Is Netflix a better indicator of Blu-ray's success than Nielsen?

by Ben Drawbaugh posted Oct 21st 2008 at 3:03PM

During a recent earning call, Netflix CEO Reed Hastings said that about 500,000 subscribers would be paying the new $1 Blu-ray fee. This is about six percent of Netflix's customers -- up from one percent 18 months ago -- and a number we're actually surprised with. The reason why we find it surprisingly low is because according to the Nielsen VideoScan numbers, Blu-ray sales have managed to steal away closer to 10 or 12 percent from DVD and we just figured there were more renters than buyers. The apparently incorrect reasoning was simple, it is a new format and renting is a the safer bet. Because as in any packaged media ecosystem, you spend way more money on the discs than on the player and we assumed consumers we're hedging their bets by renting. So while the so called Netflix effect isn't there, these numbers do show us some insight to the Blu-ray customer base, and we'll be looking forward to the next Netflix earnings call for indications of Blu-ray growth.

[Via Format War Central]

Filed under: Industry, Blu-ray

Tags: bd, Blu-ray, business, earnings, industry, Netflix, quarterly earnings, QuarterlyEarnings, sales, VideoScan

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Reader Comments (Page 1 of 1)

Neutral

Andy @ Oct 21st 2008 3:29PM

I would say Amazon is probably a better source then Netflix

Highly Ranked

bull3964 @ Oct 21st 2008 3:32PM

Aren't the Nielsen VideoScan numbers based on dollar sales rather than actual units sold? That's part of the answer right there. The blu-ray counterpart sells for about 30%-50% more than its DVD counterpart so blu-ray sales have greater weight in the percentage than their DVD counterpart. You can sell fewer blu-rays than DVDs but have the same, or even higher, dollar sales.

The netflix stats are straight up percentages that aren't weighted by the cost of the item in question.

Neutral

Aaron Smith @ Oct 21st 2008 3:40PM

Absolutely bull - you are correct. It does cost more to buy a blu-ray disk (I'd say more than 30-50%, more like 50-100%). It's literally about twice as much to buy a blu-ray disk than dvd, so that jives with the Netflix numbers. Nielsen says 12%, and half of that is 6%. Bingo - 6% of people have blu-ray.

Neutral

3dpenguin @ Oct 21st 2008 3:50PM

The problem with that theory is the fact that Blu-ray cost quite a bit more to produce than DVD, the profit margins for Blu-ray and DVD are fairly close, DVD having a slight edge. So for the studios and stores to actually show higher profits from Blu-ray right now they would have to sell higher numbers of the movies, which isn't happening. Those numbers given by Nielsen are based off of SRP, giving Blu-ray an inaccurately unfair advantage in unit by unit dollar totals.

Neutral

why not the LS2LS7? @ Oct 21st 2008 5:06PM

3dpenguin:
Most of the difference between SRP and sale price is accounted for by Target cutting their margins, not by the distributors not making their cut.

I think the margins are probably higher on BluRays, especially if you count in Fox and their absurd prices. But since sales are low (esp. for Fox), absolute dollar revenues and profits are far lower.

Highly Ranked

Andy @ Oct 21st 2008 7:10PM

I don't know why people always say Blu-ray is SO much more expensive than DVD.

I have never payed more than $25 for a brand new Blu-ray

you just need to know where to look.

But yeah these should be by units sold, but isn't that what Amazon does?

Highly Ranked

EatingPie @ Oct 22nd 2008 12:51PM

Do you guys even do research before posting pricing?

On Amazon, the pricing is as follows...

The Incredible Hulk Blu-ray - $25.95
The Incredible Hulk DVD SE - $22.99

A whole $3.00 more for the Blu-ray than the DVD.

Best Buy charges MSRP for Blu-ray, but not DVD. If you buy there, yes you are paying an arm and a leg, and you deserve it because you're a poor shopper indeed!

But Amazon is one of largest retailers in the world, and they sell BDs for as little $14.95. New releases are typically around $21.99 or $22.99 with a few higher-priced here and there.

-Pie

Neutral

bull3964 @ Oct 21st 2008 3:38PM

Also, the Nielsen VideoScan numbers are based only on the top 20 unit volume titles which puts focus on fairly new releases. DVD's back catalog is an obvious advantage here. You could only sell a couple hundred discs of a few hundred titles on DVD, but that would completely eclipse the marketshare of blu-ray and drive that 12% number into the ground, probably even far below the 6% reported by Netflix. In that respect, you ARE seeing renting having a greater marketshare.

