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Are DVDs Inconvenient On Purpose? 490

Posted by Soulskill
from the couldn't-have-been-an-accident dept.
Slashdot contributor Bennett Haselton writes: "Why do Netflix and a few other companies keep the DVD format alive, when streaming is more convenient for almost all users? The answer is not obvious, but my best theory is that it has to do with what economists call price discrimination. Netflix is still the cheapest legal way to watch a dozen recent releases every month — but only if you're willing to put up with those clunky DVDs." Read on for the rest of Bennett's thoughts.

I was noodling around Best Buy looking for a new laptop, and it occurred to me how inconvenient it was that I was limiting myself to models with DVD players. Either that, or thinking what a pain it would be having to take an external DVD player everywhere that I might want to watch a movie on my laptop. Then I started to wonder why this was.

Specifically: Why do movie studios allow Netflix to send out DVDs to their subscribers by mail, but not to allow the same option in the form of "virtual DVDs" that you could "check out" through their website, and stream them while they're checked out to you? Surely the streaming option is more convenient for almost everybody — no postage fees, no opening and sealing of envelopes on Netflix's end, no dealing with lost and scratched DVDs, etc.

Well, obviously movie studios would not allow Netflix to let users "check out" a virtual DVD, stream it, and then "return" it and instantly "check out" the next virtual DVD in their queue, since this effectively amounts to unlimited simultaneous access to all of their titles. (That's now Netflix's huge online streaming library works, but movie studios don't currently want to make all of their movies available for instant streaming.)

But then why not take all the movies that are currently only available as DVDs (not for streaming), make them available as "virtual DVDs", and only allow users to check out a certain number per month? This would mimic the limit imposed by the speed of the postal service, which only allows users to check out a fixed number of movies per month by mail. Netflix could keep its existing streaming library the way it is, and for the movies currently available only as physical rental DVDs, replace them with "virtual DVDs" that would count towards a user's monthly virtual DVD limit. Why won't movie studios let them do that?

Well actually, there's still a clear reason why movie studios would not allow this: a certain amount of revenue comes from impulse buys from users who decide that they want to watch The Dark Knight Rises right now and rent it from Google Play. (That's how I broke in my setup for holding a tablet in front of an elliptical while exercising, and worked out for the entire length of the movie to assuage my guilt from pigging out at a party.) If Netflix allowed instant checkout of virtual DVDs, the studio would lose the $5 or more that it makes when a user decides to rent a recently released blockbuster. (The studio would still get a cut of the money the user pays to Netflix for the virtual DVD plan, but not as much -- about $12 per month divided by about 12 DVDs.)

So, finally, suppose Netflix built this limitation into the virtual DVD plan as well — you could have a "virtual DVD" queue, with two or three virtual DVDs "checked out" at any one time, and every time you "returned" a virtual DVD, there would be a delay of 24 hours or more before the next DVD in the queue would be "checked out" to you. So the virtual DVD queue would essentially mimic Netflix's existing experience of renting DVDs by mail, except the content would be streamed, so you could watch it on any device with an Internet connection.

Now we have a fairly interesting question. If what I've described would be essentially "the same thing" as Netflix's existing DVD plan — except replacing physical DVDs with streaming, which would be more convenient for all parties involved — then why won't movie studios allow them to do that? Of course movie studios don't want their own DVD sales being undermined, but they already allow Netflix to "compete" with the studios own DVD sales by offering physical DVDs for rent, so why wouldn't they allow them to offer virtual DVDs for rent in exactly the same way?

I'm interested in questions like these which seem to have an obvious answer, but the obvious answer is a decoy which turns out to be wrong, and the real answer is necessarily more complicated. In this case, the obvious answer is that studios don't allow Netflix users to check out "virtual streaming DVDs" because it would compete with their own DVD sales. But that answer by itself can't be right, because studios do allow Netflix users to check out physical DVDs, which also compete with the studio's own DVD sales. So what could be their reason for allowing users to check out physical DVDs but not to "check out" virtual DVDs in exactly the same way, where studios would get the exact same cut of the rental rates as if they were real physical DVDs being checked out?

