Court to Netflix: "You Don't Got Mail"

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Well, barely two weeks have passed since my self-imposed exile from the blog, but I promised that I would I pipe up if something caught my interest, so here I am, piping away!

A few days ago, a three judge panel in Washington D.C. smacked the U.S. Post Office for giving favorable treatment to Netflix.  Gamefly, the  video-game-by-mail service, sued the Post Office claiming that mail order DVDs sent out by Netflix were bypassing the traditional route and being fast-forwarded to customers.  The end result was discrimination against Gamefly and other mail order services by forcing them into slower routes, while making them to pay higher shipping fees than Netflix.

Netflix sure doesn't need this right now.  They've had a rough go of it the past 16 months.  First there was the price hike debacle in September 2011 which saw customers abandoning the service like it was afflicted with syphilis.   Their stocks tanked after less than stellar subscribership in the third quarter this year.  And don't forget the recent spate of outages. Even now with their stock rebounding after scoring a partnership to stream Disney content, Netflix is in a tenuous place because their long-term plan to move from a mail delivery service to an entirely streaming online service is both pricey and technology dependent.  Not to mention that Netflix has to continue negotiating deals with movie studios: high-level sophisticated players who negotiate like mobsters because they know without their content, Netflix dies.  Which means that if Netflix wants to keep streaming content, there's going to be a price hike sometime in the future... probably sooner than later too.  God help Reed Hastings when he has to make that public announcement!  This means that Netflix is going to be leaning on its DVD mail service longer than it expected way back in the halcyon days of August 2011 when Qwikster sounded like a good idea.  So this Gamefly lawsuit is pretty much a kick in the nuggets for Netflix any way you look at it.

But here's my prediction: Netflix isn't going anywhere.  First, mail order or streaming, Netflix still does it better than anyone else and with a wide enough selection of content to make most people think twice about leaving.  Second, Netflix is expanding its business model by creating original content and picking up critical darling Arrested Development (one of my all-time faves) for a 14 episode run, with potential for a fifth season.  Lastly, DVDs are a dead format and everyone knows it.  DVD sales have been steadily declining over the past few years.  I'm a big fan of physical formats like Blu-ray because of the high quality audio-video presentation, but I'll also acknowledge that I'd rather rent through Netflix, Hulu, or Apple TV the vast majority of the time, and I think the American public agrees with me.  Hell, even my mom stopped watching DVDs.  She now watches movies exclusively On Demand.  My mom!!!  The Blu-Ray player I bought her two years ago is the fanciest dust collection device she owns.

Netflix knows the end of the physical format is nigh; their problem is that they got bitten for trying to usher it along sooner than the public was ready.  But that time is here folks.  And Netflix helped lead the way.

Okay, back into exile I go...

Greg Kanaan

The [Legal] Artist, Boston, MA, USA