Unfortunately, the Nielsen VideoScan numbers don't really paint a complete picture of market trends as they are skewed by movie demographics, variances in MSRP, and leave out a few of the largest retailers. They are interesting to talk about, but are worth little more beyond that.

Neutral

Fred @ Oct 21st 2008 11:48PM

Ok Andy I am going to put you up to the test.
Buy the next two days the New Casino Royale and the Incredible Hulk cheaper than 25 dollars... find it, cause as you stated, you can find all your Blu movies cheaper.

Neutral

Mike @ Oct 22nd 2008 2:18AM

Fred,

According to the deal sites the cheapest 3 disk (regular DVD) special edition Hulk is FYE for $21.99 or $19.79 if you are a backstage member. The 2 disk blu-ray edition is $25.99 or $23.39 if a backstage member. I think membership is free not sure...so only $3.60 more is well worth it.

Casino Royale is a rerelease special editon.. it is over $25 on reg DVD too.

Neutral

Robert @ Oct 21st 2008 3:44PM

I wouldn't say it's surprising. Or, if anything, it's surprising that 500,000 STILL opt in. If you read the comments from when they announced the price hike, most people were pissed. Many said they would downgrade their plan to keep within the same budget, turn off the feature, or cancel their subscription altogether. They are the vocal majority.

The main complaint I could identify other than "corporate greed" was "Blu-ray titles often take months to recieve." Other complaints were, "Don't charge me the extra dollar if I don't get a Blu-ray title that month," which seems very fair since Netflix's lack of volume is preventing availability. I'm surprised 500,000 people opted in. I'd rather go to a video store and rent a Blu-ray or go buy one where I'm guaranteed to get it, rather than pay $1 per month and hope I might get the disk in the next three months.

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Highest Ranked

Robert @ Oct 21st 2008 3:52PM

"They are the vocal majority."

Make that vocal minority.

Neutral

bull3964 @ Oct 21st 2008 3:52PM

That's part of the problem though. I live right on the outskirts of Pittsburgh, in a top 20 populated urban area, and I CAN'T rent blu-rays locally. Oh, if I wanted to drive 15 miles to the single blockbuster in a 50 mile radius that rents them, i could. But it's hardly worth it (the gas would cost more than that $1).

It took less than a year after format release before my local grocery store started renting DVDs, we are two years out now and my choices for blu-ray rental boil down to Netflix or Blockbuster online. Hollywood video has gone out of business in the local area and blockbusters stores are tiny and don't carry crap.

Neutral

Gunnar @ Oct 21st 2008 5:18PM

"Vocal Majority"?

Sure. People who have spent 300-500 dollars on a Blu-ray player and 1000-2000 dollars on an HDTV are going to be so outraged by that extra buck a month that they will pitch a hissy fit and cancel or downgrade their membership. And they will be happy to watch SD-DVD on their expensive AV equipment all the while knowing that they stuck it to then man by saving that whopping dollar a month. Yeah, that sounds reasonable.

Neutral

Vance @ Oct 21st 2008 4:06PM

One concern I have with the Netflix number is whether it is based on those signed up for Blu-ray manually or are *deemed* to have chosen Blu-ray by not opting out. In a recent business discussion, the Netflix management said the were going to be pushing the $1 premium to all customers, and they had to OPT OUT of it in order avoid the extra charge. They said that since most would not bother taking the time to opt out, this would increase revenues. Now, I have not yet seen this "push" being implemented to my account, but it was supposed to start this month and if it already has for many customers, would they consider those who don't opt out part of that 6%?

Neutral

Rob @ Oct 21st 2008 8:01PM

That's strange, I took a look at my account and it says that I have to actually opt in, rather than forced to opt out as you've mentioned.

Neutral

Craig @ Oct 21st 2008 4:01PM

I can say from personal experience with Netflix that all new-release Blu-ray movies I have received within one week. Which is not bad at all. Plus the value of Netflix is that it is cheaper than buying one Blu-ray title a month. Here is a interesting story I personally have from a bigger movie rental chain in my area. About 4 months ago I walk in and ask when they are going to start renting Blu-ray discs? The answer I got was priceless. The lady said that we have not made up our mind since the war between HD-DVD and Blu-ray has not been settled. I didn't say it but I thought it. How can you not know the war has been over for about 6- 8 months now, you work in a video store. Needless to say it made me mad because these are the people informing the consumers incorrect information.

