re: Has anyone been following the Netflix saga lately?

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Industry leaders change directions with a product or service and stunned customers revolt. It's a scenario that played out when Facebook overhauled the social network's interface and in 1998 when Apple released the iMac G3 without a 3.5-inch floppy-disc drive. People called Steve Jobs crazy. But Netflix CEO Reed Hastings, like Jobs before him, is now trying to move the market into the future, says Garland. Netflix's library of streaming movies and TV shows are often dated or obscure titles. It's obvious Netflix is struggling to acquire more sought-after content.

For over a decade, Garland's Los Angeles-based company has tracked digital-media consumption over the Web and much of the data he collects he sells to the major film studios and record companies. He's in the catbird seat to watch events unfolding at Netflix and he's convinced that Hastings designed the price hike to rouse the studios and his audience out of their complacency regarding the DVD. Garland says the format was already dying but the price increase is meant to perform a mercy killing on the highest order; so consumers can begin to acquire movies in the more efficient way that benefits them--and Netflix--the most.

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What does Reed Hasting see that a lot of people complaining or us in the media can't see?

Garland: Reed Hastings has an unfair advantage and that is near-perfect access to near-perfect customer data. Not to be cute about it but what he sees is everything, and what you and I and everybody else are seeing is very little. He is looking at not just what his customer is doing but he's virtually looking at what his customer is going to be doing, meaning that within certain segments of his database he has access to information about what we're all going to do and what we don't even know we're going to do. The early adopters and the leading edge is an identifiable constituency within his customer base. He can say authoritatively, a year from now, three years from now, five years from now, this is the way you will enjoy filmed entertainment. He can say this because there are already elements of his marketplace that are enjoying the entertainment that way today. So he really can see the future. Specifically, what he can see is that increasingly the younger Netflix customer is watching on the little screen, on the mobile device, on the laptop and that they are watching on the Netflix streaming service and not the DVD.

That's not what's likely to happen tomorrow. That is happening today. As you know there are a lot of us still watching DVDs and specifically those first-run titles on our relatively big-screen TV but that's a lagging indicator. That's like the person who so vociferously and so vocally objected to the introduction of that first iMac that came without a 3.5 inch floppy drive. "What am I supposed to do," that person asked? "My whole life is on 3.5 floppy. I finally migrated off the 5-inch drive and now your marketing a computer that has no 3.5inch drive." It was outrageous, until it wasn't. Remarkably what people found in a very short period of time was directionally it was where we were already going and Steve Jobs just recognized that a few minutes before the rest of us recognized that. I would say that in this case, that's the comparison. Reed is acting like a visionary and sometimes visionaries, at inflection points, are incredibly unpopular and make unpopular decisions. To be blunt, make no mistake this announcement signifies Reed Hastings' intent to kill the DVD. For sure, the DVD doesn't need Reed Hastings to kill it. It's dying anyway. He's just helping it along on its preordained course.

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The problem isn't that netflix recognizes a future that no one else does. The problem is that netflix is already charging for the future without currently providing it. And in the process, they're opening up themselves to greater competition and harsher negotiations in order to provide said future. That might very well spurn a total mainstream adoption of streaming content, but it might kill his company in the process.

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But Netflix's streaming selection is thin. It's too unsatisfying an experience too often. The discs helped me ignore some of the bald spots?

Garland: Reed is deliberately creating dissatisfaction. He's creating dissonance precisely because that title availability, those first-run titles, needs to be available more immediately and more widely as a (video on demand) or as a streamed offering. So this is a leverage play. This is Reed saying you can't bifurcate. You're going to have to make all of your content available in a way that your customer has clearly indicated that he or she wants. Netflix is wagering that if all parties are dissatisfied; if Netflix is unhappy because Netflix customers are unhappy and if Hollywood is unhappy and if everyone is unhappy then we're going to speed the clock on new solutions. You know that theory of vine economics, you let go of the last vine (like Tarzan) and reach for the next one. If he takes away that last vine then everyone is really going to reach for the next one. That's what he's trying to do here. He's trying to remove the complacency that comes from an easy dependency on that legacy product. If you take the comfort of that DVD away that dissonance is going to demand remedy.

You ask, what about all those DVD titles? You want those movies. So does Reed Hastings. And so does every other customer and movie fan. And now the pressure under which Hollywood finds itself has been ratcheted up.

I hate to keep drawing the parallel to Jobs but he knew exactly what he was doing when he introduced a new computer for the home that did not have a floppy drive. That disappointed virtually everyone in the market. What it forced us all to do was to reconsider the format. That is exactly what Netflix is trying to do, to make us ask: Do I really need DVD by mail or do I just need access to all those first-run movies. Wouldn't I rather just stream them than wait for them to come into the mail?

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