Unfortunately, by the very nature of these decoy-answer-making-a-deeper-mystery questions, if you ask them in a forum or on a mailing list, you'll get people spelling out the decoy answer for you with what they imagine to be the patience of someone talking to an idiot. Wherever I posed this question, I got the answer that studios wouldn't allow virtual DVD checkouts because it would undermine their own DVD sales. To repeat, the question is why the studios allow physical DVD check-outs from a service like Netflix but do not allow virtual DVD check-outs that would otherwise work in exactly the same way, with Netflix and the studios getting paid the same in each case.

One possible answer is that this is a form of price discrimination, whereby a seller tries to extract the most that different market segments will pay for essentially the same product. Student discounts for museum admission are a form of price discrimination — extracting more money from non-student adults who have more disposable income, while still gaining some revenue from poorer students who otherwise would have skipped the experience and paid nothing. In cases where a seller can't check a buyer's income level (or student status) directly, they can practice price discrimination by throwing up some sort of inconvenient roadblock — requiring buyers to clip a coupon or mail in a rebate to get a discount. Busy, high-earning professionals often won't bother, and will end up paying the higher price, while price-conscious bargain hunters will take advantage of the deal when they otherwise might not have bought the product at all. (On the other hand, a restaurant charging more for steak than chicken is not "price discrimination," because the steak really does cost the restaurant more to provide.)

In the case of a Netflix DVD plan, if you watch movies and mail them back as fast as you can on a plan that lets you check out 2 DVDs at a time, every month you could watch about 20 movies for a monthly fee of $12. If you rented the same recent releases on Google Play at $2-$5 a pop, it would average around $70.

So this could be a form of price discrimination by the studios. If you care about price more than convenience, you can just splurge for a Google Play rental whenever you want to watch a recent release, and you can watch it on your laptop, your tablet, or your phone, without the need for a DVD drive, but you'll pay around $70 per month depending on how many movies you watch. On the other hand, if you want to save money, the cheapest legal way to watch all new releases as soon as they're released to home media, is with a Netflix DVD checkout plan — but the inconvenient roadblock is that you have to be willing to deal with those clunky DVDs.

It's an odd explanation, but it's hard to think of any other reason why Netflix and the movie studios would keep propping up the DVD format, when it would be easier for them and for us to just offer "virtual DVD checkout" and stream the same content, as long as Netflix and the studios got paid exactly the same amount of money as they would make when we watch the content on a physical DVD. The inconvenience of DVDs allows Netflix and the studios to price-discriminate and separate the wealthy from the price-conscious, and extract money accordingly from each group — especially when higher-income users are more likely to own tablets or DVD-free laptops, and lower-income users are more likely to own DVD players. Can you think of any other reason why they don't simply replace all DVDs with comparable streaming "checkout" options?

Well actually, I can think of at least one other possibility. With a "virtual DVD checkout" plan like the one I described, users might feel some aggravation every time they add a virtual DVD to their queue, only to be told they have to wait 24 hours or more before they can watch it. With physical DVDs, such delays are caused by the postal service and by the physical impossibility of having a DVD show up instantly in your home. But under a virtual DVD checkout plan, despite the fact that it would be more convenient overall, the delay before you can watch a checked-out movie is imposed by Netflix (possibly at the insistence of the movie studio), so that might be where the user focuses their aggravation instead. It's conceivable that even though Netflix knows that a "virtual DVD checkout" plan would be more convenient for users, those users would irrationally come to resent Netflix more for imposing the delays on movie viewing, so the company just decides not to wade into those waters.

I'd be interested in hearing other theories, as long as people understand the question: Why movie studios don't allow movies to be streamed in a manner that mimics, as closely as possible, the experience of checking out DVDs by mail from Netflix (including, say, a mandatory delay between the time you select the movie and the time that you can watch it). Saying "Because it competes with their own DVD sales" is not an answer, since Netflix's physical DVDs also compete with a studio's own DVD sales. But there may be other answers that are actual answers, and maybe one of those is the answer.

