Netflix’s Next Big Problem: Keeping Quality Content

A funny thing happened when I checked out my Netflix (s NFLX) instant queue the other day: About a third of all the movies and TV shows that I had added over the past few years had been moved to the “Saved” section, meaning they were no longer available for instant streaming.

I’ve been an avid Netflix user for years, so I’ve accumulated quite a list of instant titles in my instant queue: about 450 at last count. So imagine my surprise when 160 of those titles were no longer available for streaming — and this happened after I had already chosen to discontinue the DVD-by-mail portion of my subscription. But it’s not just the number of movies that had dropped out of the streaming service, but the quality of the movies that were no longer available: award-winnings films like The Godfather and The Godfather: Part II, indie favorites like The Royal Tenenbaums and Fargo, even cult classics like A Nightmare on Elm Street have all disappeared from the streaming service.

At the same time that some top content has passed out of my instant queue, the quality of new content being added seems (to me) to have markedly depreciated. While Netflix’s “Top Picks for Ryan” and overall recommendations system is still pretty good at pinpointing new content I’ll find interesting, I’ve noticed that I’m finding less and less of interest in the “New Movies to Watch Instantly” that have been added to the company’s streaming library. Sure, I might check out I’m Still Here just to see what all the buzz is about, and maybe — maybe — I’ll watch 70s classics like Woody Allen’s All You Ever Wanted to Know About Sex or Dustin Hoffman’s turn as Lenny. But by and large, the new additions to Netflix’s streaming library pale in comparison to the content that just fell out of my Instant Queue.

Surely, Netflix is going through some growing pains right now. For all its success in growing its subscriber base and building a distribution platform for streaming content to practically every connected device known to man, Hollywood studios are growing increasingly wary of its market power. Some executives — like Time Warner (s TWX) Chairman and CEO Jeff Bewkes — are openly hostile towards the company, while others are merely ambivalent about Netflix. While it is writing bigger and bigger checks to secure streaming rights to their content, it’s also eating away at DVD sales and could be prompting some consumers to cancel their cable subscriptions.

The overwhelming attitude towards Netflix seems to be that studios are willing to license their content — but for a price. And as this price goes ever higher, Netflix is having to pick and choose which streaming rights it wants to maintain and which it chooses to let lapse. All this could be what’s behind the big drop-off in availability of streaming titles that have interested me.

We’ve largely praised Netflix for being able to secure some high-profile content over the last year or so, including striking a deal with Epix to bring its streaming library to Netflix subscribers, and doing exclusive deals with indie film studios like Relativity Media and FilmDistrict to get exclusive access to their movies in the pay TV window. But all those exclusive, first-run deals come at a price; Netflix is reportedly paying upwards of $200 million a year for Epix content and another $150-$200 million for a deal it struck with Disney (s DIS) for access to ABC and Disney TV content.

The problem comes when access to new releases — especially new releases that aren’t particularly good — comes at the expense of library content that members still find valuable. For me, one of the key benefits of the service is being able to fire up a browser or my Xbox (s msft) and choose from a wide variety of content that I find appealing. There’s still plenty of titles to choose from (including the other 280 films and TV shows in my Instant Queue), but the proportion of quality content disappearing versus that which is being added is troubling.

If Netflix hopes to keep its existing user base — and not just tack on new users — it should be aware of these issues. The company has long been criticized for not having enough quality content in its streaming library. While I was never one to complain about that, now more than ever I’m finding that sentiment to be true.

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