Neutral

TrentD @ Oct 21st 2008 4:05PM

The Nielsen numbers only measure Blu-ray's portion of the Top 20 releases, I believe. Since DVD has so many more releases than Blu-ray (even new releases), the BD numbers would naturally be skewed upward when you only look at the top 20.

Netflix is looking at the overall market, not a restricted portion.

Neutral

Nate @ Oct 21st 2008 4:31PM

I think it's reasonable to assume that those of us with Blu-Ray have vast DVD collections. Most of us aren't looking to replace everything in our collection. Also, new releases on Blu are still pretty rare.

So it stands to reason that retail sales are slow and rentals are high.

Neutral

why not the LS2LS7? @ Oct 21st 2008 4:32PM

I think Netflix is a better indicator.

I rent more BluRays than I buy for two reasons:
1. BluRays cost a lot.
2. After collecting DVDs and then never watching them, I realized I don't need to buy nearly as many movies as I once thought.

So yeah, BluRay may be a big rental market. Don't get me wrong, thinks like Iron Man will still sell (I bought it), but other movies will be rented by a much larger percentage of the population than the percentage who buy it.

Neutral

MadDog @ Oct 22nd 2008 8:20AM

Yeah. After looking at that shelf of a few hundred DVDs that I watched once, or in some cases haven't even finished watching, Netflix is the only way to go for me. Only movies I'll be purchasing are repeat viewers.

Neutral

StephenD @ Oct 21st 2008 5:35PM

Perhaps it's an indication that people think Netflix are thieving gits for charging extra, when outfits like Lovefilm in the UK (the Netflix equivalent for us Brits) give you Blu-Ray or DVD for the same price. Your choice.

Neutral

Paul Nicholson @ Oct 21st 2008 5:42PM

I am buying 100% Blu now. If it isn't on Blu, i hold off on buying. Movies i rent are a mix of DVD and Blu.

This has to skew the numbers a bit too.

Highly Ranked

magnetozx @ Oct 21st 2008 8:01PM

"Those numbers given by Nielsen are based off of SRP, giving Blu-ray an inaccurately unfair advantage in unit by unit dollar totals."

Good grief, why are people still confused about this?

There are TWO Nielsen numbers that are reported each week. The pie chart in the middle shows Blu-Ray UNIT sales as a percentage of DVD UNIT sales for the Top 20 discs sold that week.

The second number is the TOTAL AMOUNT OF MONEY consumers spent that week on DVD versus the total amount spent on Blu-Ray.

Niether number uses "SRP".

This second number is the only one the studios and vendors care about. Why? Because they only care about their bottom lines. As long as Blu-Ray makes money for the studios, they will continue to release product in that format.

Neutral

Bozster @ Oct 21st 2008 9:26PM

I think this is a good indicator that most people these days would rather rent then own because of really reasons why not the LS2LS7? pointed out.

I think that expansion of digital downloads through Apple TV and Vudu but also Xbox Live are testament to this fact and this becomes a big issue for Blu-ray in general as they will have to compete with something that is much much less expensive and much more convenient to view and serve and quality is almost there or the same in the eyes of the laymen, while on the other hand keeping optical disks for rent that cost a lot will cause many to eventually cut support to some extent or altogether.

We can actually see by NPD numbers that Blu-Ray only spikes with very few titles that are really really good movies but sharply drops afterward.

If people continue renting instead of buying, I'm not sure that Blu-Ray will manage to fight digital downloads for too long.

Neutral

jitty @ Oct 21st 2008 9:57PM

I think your comment about blu-ray's NPD dropping after a big movie release is mainly a problem with blu-ray's price. Blu-ray's price will definitely go down, it is much easier for physical media to drop in price. But purely digital media does not drop in price like that.

Also, it's not just that. Remember the sheer bulk of DVD's being released. I bet there is one blu-ray movie released for every five DVD's released each week. It will take a long time for blu-ray to approach that much release but it will get as cheap as DVD is today, soon.

Highly Ranked

why not the LS2LS7? @ Oct 21st 2008 9:59PM

If digital download rentals are so great, why haven't they destroyed DVD first?