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Are DVDs Inconvenient On Purpose?

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  • Re:Consider... (Score:4, Informative)

    by JMJimmy (2036122) on Wednesday March 26, 2014 @02:18PM (#46586145)

    oh and fourth: Not everyone can get quality internet. Netflix on a 3Mbps radio with the tower 4km away is impossible.

  • Re:iTunes (Score:5, Informative)

    by jedidiah (1196) on Wednesday March 26, 2014 @02:19PM (#46586157) Homepage

    Since the Walled Garden makes pricing information a state secret, it's kind of hard too really. At least with Amazon, I can see if any given new movie can be "rented". All I need is a standard web browser. It doesn't matter if my display platform is supported or not.

    Although the idea that a DVD is "clunky", is just mindless elitist claptrap. You stick it in the device and it plays. That's fairly simple really. If not for compulsory ads, there would be no real reason to seek out something else for a rental.

    Streaming services and Virtual Jukeboxes are more advantageous for things you are going to watch more than once.

  • Re:tldr (Score:4, Informative)

    by Artraze (600366) on Wednesday March 26, 2014 @02:31PM (#46586313)

    Sure content providers may not always know what's going on, but they are most certainly not so out of touch as to think that ripping steams is a real concern. Well, maybe in so far as an end user tool to save the stream might be a threat, but realistically DVD and BR are easily rippable and better quality so I doubt the concern is that great.

  • by bennetthaselton (1016233) on Wednesday March 26, 2014 @02:34PM (#46586357)

    Yes. Netflix can rent physical DVDs without negotiating with studios or distributors. In theory, they could run to Walmart and buy DVDs to mail out. They need nobody''s permission to do this.

    I'm pretty sure this is incorrect. The consensus among lawyers here for example:
    http://www.avvo.com/legal-answ... [avvo.com]
    is that it's not legal to buy a DVD from Walmart and rent it out. The movie rental companies that rent out DVDs have to pay a special higher price to buy the DVDs from the studios.

  • by DaveV1.0 (203135) on Wednesday March 26, 2014 @02:35PM (#46586363) Journal
    You seem to think that high speed internet access is universally available across the united states. I have news for you, it isn't. There are huge swaths of the country that don't have access to high speed internet at any price. In many places. That doesn't include the large number of people who can afford a DVD player but can't afford an internet connection, those who don't have a permanent residence, people like truck drivers who don't have access to internet most of the time, etc.

    Bennett Haselton, you need to get out of your suburban ivory tower and experience life as so many do, without all the wonderful advantages you currently enjoy.
  • by dave562 (969951) on Wednesday March 26, 2014 @02:38PM (#46586401) Journal

    Are you a Netflix subscriber?

    What you describe and reality are about 180 degrees opposite. The reality is that the older movies are DVD only. The newer stuff can be streamed.

    My theory is that the newer releases are already digital and the distribution agreements are in place. To make the old DVDs available online someone would have to invest the time to shift them into digital format. Then there are the licensing agreements. Granted, licensing is a legal issue and not a technical one, but nobody is going to invest the time and money required to update the licensing terms for some obscure DVD that was released in 1997 because they know that fewer than a coupled hundred people are ever going to want to view it.

  • by mbaGeek (1219224) on Wednesday March 26, 2014 @03:50PM (#46587061) Homepage

    As a long time Netflix subscriber (maybe 10 years - going back to when it was 3 DVDs at a time for $14.99 and no streaming option) - I'd say the answer to the headline is "no."

    Reed Hastings claims that high-speed internet streaming was always his plan for Netflix - they just had to wait for the technology to catch up. While they were waiting, Netflix had to fight off competition from Wal-Mart (Netflix bought them out) and Blockbuster (who probably wish Netflix had bought them out) in the "DVD by mail" space. When they first rolled out the "streaming" option, the movies available for streaming were not good (but streaming was a free add on - so it didn't really matter).

