reasons the iPod and iTunes really became sucessfull is due to Pepsi and Apple, and their billion free song giveaway. Prior to that, I only really ever saw iPods being used by hardcore Apple users who had the money to spend on a $400 player, afterwards, the first gen shuffle and mini were everywhere. Hell, I hate iTunes and even I downloaded it and installed it because I won a few free songs.

It worked for Apple.

You are most certainly entitled to your belief. But before you go believing stuff, the facts might be useful in tempering that faith of yours.

Apple/Pepsi didn't give away a billion tunes. Apple/Pepsi tried to give away 100 million songs and failed to do so. The actual numbers from the promotion were in the range of 5 million. Apple had to give away actual hardware a year later to make the promotion stick.

Besides that, you still fail to address my primary point. My point is that companies, in general, sell items for a loss only to subsidize the sales of different products.

You can't really say that Apple uses iTunes as a loss-leader for iTunes. If, in fact, Apple does take a hit on iTunes sales, it serves only to subsidize the hardware sales of the iPods . . . a different product, on which Apple, Inc. makes a very tidy profit.

 

[Digitalclips]

It is amazing how many major companies are willing to drastically alter their business models (in many cases they must be last minute knee jerk reactions and perhaps not always well thought out) because of the actions of Steve Jobs.

 

[mrgreen4242]

Seriously. Still waiting on this. Netflix claims it's because Apple makes obtaining the DRMs difficult, somehow, and the studios have only approved the use on Windows machines. Does anyone with any knowledge on the topic want to explain to me how this makes sense?

Apple needs to start licensing FairPlay. I suspect that some government somewhere will force them too sooner or later. It's dumb not to. They don't make much/any money off of the iTMS store anyways, so if they can make even close to what they do per download from a licensing fee then they should be happy, since FairPlay only works with Apple hardware (or iTunes on a PC) anyways.

Netflix streaming is available on the Mac.

I have been watching the Sci-Fi series The Surface recently using my MacBook and VMWare Fusion. It works fine.

That does not count. I do it with Parallels and it's a PITA work around.

Watching on Netflix's really bites compared to Hulu. Though Hulu is advertiser supported, Hulu has better quality, is Mac-compatible, and is a much nicer experience even if you are using Windows.

Except Hulu is for TV shows only, right? While there are some TV shows that are on DVD available from Netflix streaming, it's a movie service.

No I'd call it a "preemptive knockout punch." They've killed a competitor before the fight even started.

I'd say it is such a bad deal for Apple that I'd not be surprised if Apple didn't pull the movie rental announcement from the Keynote. What an embarrassment to have to stand on stage of talk about $4 per 24 hours the day after Netfliix announces "unlimited" viewing.

$4 is pricey, and the terms are restrictive, but I wouldn't say that Apple's out of the game by any stretch, yet. The trouble with Netflix is that the only way to watch it (right now) is on your PC, running XP/Vista, in Internet Explorer. Blech. I know they have a box coming EVENTUALLY but it's not here now, and I'm not going to buy one unless they are really, really cheap and they improve the selection. On the other hand, I already have an iPod and a cable to plug it into my TV. If Apple would offer anamorphic downloads 640x480 would actually look pretty damn decent on a TV.

I also really, really hope they come up with a lower priced rental or even better an unlimited service for iPod screen sized video. (Well, iPhone screen sized). The studios shouldn't be nearly as worried about piracy and cutting into DVD sales with 320x240 or 480x320 content as with near DVD quality stuff. I'd pay $10-12 a month for unlimited access to iTunes video content (TV and movie) that is scaled way down to 480x320 @ 750kbps. Especially if I could access that account wirelessly with an iPhone/touch...

So this extra $8.99 doesn't include the regular movie swapping? Interesting...

I think someone might have mentioned this already, but you get unlimited access with any unlimited DVD plan, which start at $8.99 per month for 1 DVD at a time with unlimited exchanges.

On another note, I read this headline over at Digg yesterday and thought hat Netflix was ending their throttling policies... I was disappointed to see it was this. No Mac support, pretty poor selection, not very convenient to view... it's a service that just isn't there yet. Glad they are trying, though, and they seem to be on the right track with the unlimited usage and the set top box partnerships, rather than trying to get you to buy their special hardware.

I suspect that once there's a few options out there for STBs (built into next gen DVD players, maybe a game console, etc) they'll start to have a user base worth marketing at studios and they will negotiate a new library of streaming content that you'll pay extra for. You can get the older/lamer titles free with your Netflix membership, or pay an extra $5 or 6 a month to access the new (less than two or three years old) releases.

 

[mrgreen4242]

It is amazing how many major companies are willing to drastically alter their business models (in many cases they must be last minute knee jerk reactions and perhaps not always well thought out) because of the actions of Steve Jobs.

I wish people would saying/thinking this. This has nothing to do with Apple or Steve Jobs. They've been offering a streaming service for about a year now, they announced a set top box deal with LG a month ago, and the upgrade to unlimited viewing will only affect a tiny percentage of their users... there's not enough content for most people to come anywhere near their old monthly cap. I'm sure SOME are, but most aren't anywhere near it.

 

[DakotaGuy]

Netflix is working on streaming support for Macs using Silverlight. They demoed a preliminary demo app last May. Silverlight 1.1 supports cross platform DRM so that's the main reason why its not out for Macs yet.

http://www.hackingnetflix.com/2007/05/netflix_demos_s.html

Neato.

Yes I think they will go with the Silverlight solution and then we should have Netflix on our Macs as well. Does anyone know when they plan on having this available? Before summer?