There are two different markets for rentals and for purchase. Neither can replace the other.

Anyone who has kids knows kids want to watch movies over and over. Since rentals only last 24 hours (studio mandate), a rental just won't cut it. What about a digital download purchase? Well, the studios will only let the "buyer" download it once. And then when you lose it or lose the machine it was tied to, it can't be used anymore. Bobby wants to watch a movie in the back of the car? Too bad, it was tied to a laptop that isn't going on this trip. Whereas a disc (DVD right now) can be put into a portable or built-in player and played.

As BluRay players become more common, sales for movies kids like to watch will rise. As BluRay discs drop in price, a broad base of impulse-priced movies (both new and catalog) will raise the weekly base sales rate. And of course rentals will rise too. I'm not sure BluRay will never be as big a purchase market as DVD was at its peak (at least in units), but it will have a large purchase market and a large rental market. And yeah, digital downloads will take up some of the slack too.

Neutral

Bozster @ Oct 21st 2008 10:15PM

LS2LS7,

there are couple of things that I think are flawed with your opinion.

First, studios and others are not limiting you to buy a movie once and then if you lose it lose it, not that it's an issue because that's how things work with discs.. if you lose it you have to buy it.. with digital downloads I think you still have or will have the ability to back your movies up, with optical media you are breaking the law. Simple.

Also, I think what you say that they will let you download once is again not true. Both Vudu and XBL offer re-download. I really haven't bought any movies off Vudu but I think there was even a confirmation here on Engadget in a story about it.

Digital downloads haven't killed DVD becasuse it's still fairly new but we can already see that people are slowly but surely going away from it. Netflix rentals on consoles, or PCs or even Blu-Ray players are more and more appealing to a lot of people and not tech savvy once either.

MP3 has clearly heavily took on CD and even that is fairly new technology. In the next 5 years, there is very little doubt that everything we do will go digital. It's just way too convenient.

You are right about one thing, if discs go low enough in price people will buy them, but if you really think that studios will do that on a DVD level I think you are highly optimistic. The whole purpose of new format was to pick up sales not because they like HD. DVD sales started dropping and they hoped they could repeat the DVD success with HD optical format. But as we already see, most studios if not all are heavily pushing digital downloads now as well as optical. That tells you that their initial idea didn't go through and that now they are trying to go with other ways.

The whole point is, for Blu-Ray to really grow, people have to buy discs, not rent (they have to buy hardware too but let's say that $150 Blu-Ray players will be available soon enough).

When DVD came out they were selling them like crazy and rentals developed more and more after that.. with Blu-Ray it's different and I believe mostly because people realized with their DVD collection that are collecting dust were a waste of money and now are more and more willing to rent. That's why Netflix came out of nowhere and convenience factor propelled them beyond any other rental chain.

These days, people will buy movies they really really really want and once digital downloads fix their own issues (which I see happening either way as technology progresses) people will see no reason to keep any discs except their own home media centers with movies in digital form.

Neutral

jitty @ Oct 21st 2008 9:56PM

There are many explanations, I guess more of the people who rent don't have the means to buy a blu-ray TV and a 1080p TV with it. On the other hand, slightly more of the people who buy DVD's likely have the means to buy a blu-ray player and a 1080p TV. And blu-rays. Renting is much cheaper.

Neutral

squiggleslash @ Oct 22nd 2008 10:45AM

> The reason why we find it surprisingly low is because according to the Nielsen VideoScan numbers, Blu-ray sales have managed to steal away closer to 10 or 12 percent from DVD and we just figured there were more renters than buyers

Well, there's your problem. For the most part, Blu-ray sales have been closer to 6% (I'd say 6-8% is normal) than 10-12%. They've been skewed somewhat for the last couple of months by two factors:

1. A single release that is extremely popular with the PS3 (15-25 game-player) demographic, Iron Man. This single title outsold all other titles put together in its first week by 50%. If you're Paramount, it's great news it did well, but if you're trying to get a picture of how healthy the Blu-ray market is, that single title is more or less an outlyer that you need to remove from the figures to get a true idea of where Blu-ray is.

2. The release of several big-ticket titles, notably Transformers, that had been on DVD for a while (and therefore for which DVD sales were going to be low on the day of release) and which also appealed to the PS3 demographic.

