Netflix and fixed costs

By Eric Crampton 26/09/2013

My usual explanation for Netflix’s absence from the New Zealand market has been rights and licensing issues. The fixed costs of getting things sorted out for a small market mean that the game’s not worth the candle for Netflix, so they’re not here.

As we always tackle the big issues in the Canterbury econ department staff lunchroom, we yesterday argued about Netflix. And Stephen Hickson raised a reasonable counter to my fixed cost argument around navigating rights: iTunes sells movies in New Zealand. If iTunes could handle the fixed costs of dealing in a small market, why couldn’t Netflix?

So I checked and it is indeed true that you can download a lot of movies on the New Zealand version of iTunes. But they’re expensive. A standard rental is around $8. Purchasing a film is $25. Last I’d checked, Netflix charged $9 per month for all-you-can-eat downloading of anything from their base of movies. Maybe it’s since changed: I’d have to circumvent geoblocking to be able to tell.* But if the iTunes standard model is really expensive access to recent films, and the Netflix model is really cheap access to a great big pile of movies, then it’s entirely plausible for fixed costs and rights issues to keep Netflix out while iTunes is able to make a go of it. And where Sky has a lot of rights sewn up, they might care rather more about competition from a Netflix style model than about competition from the New Zealand version of iTunes which seems more expensive than either the video rental store or buying DVDs.

For now, then, I’m sticking with my story around fixed costs of navigating rights arrangements. Netflix needs rights to a pile of lower-value films to make their model work, and negotiating for each of those for a small market like New Zealand just isn’t going to be worthwhile.

A lot of the high demanders would already have simply circumvented geoblocking (it really isn’t hard) and subscribed that way. While Netflix likely gets better margins out of the low demanders – the ones who pay and who download little – it likely just makes more sense for them to take grey market subscription payments from Kiwis who’ve ungeoblocked than to sort out the rights messes to get the tail of low demanders in a small market.

* Wanting to verify that circumventing geoblocking was easy, I installed Hola. My Chrome install at work is a bit buggy; I have to manually unpack and install extensions. Nevertheless, in about 2 minutes I was into Netflix as though I were American. And now I see that they’re only charging $8 per month. I suppose I’ll have to install this on the machine at home and sign up.


0 Responses to “Netflix and fixed costs”

  • Just a question. Once you circumvent the geoblocking will Netflix ask you for a US credit card?

    • Credit card and zip code. I do not know whether they check the credit card for nationality details. There is a one-month free trial and, hypothetically, even if I had signed up, I wouldn’t know if they’d actually done anything with the card until a month hence.

  • The other reason why Netflix is not here yet is usage caps.

    Whilst we have usage caps on our ADSL plans we will always have an impediment to people subscribing to services like Netflix.

    I would love to subscribe to Netflix but not at $2 per GB overage charges.

    I could move to another provider but I would still have to do the same mental balancing act for selecting a plan from someone else. All I want to do is pay for bandwidth. Not usage.

    If usage caps disappeared, I would sign up for services like Netflix and a laptop backup service in the blink of an eye. Overage charges are stopping me.

    • I’m on Snap VDSL. $95/mth gets me 100 gb and a really fast line; no fibre available at my house. I’ve never gone over 24 gb/mth, despite lots of Youtube videos for the kids.

  • We get Netflix through Slingshot. As soon as it became available I signed up for a) kids cartoons stuff plus b) being able to watch Breaking Bad from episode one!!!!

    They took our NZ credit card, no problem.

    And I see Jeremy Scahill’s movie ‘Dirty Wars’ is coming on Netflix soon. Lots of other docos are already available.

    It’s a great model and obviously the way of the future.

  • It is the way of the future, but technically its in breach of Netflix’s terms and conditions. They could terminate your service at any time – though it is unlikely they will, at least until global mode services start to bite at Sky TV…

  • I am outside the Christchurch VDSL area or I would have moved over to Snap too. Fibre is years away.

    I would go naked if not for the whole earthquake thing. I never lost POTS during the Feb 2011 and Chorus now have a lot of portable generators in the city for outages. I am not far from Burwood Hospital so the local Chorus switching point is high on the priority list for a backup generator in an emergency.

  • @Gordy: Earthquake risk here now sufficiently low that I flipped to Snap’s VOIP VDSL service. Cell phones also good for 48 hours post-quake, till tower batteries die.

  • @Eric, I appreciate what you are saying but the animal brain does not feel similarly; my wife even more so.

  • FYI for a more ‘old-fashioned’ way of watching movies at home without having to visit the DVD shop, we are finding Fatso really good. They have a big catalogue too.

  • Its a shame Quickflix which operates here just can’t get its hand on a compelling package of content – the technology is great. I use their app on my smart TV. It’s a great way to receive on-demand TV, but they are hamstrung without content rights.