Netflix represents what I think is going to be the next paradigm in content delivery.
The goal of the media companies (at least should be, it seems like some of them have forgotten), like the goal of any business, is getting their product from its place of production to its place of consumption. Consumption, in the case of television and film, happens behind my eyeballs; in my brain.
For the longest time the only way to do this was to get everybody together at a pre-determined time and play it for all of them at once. Imagine a time before the ubiquity of print, imagine somebody standing in the center of a crowd reading from a bible. That is the current system of content delivery. Everybody get together in a big crowd (although the crowd can be distributed) and the transmitter is going to shout some bits out into the air.
Netflix (and online delivery in general) means that we don't have to do this anymore; we've invented the printing press. Everybody can have a copy of everything. We can all access it whenever we want.
I understand why the cable companies don't like this, they're the ones that made the megaphones that the people standing in the center of the crowd shouting out words from a book have been using. They don't want printing presses because then it means they can't sell megaphones anymore.
(I hope this analogy makes sense...)
The content producers should be ecstatic about this.
Comcast gets 9 times more per user than Netflix so they can pay content producers more.
Consider also quite possible future where most people ditch $71 cable for $8 Netflix, because it's such a better deal.
Comcast can no longer recoup their fixed costs (which they didn't have to care about before when they were making money hand over first with their monopolistic $71 monthly bills) and goes under.
This is exactly what happened to Blockbuster when enough people ditched it for Netflix. Blockbuster no longer could recoup their fixed costs with less customers because their fixed costs were much higher than Netflix's.
When Comcast and other cable companies go bankrupt, the only company left willing to pay for content is Netflix, and they pay much, much less.
It might be a great future for Netflix and maybe even for customers but it's nothing that content producers should be thrilled about.
A cheap, all-you-can eat streaming plan doesn't bring enough money to be generous when paying for content.
For comparison, consider that the price of Netflix's video streaming plan is less than all-you-can-eat audio streaming plans (the full/premium plans for rdio.com is $10/month, spotify is 10euro/month).
Compare the cost of making a movie or a TV show with the cost of recording an album and number of movies/tv shows available on Netflix with number of albums available on music streaming sites. On that metric Netflix delivers tremendous value for the consumer, but they can only do that by paying very little to content producers.
> The content producers should be ecstatic about this.
The problem playing out now is that the studios don't consider you or me to be their customer. Their customers are Walmart, Blockbuster, and cable companies. (Things get trickier when you have "Cabletown" situations, where content providers merge with content delivery.)
Right now, Netflix exists at the pleasure of the studios. I liken it to early cable: Cheap, ad free, accessible, and not long for this world.
"Netflix (and online delivery in general) means that we don't have to do this anymore; we've invented the printing press. Everybody can have a copy of everything. We can all access it whenever we want."
Not that you don't make an otherwise interesting point, but weren't video tapes, and later DVDs, the "printing press" for moving images?
What Netflix adds is instant gratification. It removes the friction of getting what matters: a movie playing for you right now.
This is why cable companies are upset. They've had printing presses of a sort with video on demand, but it was never quite good enough. Not quite the best choices, and not always really "on demand".
Netflix has made this real. (Cable could have also, and still can, but they won't do it as well because they seem to be deeply attracted to stupid constraints and surreal pricing.)
If Netflix can get live sporting events there'd be pretty much zero need for cable except as bandwidth providers.
The content producers should be ecstatic about this, but we should remember we've fought this once before with music. Everyone could have a copy of everything, but the biggest piece of news lately is that the Beatles are finally available on iTunes for purchase - I'd say the fight didn't go as well as hoped.
It's a different fight this time; the internet is much more mainstream than in the 90's, technological progress in the form of portability and speed, and just the different consumption habits for video being more favorable to renting. In your analogy, the people with megaphone are the ones paying for bibles; the producers are have to adapt just the same as those with megaphones.
Make no mistake, the utopian ideal for everyone to have a copy of everything will have a monthly service charge.
I really admire Netflix as a company but would probably not bet on them succeeding in the long run. I would never bet against them either.
Years ago, we had Moviefone which controlled the cinema ticket distribution biz, it aggregated almost all American theaters and had superior technology. Eventually, the cinema owners decided to cut out the middleman and came out with Fandango, their own distribution arm. This pretty much busted Moviefone.
Similarly, I think Netflix faces a tough spot. I think their moat comes from already having a massive customer-base who is willing to pay and has their credit card information installed for recurring payments. Still, online distribution is an area that's much easier to enter and compete on than with mailing DVDs through the postal system.
