Is Netflix Having an Identity Crisis?

Wednesday morning, Amazon.com’s front page featured a letter from founder and CEO Jeff Bezos — not an unusual occurrence, and one frequently adopted to announce an exciting new product or perk. The big news: a notable addition to their Instant Video service. “Prime members now have unlimited instant streaming access to the largest subscription library for Nickelodeon and Nick Jr. content online,” went Bezos’s missive. “We have increased by 55% the number of episodes available to top Prime shows for kids like SpongeBob SquarePants, Dora the Explorer, Blue’s Clues, iCarly and more of your Nickelodeon and Nick Jr. favorites.” Casual observers might have thought nothing of this news, but for parents, it’s a bombshell — because up until last month, those shows could be found on Amazon Instant Video’s high-profile competitor, Netflix.

The defection was in the works for a while; as noted in this site’s recent discussion of Netflix’s growing pains, the Nick shows were part of an overall deal with Nickelodeon parent company Viacom that was set to expire at the end of May, causing an exodus of programs from not only Nick but Comedy Central (like South Park, no longer streaming at Netflix) and MTV. But the kids’ shows were the real attention-getters; as I wrote last month, “the fury of a million cinephiles is nothing compared to the shit that’s gonna fly from parents who can no longer park their kids in front of Spongebob.”

Well, that day has come, and Amazon couldn’t be crowing louder about it. Not only did they signpost the acquisition with the front-page letter, but the top heading on the site’s Instant Video page is “Prime Member Exclusives: Not on Netflix,” with Spongebob, Dora, and Blue’s Clues the top three hits. It’s an aggressive bit of gloating, but there’s more to it than that. Parents who used Netflix as a babysitter may be particularly susceptible to a bit of potential customer-poaching, if Amazon decides (and they’d be wise to) to position itself as the streaming network of choice for family audiences.

It’s a smart way to take on an industry leader. From the introduction of Netflix Instant, the former purveyor of red envelopes has been the standard-bearer and overall behemoth in the world of online video. In the early days, it was the one-stop shop, and it dominated the market. But its competitors seem to have realized that the way to take Netflix down is not by trying to steal its entire membership, but by instead targeting a particular sliver of the audience that’s being underserved, and carving it out.

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Example: the movie section at Hulu is almost comically under-stocked. That service’s bread and butter is in the television shows it streams from its network partners, and Hulu knows it. But it did something very smart back in February of 2011: it went into business with the Criterion Collection, launching a partnership to stream not only favorite titles from the cinephile favorite’s line of physical media, but numerous titles that were only available via the streaming service. That partnership now boasts over 800 titles; between that precious library and Netflix’s discarding of numerous hard-to-come-by catalog titles in last month’s “Streamageddon,” Hulu looks a lot more like the logical destination for film buffs (and if not Hulu, then other specialty services like FandorSnagFilms, and Warner Archive Instant).

When HBO rose to success in the 1980s, it had a Netflix-like monopoly on the movies-on-cable market (its only real competitor was the mostly West Coast-based Z Channel). But as it grew in popularity, it also suffered a bit of an identity crisis; smaller films and foreign fare went to its sister network Cinemax, while upstarts Showtime, The Movie Channel, and (later) Starz would attempt to siphon off subscribers with edgier branding and specialized programming. The channel really only maintained its dominance via the volume and quality of its original programming, and that seems to be the model that Netflix wants to adopt (the company has explicitly stated as much). But that simple equation (A few big movies + new shows = $$$) isn’t one that’s going to work in the fast-paced and ultra-competitive world of streaming video. If Netflix wants to continue to dominate, it’s going to have to figure out exactly who it is, or be willing to make the deals and spend the money to be everything to everyone.