A try apiece from Ali Williams and Sitiveni Sivivatu and three penalties from Dan Carter saw the All Blacks to victory, with Jonny Wilkinson's three-pointer the Lions' sole reply.
Woodward insists there are positives he can take from the match but was worried by the All Blacks' domination of the line-out.
He told Sky Sports: "It has been a bad night for us. I picked a line-out team and as it turned out they dominated that part of the game.
"Defensively we were fantastic and then to give a soft try away from a line-out was very disappointing.
"Clearly if we can't win ball at line-out time we will struggle over here. But credit to New Zealand, they did very well in the conditions.
"I'm disappointed by the amount of ball we got but I stand by my selections. We got the lineout wrong and they did well, it's as simple as that.
"We had the O'Driscoll injury and also lost Tom Shanklin today but we've got to be very, very strong, regroup overnight and move on quickly now."
Asked whether he would now turn to players he knows less well after relying on some old heads in Christchurch, he added: "I knew all 45 players.
"I've got to rethink things for next week, if I've made some errors I've got to own up to it, but I need to watch the tape back first.
"We got one or two tough calls early on but you can't go too overboard at this stage but without the ball you can't beat these guys."
England's World Cup-winning coach still believes, however, that his side are capable of winning both remaining Test matches to claim a series victory.
He said: "Nothing is impossible. When I saw conditions I thought it would be a good night and I'm disappointed how the line-out has gone."