    When streaming became a viable option, the big problem Netflix ran into was Netflix ("We have met the enemy and they are us"). They tried to raise the monthly fee and people bolted for the door (800,000 members quickly gone). Netflix said "oops!" and decided to split into two services (Anybody remember "Quickster?"), which people also hated - so we got something like the current price structure.

    So, no DVDs are not inconvenient on purpose, and won't go away anytime soon. Netflix arrived at its pricing structure by responding to market forces. Streaming content is the future (and the future is now!) - which means licensing agreements with content creators/providers will surpass "hard copy" sales (if they haven't already).

    ...and if you are colecting marketing data for Netflix: I'm a streaming only customer. I "rent"/stream a lot of just released movies from Amazon.com (had a problem with the 30 day wait time for DVD new releases from Netflix - but if I could get new movies the week they are released on DVD I'd go back) ...

  • by lgw (121541) on Wednesday March 26, 2014 @04:08PM (#46587157) Journal

    To make the old DVDs available online someone would have to invest the time to shift them into digital format.

    You ... don't actually know what "digital" means, do you?

  • Re: tldr (Score:5, Informative)

    by LordKronos (470910) on Wednesday March 26, 2014 @06:45PM (#46588557) Homepage

    If you knew a little bit about how macrovision worked, you'd be able to reason why your "fun fact" doesn't make logical sense. So let me give you some details

    1) Most VCRs (I'm not sure if this was always the case or only in later years) contain an automatic gain control in the recording mechanism. The AGC would try to adjust the picture brightness based on the signal it received, so that what you recorded would be neither too dark nor too bright. I'm not familiar with the exact mechanisms they use to calculate how much adjustment to apply. Many VCRs also apply this AGC processing to signals that are merely passing through the VCR, even if you aren't recording

    2) As an unrelated fact, analog video signals actually include the closed captioning data encoded into the video feed. This data is encoded into a part of the video stream that usually isn't displayed on your TV. However, sometimes you may see this data when playing back the analog signal on a digital display, if overscanning is turned off. If you've ever seen video with a row of black and white dots/bars at the top, that's the closed captioning data.

    3) Along comes Macrovision. Some assholes discovered that if you manipulate the signal contained in the closed captioning data, you can often screw with the AGC mechanism in VCRs, causing it to repeatedly alter the video signal from brighter to darker. Also, because VCRs often apply this AGC to signals being passed through, this also explains why you usually couldn't hook up your DVD player to your VCR to get around the fact that your older TV didn't have RCA inputs.

    So if you think about this, there is no reason why it should matter if the VCRs are the same brand. With any VCR, the signal it outputs is going to be the same, no matter whether hooked up to a TV, a VCR of the same brand, or of a different brand. Likewise, the input signal is going to be processed the same, no matter whether coming from a VCR of the same brand or different brand, a DVD player, a camcorder, or a cable box. The only thing that makes the difference is the implementation of AGC in the VCR. Either
    A) Your VCR implements AGC in a manner that is susceptible to macrovision manipulation
    B) Your VCR implements AGC in a manner that ignores this extra data.
    C) Your VCR doesn't do AGC

    If the VCR doing the recording falls into category A, then it won't work right. If the VCR falls into category B or C, then the macrovision won't have any effect on you. I think Occam would say that the simplest explanation would be that the VCRs you worked with fall into category B or C.

  • by nobuddy (952985) on Wednesday March 26, 2014 @07:20PM (#46588783) Homepage Journal

    On Amazon, it might come up when I search, but that doesn't mean it will be free, and if it isn't free, I probably won't watch it at all.

    This is very annoying ting about Prime. I do not use the streaming function because it is frustrating in this way. The shipping savings are worth it, even with the cost raise just announced. If, that is, you do a lot of Amazon buying, which I do.

I judge a religion as being good or bad based on whether its adherents become better people as a result of practicing it. - Joe Mullally, computer salesman

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