So I have to wonder if the Studios will decide to try to cut out the middleman and offer their own instant streaming products. Starz is set to re-negotiate their contract soon and I believe they'll get a rate that is more in line with the Epix deal. I can imagine that the studios will press for more money, so Netflix's margins might not actually increase. Instead the money they save on the shift from postal to streaming will go towards content acquisition expenses.
The big benefit I see Netflix offering is the ability to aggregate content that is separated from the studios... it's a third/neutral party. We saw a bad example of what could happen when Fox pulled their content from Hulu for Cablevision customers because of a contract dispute over rate hikes for Fox's television networks.
What I wonder is whether Netflix will ever start distributing original programming. If you look on the premium cable networks (HBO, Showtime, Starz) they all started out as just ways of distributing movies. Eventually though they branched out and started distributing original content -- HBO really pioneered this when Chris Albrecht was leading (he now runs Starz which is bankrolling new shows like Spartacus: Blood and Sand). Offering original content helps add value and increase the moat a bit.
Or, maybe Netflix should use some of their overvalued stock to acquire controlling stakes in studios that have rich content libraries and try to control their own destiny.
I don't get it. Why can't content owners just raise their prices for streaming?
"Netflix pays about 15 cents a month for each subscriber, much less than the $4 to $5 a month that cable and satellite owners pay for access to Starz."
1) Satellite/cable providers receive most of their content via satellite feeds. The programmer covers the cost of the satellite uplink / leasing space on multiple satellites. This is very expensive. Netflix handles the distribution costs over IP.
2) Programmers have cable/satellite providers backed into a corner. They have total control of the content that people want. The providers are at a huge competitive disadvantage if they can't make a deal so the programmers end up getting very favorable terms.
3) Consumers keep paying higher prices for cable/satellite. This whole concept of 'cutting the cord' has only arisen in the last year or two and it's still a small movement. If people are willing to pay the programmers will naturally test the limits. Contrary to popular belief this has not benefited the carriers. Some cable companies actually lose money on their video offerings these days. (that's why they're pushing triple-play so hard)
4) The programmers are hedging their bets. Prices will go up for Netflix in the long run. For now the programmers are smart enough to see the trend moving away from linear video via cable/satellite to IP and they don't want to miss the train. My guess is they want to "educate" customers on how to pay for video online by making deals at sweetheart prices. This won't last. Especially when the competition presented by piracy is massively reduced via ACTA. We already have the domain name seizure legislation. In a few years they'll be free to jack prices up.
The picture I have is Starz did deals with Disney and other content providers allowing Starz to offer unlimited movies on demand through cable companies.
But the deal language was general enough that they were able to fit Netflix in as a distribution partner - http://bit.ly/Tnbpb .
When the Starz deals are up, for instance the Disney deal is up in 2012, it seems likely that the studios will up the ante.
For instance, Netflix's deal with a group of studios including MGM was reportedly worth $1b over 5 years - if you divided that by 16 million subscribers it would be something like $12.50 a year per subscriber (ballpark, you would have to know the details, make assumptions on growth, discount rates etc.)
For now, it's a great deal for consumers, bring your high-speed Internet plus $8 and get unlimited streaming movies. But it seems likely that the $8 might go up to get better content, or get tiered for earlier access to more and better films. And ISPs might cry that it crushes their bandwidth and raise prices (especially the cable ISPs whose $100/month cable TV bills are getting canceled in favor of Internet and over-the-top video).
I suspect cable companies will not suffer too much, unless cutthroat competition unexpectedly breaks out for high-speed Internet subscribers. The big losers will be cable networks that depend on being bundled in basic cable. Why should I pay $30/month for 150 channels I don't watch? (see for instance http://bit.ly/9LTiYk )
The Golf Network and Food Channel can stick it as far as my own bill is concerned, and unless networks can find people to pay a la carte they will have a hard time staying in business.
I'd guess that Starz was looking to put their toes in the digital streaming water, rather than that they necessarily expect this to be the price for perpetuity. I've dropped my core cable and love me my Netflix, but I have to admit that $8.99 (1 DVD at a time, unlimited streaming) is probably not sustainable, if you want to see new content that isn't being subsidized anywhere else, which is the hypothetical end-game here. Frankly I'd pay triple that if they forced the issue as long as they stay ad-free.
Also Starz is, well, nice and all, but at any given time there's only a few really A-list movies on there under a year old, and a motley collection of relatively recent B-list movies. It's not necessarily quite as big a name as they might like to present themselves.
No doubt the future is streaming. But it won't be from Netflix for at least three reasons.
They have very little to zero leverage for content deals.
They've already chased the market to the bottom on pricing.
But most of all, they're just another over the top broadband service. NN is going nowhere. One day real soon now, Ma Bell is coming a knocking for $4 of that $8. They don't "own" the customer in the telecom sense, and that's all that really matters today, tomorrow, and forever in the US.
