Netflix recovers from Qwikster debacle but new challenges ahead

Joseph O'Halloran | 18-09-2012

A year on from when it made the almost suicidal business decision to split its company into DVD/ Blu-ray and streaming services, Netflix is back on track but is facing new challenges regarding competition, content availability and high customer expectations.
According to The NPD Group the failed introduction of the hapless Qwikster, allied to price hikes to streaming services which all resulted in howls of protest, a tanking of share prices, physical discs, and a market share fall from 35% to 27% in physical disc-rental market sales. Netflix also ceded the lead in the physical disc-rental market to Redbox. Fueling the share decline was a 30% decline in the number of disc renters in the US, and a 40% decline in the number of discs rented.

Yet a year on, the over the top (OTT) leader has garnered more US subscribers than ever, with a quarter of households in the country subscribing. And, according to NPD’s VideoWatch Digital service, excluding free VOD movies that come with a pay-TV subscription, four-fifths of paid rentals or purchases of movies in the U.S. source from Netflix Watch Instantly streaming, a level that has been steady throughout 2012. NPD also estimates that 80% of streams that occurred between January and August 2012 were television shows.
“Movies may be another casualty of the Qwikster era, because Watch Instantly is increasingly an experience centred on television content,” said Russ Crupnick, senior vice president of industry analysis for The NPD Group.
NPD also revealed that 36% of current Netflix subscribers view only movies, while 53% view both TV and movie content. Over time, NPD expects the number of “movie-only” subscribers to decline, as Netflix uses its original TV programming to attract and retain new subscribers. “As Netflix shifts to being more TV-centric, they will attract subscribers with a different set of expectations,” Crupnick said.
Yet despite the good news, the analyst warned that Netflix’s advantages can only be exercised if the content continues to excite current subscribers and incite new ones. “A minority are satisfied with the current collection, and the declining ease of finding things subscribers want to watch, are areas Netflix must address in order to continue domestic streaming growth, especially in the face of improving pay-TV VOD offerings, looming Redbox/Verizon service and competitive over-the-top options from Amazon and others,” cautioned Crupnick.