WSJ: Hits are 30% of Netflix Rentals

The Wall Street Journal Online writes about how Many Companies Still Cling to Big Hits to Drive Earnings (free), and Netflix is featured in the story:

Hits are bigger at Netflix than many outsiders seem to think. The DVD renter routinely says that 70% of its rentals are from its back catalog, which might suggest a mere supporting role for blockbusters.

But Netflix's defines "back catalog" expansively. A spokesman says it's anything outside of the 50 or so DVDs getting heavy studio promotion at any given time. So even recent megahits like "Spiderman II" are in the back catalog.

What's more, since Netflix rents 60,000 titles, it follows that those 50 titles -- eight-tenths of 1% of inventory -- generate 30% of all rentals. Netflix isn't alone in getting a big chunk of business from hits; sales of Apple's iTunes are close to those tracked by Billboard, says an insider.

Update: In the comments, Hunter posted a link to Chris Anderson's response to the WSJ story.

Comments

[Davis Freeberg]

I would love to see a breakdown of how this number is calculated. I know that almost 100% of my rentals will always be long tail because I like catching up on things I missed, but I wonder if there an opposite customer to me, who only goes after new releases or if the average customer really does rent 30% new releases and 70% archive. Averages can be a little deceptive sometimes, it would be interesting to know what the mean is between archives and top hits.

[WeaselBuddha]

I like many would also like to see the allocation algorithms for "hits". But I think this is good news, unlike their brick and mortar counterparts, this means that Netflix will pay attention to small releases instead of flogging the hell out of the top 10%.

[CJ]

This is the beauty of Netflix - 30% of the rentals for 0.8% of the titles available helps support costs of the 70% of the rentals for the other 99.2% of title available.

Obviously a Brick and Mortar store can't carry a large catalog because of the cost of physical shelf display - It has to have a limited catalog, of only those 0.8% titles of Netflix titles, to stay in business.

[NetflixShill]

"This is the beauty of Netflix - 30% of the rentals for 0.8% of the titles available helps support costs of the 70% of the rentals for the other 99.2% of title available."

The Wall Street Journal's math is wrong. The Top 50 are only 0.08333% of 60,000 DVDs. Not 0.8%, as the article maintains. The fact NF defines everything but the Top 50 as archive means means their statistics are skewed. It would make more sense to say that everything more than 1 or 2 years old was back catalog, including movies that are new to DVD.

[NetflixShill]

He should have said "8% of 1%" or 1/1,200th.

[NetflixShill]

BTW, this confirms what I have said before. Most people only want new releases and hits. All this talk about "long tail" is a lot of bull. The Top 100 generate more sales/rents per year than all the long tail titles ever released will make in 100 years. Plus, hits keep generating money, year after year. The yearly sales of Gone With The Wind, Citizen Kane, and Casablanca probably exceed all of the Top-100 indie films put together.

Long Tail isn't going to save the small guy. As the article states, music and book sales are almost the same online as in B&M stores. This should be obvious, but some people like to live in a fantasy land where Netflix and Amazon broaden the tastes of the masses. The reality is that selection doesn't change us. It just reinforces our existing tendencies. The Long Tail argument is like one of Zeno's Paradoxes. It's based on fallacy.

[Super-Bat-Man]

you're so smart netflix shill. how do you do it?

[Hunter McDaniel]

See the rebuttal to the WSJ article here:
http://www.longtail.com/the_long_tail/2006/07/factchecking_my.html

[corey3rd]

some people like to live in a fantasy land where Netflix and Amazon broaden the tastes of the masses.
_________
Well some of us live in a reality where Netflix and DeepdiscountDVD help us maintain our broad taste and cinema curiosity. i don't expect Cletus and Britney Spears to be raving about Jean Cocteau. But I do like the fact that a curious kid that gets a buzz out of flipping though a copy of the Psychotronic can use netflix to track down titles without breaking the bank. And it can also help those unfortunate ones who decide they want to be flim critics and must view all the classics to truthfully be able to drone people to death.

Who really cares about the masses? I don't have enough nachos to share them on movie night. Which tonight includes Will Success Spoil Rock Hunter.

[WeaselBuddha]

For someone who claims that the download services have to have every movie every made to succeed, you turn around and claim that selection isn't important.

I am hardly typical, but of the current top 10 items in my queue, two are pre-releases, four are foreign, one is a classic, two are smaller releases within the last eight months. None are hits. On my entire queue, none are hits. Even my saved queue, closest I get to hits is Slither and Thank You for Smoking ( unless the remake of Wicker Man goes wide, which is doubtful, I don't think a Labute film has yet to qualify for "Hit"; or the actress Molly Parker becomes a household name, which is more likely ).

Of Mike K.'s top 5, none are hits. And if you look at the bestselling DVDs of 2005, about 2/3 of the top twenty five were "hits".

There have been several articles, that claim that BB's rental biz is significantly more hit oriented than that of Netflix's.

The one place that "Long Tale" has definitely kept a business going is in the speciality market, Science fiction based back stock has kept numerous speciality shops in business when facing the onslaught of corporate back competition. Same goes for travel speciality shops.

But, to be more specific, for years I worked part time at various video stores across the country ( great way to meet like minded people, something the tech industry isn't known for ). The last one was in 1994, a small chain, they were facing extinction from directed competition from two large chains ( one was a blockbuster ). I and another store employee approached the owner, with a plan, we suggested not cutting back staff, but adding staff, in particular, adding roaming floor staff that helped people find movies and recommended alternatives to out of stock new releases.
The store already had a very good back stock selection, but could not in anyway compete with the sheer number of a single new release the big guys got, or with their prices ( though we had a much more liberal overdue policy, good customers rarely got charged for a couple days late ). All of our staff were movie people, that had good customer skills.

That store was the only small store still remaining, and had expanded two years later due to these policies, revenue went up over 20%, while the big guys beat each other brains out.

Having good customer service, a very good back stock, that is selection, and the ability to communicate that the customer was valued, was what saved the store. Also having adult titles help, to be honest.

I agree the tail will not exceed that of the head, but the tail was partially responsible for saving this small shop, while others fell to BB dominance.

( by the way, the reason I didn't continue to work video stores, was that I left the country until the end of 2003 )