Selection is bad though. I browsed their offering in Canada and it's abysmal. It's not even worth $1 per month, because there's absolutely nothing there.
[+] [-] blhack|15 years ago|reply
The goal of the media companies (at least should be, it seems like some of them have forgotten), like the goal of any business, is getting their product from its place of production to its place of consumption. Consumption, in the case of television and film, happens behind my eyeballs; in my brain.
For the longest time the only way to do this was to get everybody together at a pre-determined time and play it for all of them at once. Imagine a time before the ubiquity of print, imagine somebody standing in the center of a crowd reading from a bible. That is the current system of content delivery. Everybody get together in a big crowd (although the crowd can be distributed) and the transmitter is going to shout some bits out into the air.
Netflix (and online delivery in general) means that we don't have to do this anymore; we've invented the printing press. Everybody can have a copy of everything. We can all access it whenever we want.
I understand why the cable companies don't like this, they're the ones that made the megaphones that the people standing in the center of the crowd shouting out words from a book have been using. They don't want printing presses because then it means they can't sell megaphones anymore.
(I hope this analogy makes sense...)
The content producers should be ecstatic about this.
[+] [-] kkowalczyk|15 years ago|reply
Consider Comcast cable: according to http://tvbythenumbers.zap2it.com/2009/04/16/average-monthly-... average cable bill in 2009 was $71.
Netflix streaming only plan is $8.
Comcast gets 9 times more per user than Netflix so they can pay content producers more.
Consider also quite possible future where most people ditch $71 cable for $8 Netflix, because it's such a better deal.
Comcast can no longer recoup their fixed costs (which they didn't have to care about before when they were making money hand over first with their monopolistic $71 monthly bills) and goes under.
This is exactly what happened to Blockbuster when enough people ditched it for Netflix. Blockbuster no longer could recoup their fixed costs with less customers because their fixed costs were much higher than Netflix's.
When Comcast and other cable companies go bankrupt, the only company left willing to pay for content is Netflix, and they pay much, much less.
It might be a great future for Netflix and maybe even for customers but it's nothing that content producers should be thrilled about.
A cheap, all-you-can eat streaming plan doesn't bring enough money to be generous when paying for content.
For comparison, consider that the price of Netflix's video streaming plan is less than all-you-can-eat audio streaming plans (the full/premium plans for rdio.com is $10/month, spotify is 10euro/month).
Compare the cost of making a movie or a TV show with the cost of recording an album and number of movies/tv shows available on Netflix with number of albums available on music streaming sites. On that metric Netflix delivers tremendous value for the consumer, but they can only do that by paying very little to content producers.
[+] [-] cowboyhero|15 years ago|reply
The problem playing out now is that the studios don't consider you or me to be their customer. Their customers are Walmart, Blockbuster, and cable companies. (Things get trickier when you have "Cabletown" situations, where content providers merge with content delivery.)
Right now, Netflix exists at the pleasure of the studios. I liken it to early cable: Cheap, ad free, accessible, and not long for this world.
[+] [-] jamesbritt|15 years ago|reply
Not that you don't make an otherwise interesting point, but weren't video tapes, and later DVDs, the "printing press" for moving images?
What Netflix adds is instant gratification. It removes the friction of getting what matters: a movie playing for you right now.
This is why cable companies are upset. They've had printing presses of a sort with video on demand, but it was never quite good enough. Not quite the best choices, and not always really "on demand".
Netflix has made this real. (Cable could have also, and still can, but they won't do it as well because they seem to be deeply attracted to stupid constraints and surreal pricing.)
If Netflix can get live sporting events there'd be pretty much zero need for cable except as bandwidth providers.
[+] [-] fragmede|15 years ago|reply
It's a different fight this time; the internet is much more mainstream than in the 90's, technological progress in the form of portability and speed, and just the different consumption habits for video being more favorable to renting. In your analogy, the people with megaphone are the ones paying for bibles; the producers are have to adapt just the same as those with megaphones.
Make no mistake, the utopian ideal for everyone to have a copy of everything will have a monthly service charge.
[+] [-] jakarta|15 years ago|reply
Years ago, we had Moviefone which controlled the cinema ticket distribution biz, it aggregated almost all American theaters and had superior technology. Eventually, the cinema owners decided to cut out the middleman and came out with Fandango, their own distribution arm. This pretty much busted Moviefone.
Similarly, I think Netflix faces a tough spot. I think their moat comes from already having a massive customer-base who is willing to pay and has their credit card information installed for recurring payments. Still, online distribution is an area that's much easier to enter and compete on than with mailing DVDs through the postal system.
