
Netflix a Fast-Growing Rival to Hollywood and Cable - donohoe
http://www.nytimes.com/2010/11/25/business/25netflix.html?hp
======
blhack
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
_every_ thing. 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
Content producers are ecstatic if someone pays them for their content.

Consider Comcast cable: according to
[http://tvbythenumbers.zap2it.com/2009/04/16/average-
monthly-...](http://tvbythenumbers.zap2it.com/2009/04/16/average-monthly-
cable-bill-is-71-according-to-study/16887) 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.

~~~
Vivtek
For now, yes. I would gladly pay Netflix more, especially if they'd carry
shows like Mythbusters (and don't think they won't, eventually). That $71,
though, is a waste of money, because 95% of it is crap. We haven't had cable
since Shark Week 2008 - that was the straw that broke us. Of an hour, twenty
minutes were commercials, thirty-five minutes was reality-show crap asking the
divers how they felt about swimming with scary sharks, and about five minutes
were actual footage of sharks.

We cancelled cable shortly thereafter and haven't really missed it since.
Netflix streaming, though - wow. I've caught up on Heroes, watched Avatar
straight through (the cartoon one), and watched half a dozen movies in the
last couple of weeks that even my video store doesn't bother to carry. There's
simply no comparison. And it's worth far more than $8 to me. We regularly
spend more money than that on video rentals, so Netflix streaming could easily
charge us three or four times that.

I can only imagine it's a loss leader for the next couple of years or
something.

~~~
RK
_especially if they'd carry shows like Mythbusters_

Watching Mythbusters Collection 6 on Netflix streaming right now.

~~~
Vivtek
Oh, goodness, this makes me very happy.

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jakarta
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.

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zhyder
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."

Why give Netflix such a sweet deal?

~~~
RockyMcNuts
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.

~~~
joe_the_user
The interesting thing about your link is how Netflix has been able to mine
more value from their data than Hollywood. The thing is that Hollywood is not
standing still, they have very smart companies like Rentrak working constantly
to analyze up-to-the minute trends.

It seems this is an area where algorithm-fu really shines.

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jawee
Did anyone else find it queer how at the end of the article the USPS and
Internet were referred to as open _source_?

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stelfer
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.

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paul9290
Link to article sans sign up stuff:
<http://www.nytimes.com/2010/11/25/business/25netflix.html>

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wildmXranat
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.

