NCR Says Antitrust Not Right Approach for Video; Kiosks May Dent Netflix

As I wrote last month, I’ve stopped doing business with Redbox, the DVD kiosk service, because that company initiated antitrust actions against film companies.

Last week I learned that NCR has acquired DVDPlay and plans to convert those “kiosks to its BLOCKBUSTER Express brand.” It turns out that, in my region, these kiosks are placed in many Safeway stores.

On December 17, I sent the following e-mail to NCR:

Dear Mr. Dudash,

I no longer do business with Red Box because that company initiated antitrust actions against others, and I regard such action as unjust and a violation of individual rights.

Before I decide whether to do business with NCR/ DVDPlay, I’d like to know whether your company has initiated any antitrust actions or intends to do so. I will be happy to publish your response, and to make my consumer decisions accordingly.

Ari Armstrong

Today I received the following reply:

Hi Ari, we have not initiated any lawsuits against the movie studios at this time. We have said publicly that we do not believe that is the right approach, and we are instead working with the studios to find a solution that addresses their needs, our needs and — most importantly — the needs of our consumers.

However, as I’m sure you can understand, I cannot comment on what actions we may or may not take in the future. But, certainly, we have not filed any lawsuits to date and have said publicly that we do not agree with the approach of litigation.


Jeff Dudash
Public Relations

That is certainly good enough for me. I have already rented two videos from DVDPlay to see how the system works, and now I plan to rent from the service regularly.

The DVDPlay kiosk worked very well. The problem is that the consumer cannot view DVD availability by kiosk online, nor can the consumer reserve a rental online. Redbox allows both of these things, which makes that service quite a lot more useful. Hopefully, once the conversion to Blockbuster is complete, the service will upgrade its online capabilities. (I asked Dudash about this and will update this post if he answers.)

After I dropped Redbox, I upgraded my Netflix account from one-at-a-time DVD rentals to three-at-a-time. Now that I’ve found DVDPlay, I’ve reduced my Netflix account to a the single disc plan.

I figured that, while I was at it, I’d ask Netflix about its business plans. It seems to me that Netflix could offer the best of both worlds by renting DVDs through the mail and charging an additional per-rental fee for online new releases.

Right now Netflix rents DVDs for a monthly fee and offers online content at no additional charge. I’ve found some outstanding online offerings this way, such as Jim Henson’s The Storyteller. But Netflix offers none of the hot new releases online.

Obviously Netflix also rents new releases by mail. The problem is that they tend to be delayed. I dropped the new Terminator film and Hangover from my Netflix list and rented them from DVDPlay. Currently Inglourious Basterds is listed on my Netflix queue as a “very long wait,” as is Four Christmases. Public Enemies and Julie & Julia are listed as “long waits.” My plan is to remove all these films from my Netflix queue and rent them at DVDPlay (if available).

Meanwhile, Amazon and iTunes rent new-release movies online for $3.99. So I can pay a dollar at DVDPlay, or I can pay four times as much to view the same content through my cable modem. For me, this is no contest. The kiosk is within easy walking distance, and I like to walk around, anyway. While I have rented many movies from kiosks, I have paid not one red cent for online video rentals (not counting the online content included with my Netflix membership).

Is Netflix planning to compete with the kiosks and with the online rental sites for new-release business? No.

I called up Steve Swasey, Netflix’s Vice President of Corporate Communications. He graciously took my call. He said that Netflix is and intends to remain a subscription-based company. He pointed out that Netflix has been growing despite the competition.

Moreover, Swasey said that Netflix users tend to be more interested in the company’s deep catalog and excellent customer service. (I readily granted that these are strong points for the company.) Swasey sensibly said that “a great release from 1974 is a great movie,” whereas a new release may not be so great. With Netflix, he said, customers can find older movies “tailored to you.” As examples, he noted that the films Crash and Hotel Rwanda have been Netflix favorites. (I hated the first film and appreciated the second.)

Swasey said that “new releases just aren’t that important to most Netflix users,” who instead enjoy the large catalog, tailored recommendations, and “extreme simplicity” of the monthly subscription.

As much as I enjoyed talking with Swasey and appreciate his perspective, I just don’t buy his rationale. I think it would be in Netflix’s interests to offer pay-per-view online rentals for new releases.

I would gladly pay Netflix an extra couple bucks to watch a new release online, rather than wait for weeks for the DVD or deal with a kiosk. This would be an added service, so only customers who wanted it would have to worry about it. Everyone else could maintain the “extreme simplicity” of the monthly subscription. (I don’t regard online rentals as terribly complicated or confusing.)

I think it’s obvious to everybody that the DVD is a dated medium. Its days are numbered. So, within a few years (I don’t care to guess precisely how many), both DVD kiosks and the Netflix mail service will be aborted. Interestingly, NCR plans to enable consumers “to download movies from the kiosks to portable memory cards,” but I don’t see how this will ultimately compete with online rentals.

DVDs must be produced and physically distributed, whether by store, mail, or kiosk. They break. They cost money on top of the digital content. Meanwhile, as streaming costs go down, the marginal production cost of an online rental will drop closer and closer to zero.

Obviously Netflix is aware of this, as the company has already started offering online content. The problem is that Netflix wants to limit the number of any particular disc it buys, which is why new releases end up with “very long waits.” Yet Netflix can’t offer unlimited new releases online for $8.99 per month, which is the minimum plan for unlimited online viewing.

As I suggested to Swasey, I think the reason a lot of Netflix users aren’t as interested in new releases from Netflix is simply that it’s difficult to get them there, and, like me, they use some other service for new releases.

At some point Netflix is going to have to figure out how to offer new releases via online rentals, if the company wishes to continue to exist. Here’s my ideal plan: I pay $8.99 per month for unlimited online viewing of older content, plus $1.99 per viewing of a hot new release. (New releases could drop into the general pool after a certain number of weeks.) Under such a scheme, I would give Netflix 100 percent of my video rental business.

The problem for Netflix is getting from here to there. The company is stuck in a “Netflix hole” in which new releases are largely inaccessible to members.

How to solve this problem? Here is my suggestion. Netflix can keep its current plan for whoever wants to keep using it. Then Netflix can create an entirely new, online-only plan, as described above (monthly fee plus a modest pay-per-view fee on new releases).

Update: Here’s another obvious approach: Netflix could offer a standard online video program for, say, $9 per month plus pay-per-view on new releases, and a premium program that includes unlimited viewing of new releases for, say, $20 per month. That way, people who care nothing about new releases, or who only want to watch them occasionally, can sign up for the less-expensive account, while others can pay more for full access.

That, Mr. Swasey, is what I call “extreme simplicity” — and a business model that would vault Netflix to the top of the competition.

Until then, I will be happy to do new-release business with NCR, which has, at least for now, sworn off unjust antitrust actions.