So I have to wonder if the Studios will decide to try to cut out the middleman and offer their own instant streaming products. Starz is set to re-negotiate their contract soon and I believe they'll get a rate that is more in line with the Epix deal. I can imagine that the studios will press for more money, so Netflix's margins might not actually increase. Instead the money they save on the shift from postal to streaming will go towards content acquisition expenses.
The big benefit I see Netflix offering is the ability to aggregate content that is separated from the studios... it's a third/neutral party. We saw a bad example of what could happen when Fox pulled their content from Hulu for Cablevision customers because of a contract dispute over rate hikes for Fox's television networks.
What I wonder is whether Netflix will ever start distributing original programming. If you look on the premium cable networks (HBO, Showtime, Starz) they all started out as just ways of distributing movies. Eventually though they branched out and started distributing original content -- HBO really pioneered this when Chris Albrecht was leading (he now runs Starz which is bankrolling new shows like Spartacus: Blood and Sand). Offering original content helps add value and increase the moat a bit.
Or, maybe Netflix should use some of their overvalued stock to acquire controlling stakes in studios that have rich content libraries and try to control their own destiny.
[+] [-] zhyder|15 years ago|reply
"Netflix pays about 15 cents a month for each subscriber, much less than the $4 to $5 a month that cable and satellite owners pay for access to Starz."
Why give Netflix such a sweet deal?
[+] [-] jsz0|15 years ago|reply
1) Satellite/cable providers receive most of their content via satellite feeds. The programmer covers the cost of the satellite uplink / leasing space on multiple satellites. This is very expensive. Netflix handles the distribution costs over IP.
2) Programmers have cable/satellite providers backed into a corner. They have total control of the content that people want. The providers are at a huge competitive disadvantage if they can't make a deal so the programmers end up getting very favorable terms.
3) Consumers keep paying higher prices for cable/satellite. This whole concept of 'cutting the cord' has only arisen in the last year or two and it's still a small movement. If people are willing to pay the programmers will naturally test the limits. Contrary to popular belief this has not benefited the carriers. Some cable companies actually lose money on their video offerings these days. (that's why they're pushing triple-play so hard)
4) The programmers are hedging their bets. Prices will go up for Netflix in the long run. For now the programmers are smart enough to see the trend moving away from linear video via cable/satellite to IP and they don't want to miss the train. My guess is they want to "educate" customers on how to pay for video online by making deals at sweetheart prices. This won't last. Especially when the competition presented by piracy is massively reduced via ACTA. We already have the domain name seizure legislation. In a few years they'll be free to jack prices up.
[+] [-] RockyMcNuts|15 years ago|reply
But the deal language was general enough that they were able to fit Netflix in as a distribution partner - http://bit.ly/Tnbpb .
When the Starz deals are up, for instance the Disney deal is up in 2012, it seems likely that the studios will up the ante.
For instance, Netflix's deal with a group of studios including MGM was reportedly worth $1b over 5 years - if you divided that by 16 million subscribers it would be something like $12.50 a year per subscriber (ballpark, you would have to know the details, make assumptions on growth, discount rates etc.)
For now, it's a great deal for consumers, bring your high-speed Internet plus $8 and get unlimited streaming movies. But it seems likely that the $8 might go up to get better content, or get tiered for earlier access to more and better films. And ISPs might cry that it crushes their bandwidth and raise prices (especially the cable ISPs whose $100/month cable TV bills are getting canceled in favor of Internet and over-the-top video).
I suspect cable companies will not suffer too much, unless cutthroat competition unexpectedly breaks out for high-speed Internet subscribers. The big losers will be cable networks that depend on being bundled in basic cable. Why should I pay $30/month for 150 channels I don't watch? (see for instance http://bit.ly/9LTiYk )
The Golf Network and Food Channel can stick it as far as my own bill is concerned, and unless networks can find people to pay a la carte they will have a hard time staying in business.
[+] [-] jerf|15 years ago|reply
Also Starz is, well, nice and all, but at any given time there's only a few really A-list movies on there under a year old, and a motley collection of relatively recent B-list movies. It's not necessarily quite as big a name as they might like to present themselves.
[+] [-] chime|15 years ago|reply
[+] [-] jawee|15 years ago|reply
[+] [-] stelfer|15 years ago|reply
They have very little to zero leverage for content deals.
They've already chased the market to the bottom on pricing.
But most of all, they're just another over the top broadband service. NN is going nowhere. One day real soon now, Ma Bell is coming a knocking for $4 of that $8. They don't "own" the customer in the telecom sense, and that's all that really matters today, tomorrow, and forever in the US.
[+] [-] paul9290|15 years ago|reply
[+] [-] wildmXranat|15 years ago|reply
[+] [-] raymondhome|15 years ago|reply
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[+] [-] raymondhome|15 years ago|reply
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