Average over the month, even with these figures included, is below 10% for the last two months.

Now, there's another factor to take into account. Netflix is not calling 6% on the basis of "We expect 6% of the disks leaving our factory to be BD", they're saying "6% of our customers will want at least one Blu-ray disc a month." In some respects, 6% might seem optimistic given BD penetration is closer to 2% than 6, but obviously a disproportionate number of BD buyers are avid movie watchers, and therefore more likely to join something like Netflix. BD should be in a state right now where Nielsen reflects a higher proportion of BD sales than DVD sales than is reflected in each format's penetration, largely because BD buyers are trying to replace their existing collection of DVDs with BDs, and are more desperate for content (and therefore more likely to buy crap) than DVD buyers are.

6% doesn't seem particularly out of line if you take an intelligent look at the Nielsen figures rather than picking the weeks Blu-ray did well and ignoring the reasons why it appeared to do well in those weeks. Neither figure is perfect, and both arguably overstate Blu-ray's performance - Netflix because a higher proportion of people interested in Netflix are likely to want BD than the general population, Nielsen because of "replacing DVD collection" factor. But the difference between the two is fairly explainable and it certainly doesn't help to claim Nielsen are claiming more substantial BD sales than are actually happening.

Neutral

EatingPie @ Oct 22nd 2008 12:59PM

I do NOT think Netflix is indicative, and this is for three reasons.

First, a lot of people are ANGRY that Netflix is charging extra for BD rentals, and refusing to pay out. I'm angry too, but I considered the cost small.

Second, with a new format, lots more people are *purchasing* than renting. This is how it worked with DVD too.

Three, and most importantly, Netflix is saying how many people are paying for the Blu-ray service. This is customers, NOT the number of rentals of BD vs. DVD. If one customer rents a ton of BDs vs. DVDs (like myself), then the actual uptake of BD is greater. That's why Neilson sales numbers are higher -- people with BD players are buying *multiple* BDs.

-Pie

Neutral

Fred @ Oct 22nd 2008 2:20PM

Thank you Mike, you just proved my point. I hate people like Andy who make statements that have no validty to them. He stated brand new Blu-Ray movies and as you have all pointed out their is not one place ypu can get it cheaper than 25 dollars. That also shows that the numbers mean nothing when the regular Hulk DVD is 16 dollars and the Blu is 26 dollars, so the numbers are scewed towards Blu having a bigger chunk even though the same amount of discs are bought. Netflix is a better judge than the Nielsens.

Neutral

kevon27 @ Oct 23rd 2008 1:14PM

I would like to see Netflix have this feature: If someone has a movie at home for more than a week, NetFlix should send them a little email reminding them that other people are waiting to watch that movie; so watch the damn movie and return it. I'm tired for seeing "long wait" "very long wait" in my que.
Even better they should post the names of people and their phone number who have movies at home for a long time so people waiting to see that same movie can give them a little call.

Neutral

Mike @ Oct 22nd 2008 4:56PM

No...you asked for him to find Hulk for under $25...I did that. The $16 Hulk you refer to is just a regular release that is why I included the 3 disk special that has most of the same features as the blu ray 2 disk pack.

Neutral

Fred @ Oct 22nd 2008 5:42PM

actually you didn't. I have to be a member, and what site are you on???
second again you made my point for me with your answer. their is a $16 version that people buy, also a 22, but more buy the 16 than the 22. Now if you want to buy the cheapest blu ray thats 25 to 26 or whatever, the money does not match.

Neutral

Mike @ Oct 22nd 2008 5:06PM

If we want to look at same vs same... next week Tinker Bell comes out... right now (without doing any hunting for deals) Amazon has DVD for $19.99 and Blu for $23.95.

Neutral

brownit @ Oct 22nd 2008 6:19PM

Using Netflix Blu-Ray opt-in numbers to gauge actual Blu-ray market penetration is problematic for a few reasons. The most obvious problem with this assumption is that it compares uses a subset of one population to make projections about the larger population. That is, those people who rent BD from netflix are certainly a subset of that larger population of people who own BD players, right? Not everyone who owns a BD player is a Netflix customer. Thus, Netflix's BD subscription rate doesn't really say anything about the overall BD market penetration. If anything, the more interesting and inference to make from this data is the proportion of people who own BD players who are also Netflix subscribers.

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