Netflix Offline Viewing Does More Than Satisfy Subscriber Demand

By Motley Fool Staff Markets Fool.com

For years, offline viewing was the "final frontier" forNetflix(NASDAQ: NFLX). Despite the company's concerns surrounding sharing and piracy, subscribers had made it clear that they wanted to be able to watch content while traveling, commuting, or doing anything else where a quality internet connection was unavailable.

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Though reluctant, it appears management listened.

In this segment ofIndustry Focus: Consumer Goods, Vincent Shen is joined by Fool.com contributor Daniel Kline as they discuss the recent news that Netflix will be rolling out part of its massive content library for offline viewing and what it means for the company.

A full transcript follows the video.

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This podcast was recorded on Dec. 13, 2016.

Vincent Shen: I want to touch onanother related story. That is the announcement fromNetflixand their decision to finallyallow offline viewing to theirsubscribers. The company broke this newson the same dayas the DirecTV Now launch, probably stealing a little bit of their thunder. But if you are a Netflix user or follow the company in general, youprobably know that management has been fighting this move for a long time.Amazonfirst upped the ante in September of 2015, they introduced the offline viewing to Prime video users. I think Sean and I talked about that on the show last year around that time. At the time, chief product officer at Netflix, Neil Hunt, he tried to ward off critics by arguing that adding options and complexity to the service would result in confusion or inaction from users. So, instead of just letting viewers download the content while they were traveling or somewhere without a good internet connection, the company tried to find other alternatives, like special servers that they could put on an airplane or train, for example, that could carry the entire Netflix library. Or, they tried to figure out better video technology that would reduce the file size and the data needs of videos. But basically, lo and behold, the simplest option prevails, right?

Dan Kline:Yeah. I mean, that's a tad inefficient.(laughs)

Shen:Exactly.

Kline:I don't think we need to bring all of Netflix with us everytime we fly. That seems a little bit reaching. And the reality is, his point about complexity is correct. Good luck on Amazon figuring out how to download things. It's not super simple. The Amazon interface is light years behind the Netflix interface. That's true whether you're renting something on Amazon, or you're actually watching it through Prime -- figuring out how it is, where it goes --

Shen:I will absolutely agree with you. Recently, I triedto watch something on my mobile phonefor the first time through the Amazon Primevideo library, and it required two additional app downloads. It was very surprising for a company that, in the past, has generally been so good at making shopping or using their services as easy as possible.

Kline:I think the Amazon videoexperience is generally lousy.I'm a subscriber and a Prime number,I'm a Netflix member. And I think what Netflix has done is removed the last barrier to any person who had resistance to a $9.99 price tag,because the people who don't get Netflixare the people who are still spending money renting movies,or going toRedbox. Look,I'm a parent, and before I would take my 12 year-old son on a plane ride,I would pay for a season ofThe Simpsons,or a couple of movies he wants to watch,and I would rent them or buy them so he could watch them offline. We're a Netflix subscriber.I am never again going to have to do that. So,if I ever have to make the decision of, "Is Netflix worth my $9.99, or should I drop it for a month or two because I'm not watching anything?" it's a no-brainer, because we were spending money elsewhere that now just goes into the Netflix bundle.I don't see why anyonewouldn't get Netflix now.

Shen:Yeah. In the beginning, I didn't think this was that significant or that big of a game-changer. But something to keep in mind is, they're rolling this feature out worldwide. The fact that, I think Netflix is now approaching about 90 million subscribers worldwide, and a growing portion of that 90 million is international, and you have some markets where maybe the internet is costlier and not as reliable -- this is maybe going to convince some fence-sitters that "Hey, if I can find a good connection or a cheaper connection, download it, and watch it at my leisure offline, that makes it that much more compelling."

Kline:Andthe reality is, the internet is not that reliable. If you remember, last week, we were going to tape one of these shows,and I was remote in an office with a high-speed, wired internet connection, and we could not get Skype to connect in order to give us a good signal.

Shen:Sure, fair enough.

Kline:How many times have you been watching Netflix in your living room, where randomly it stops, and you have to restart --

Shen:Or let it buffer, yeah.

Kline:Yeah. So, even at home sometimes, we have a family home in the woods in New Hampshire, and the internet connection is satellite internet, it's awful. I would much rather wait an hour to download a movie and then watch it that night than have to deal with the buffering and the stops and the audio not being right, or whatever is going on. This is just a smart move. And I understand,the reason they resisted it was pirating. I can now downloada series ofHouse of Cardsand hand you my laptopand you can watch it. But guess what?I could give you my Netflix password, too.

Shen:Yeah. So,big takeaway, maybe it helps some of those fence-sitters that I mentioned, in areas where the internet connection isn't as reliable. But all in all, I think it's just the stickiness ofthat Netflix product that they're offering. Andultimately, I think if they're able tokeep those subscribers loyal, we saw some churn when they increased their rates earlier this year, but make it as compelling as possible, with their content, but also with the usability of that content,maybe in the future, if there's another price increase, people are more willing to stomach that.

Kline:This is a valuable give-back. Youhave to listen to your customers, and people clearly wanted this,for all the reasons we've listed. So, when they go to $12.99 or $11.99 in a year or two,at least they can say, "Hey, we gave you what you asked for."

Shen:Yep. A fewdetails I do want to add, in terms of,anybody who didn't know about this or wants to look into it is, you need thenewest version of the Netflix app to do so. Andthe library isn't comprehensive. It's growing, they'll be adding more content to it, in terms of what you can download and view offline. It includes most of their original series.

Kline:It's a question of rights. You're going to see this, when we talk about the OTT services,some of these rights scenarios weren't ever considered when they made these deals. So, as these movie deals come up, and TV deals, they're going to start asking for the right to let people download it offline. It's not a technology issue.

Shen:Yep. And one big example of content that is currently not included in this feature isDisneycontent. They signed that really big, expensive deal that gave them some of thatexclusivity.

Kline:AndDisney might be a holdout, because they're one of the last few places that actually still sells DVDs. So, if you're Disney, you may not wantNetflix to be allowed to have your content offline, because it might cost you a $19.99 sale. It's the one thing, as a parent, you can justify,because a little kid is going to watch Cars 300 times in a row,and you're getting your money's worth. So,not everything is coming to this service. But as an adult, as a father, it's still a very valuable offering.

Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.