Several times in this article, they make it sound like Netflix is competing with cable. But in reality, Netflix only streams TV shows that are already out on DVD. iTunes is the service competing with cable, both on the PC and Apple TV.
Netflix isn't competing with cable in terms of getting eyeballs for the same content, but it is competing with cable in terms of time spent on entertainment. I know several people who have canceled their cable subscription because they found they had plenty of things to watch with a $10/month Netflix subscription and no longer found a $50-100/month cable subscription to be a good value.
I'm such a person. If you can live without sports (or only the sports available locally via over-the-air) and you don't need to see the latest/greatest shows, cable TV isn't a great value proposition. I don't mind waiting a year or two to watch something; there are plenty of alternatives in the meantime.
That's the essential problem that the industry has to deal with: there is way more content than most of us have time for.
I'm another person who cancelled cable and started watching things I normally wouldn't on Netflix. I'm rewatching the Doctor Who new series now and loving every minute of it. Wife and I watched Dead Like Me, Arrested Development, Pushing Daises, and lots of documentaries and movies.
It's currently rare, but Netflix does offer some shows prior to DVD release. For example, Party Down Season 2 episodes were available on Netflix the same week that they were originally broadcast. They've since been removed, and I assume will be back once the DVDs are out.
On a tiny scale they're experimenting with a hybrid model of "instantly available" and "waiting for DVD."
I find TWC's concept of reality rather ironic. TWC's stock is at an all time new low, and they have been given permission by the FCC to break the rules on the maximum bill for service packages.
I have TWC here and can't get Sat, and am paying $75 a month for 40 analog stations; soon as I figure out how to switch to, say, Google TV + Netflix without loosing too much, I'm switching.
It isn't so far fetched. Time Warner is a producer of content and has a large library. It doesn't seem unreasonable for content producers to cut out the middle man and have a streaming service of their own. Disney in particular could very well build a Netflix clone of their content. Aggregated services like Netflix allow for more content and smaller library owner participation, but one wonders at what size of library could $5 a month be justified? How about $10?
Speaking as a netflix subscriber, the problems I see with this are:
1) many of these libraries, on their own, wouldn't even be worth $5 a month to me
2) I don't want to have to buy a bunch of different services and somehow integrate them. Maybe if they all showed up as Roku channels... but netflix is available across many different devices. Few other services are so ubiquitous.
Honestly, if netflix failed and nothing took its place, I expect we'd just buy/rent dvds for a few years and wait it out. But I don't think they are going to fail. The sad truth is that there is so much content out there that it's pretty easy to live without the latest.
Isn't that what Hulu is to some extent. I guess it's different forms of media (tv vs. movies) so one could convince themselves that they don't compete, but this seems in the same vain to me.
The thing is that 1 service with 5x content >> 5 services with x content each. Being able to find everything in one place is a very large benefit from a consumer perspective.
The thing is they don't all have same size libraries. If Disney took all content off Netflix and created its own service, then it probably could do it itself. Time Warner might be close to that size. Other need to be part of an aggregation.
Aside from the aggregation points from other responses, I think such a venture might fail at a fundamental product design level. These content companies don't have any particular know-how in that area, and they are going to be very greedy as they cling to their dying business model. It's just not a good recipe for a successful consumer product.
I have tried the iPad version. Its frustrating. It actually drops out of full screen mode if the commercials are in a different resolution to the show. Oh, yeah, commercials. So now where are my XBox, Wii and PS3 versions?
Cable is on its way out. Maybe not today, maybe not next year, maybe not in five years. But it is surpassed and supplanted by the Internet.
Movies, news and TV shows will continue, and online pricing will, in the course of time, adjust to reflect a profit margin that doesn't involve existing cable TV.
That doesn't mean Netflix is going to rule - it's much more reasonable in my opinion to assume a cabal of motion picture industry will form and cut out the middle-men.
That doesn't mean Netflix is going to rule - it's much more reasonable in my opinion to assume a cabal of motion picture industry will form and cut out the middle-men.
And it's a pity that you're almost certainly right, since Netflix actually does what it does well.
Am I the only one who actually thinks they are scared and worried if they find the need to downplay Netflix and condescendingly compare it to the Albanian army taking over the world?
If it isn't a threat, why bother even talking about it...
Do the corporate PR types and CxOs really think they are being smart and sly when they all of the sudden, out of the blue start telling everyone "we are doing very well, we are not afraid of anyone, everything is fine" and not arouse suspicion?
Last time this kind of excessive chest pounding and excessive boasting happened in a company I worked for, a week later we read from CNN financial news that we have been sold to some no-name equity holding company... and it wasn't because we were great, it was because things were going South.
Now what I am interested in, does the management actually brainwash themselves to believe their own lies or do they know things are bad and just try to lie and talk their way out of the problem with pure "leadership" and "decisive" chest pounding...
I tend to think the smartest among them realize that the world is changing and big budget entertainment will increasingly have to compete with more and more free and low-cost entertainment options on the internet, but what are they supposed to do about that? The only rational thing is to extract as much value from their content as they can while they can. Freezing out NetFlix may well help profits in the short-term, which is the best they can hope for with the way the market is going. Eventually they will have to take less for streaming deals, but we are still a ways from that point.
"big budget entertainment will increasingly have to compete with more and more free and low-cost entertainment options on the internet"
By "free and low-cost entertainment options" do you mean pirated content? I do not see non-pirated content competing effectively with big-budget movies and television the way that non-pirated textual content (blogs, sites like HN) competes effectively with newspapers and magazines.
I wasn't specifically talking about pirated content, although piracy will continue to hurt them as well. As for non-pirated content, I agree, it doesn't compete effectively, but attention is a finite resource, and it's being stretched very thin. It's a far cry from the days when people had to go to the movies just to get in an air-conditioned building during the summer.
Here's my take: There is no threat to the studios.
1 - Netflix thinks streaming is the future.
2 - dvds are covered by first sale; streams are not
3 - ergo, netflix needs a license to stream, which they didn't need for dvds
4 - they got this by a clever backdoor agreement with Starz for a paltry $25MM. This agreement ends soon.
5 - the studios are now aware of this and want a lot more money, maybe so much to make it uneconomical for netflix
6 - this is a huge and growing piece of netflix' income, yet still a small piece of the studios'. Therefore, the studios most likely have all the cards in a negotiation.
7 - the closest comps are "hundreds of millions" that cable companies pay the studios, so expect the studios to expect that type of money from netflix
8 - to the extend that cable companies are worried netflix streaming cannibalizes their offerings, they are of course communicating this to the studios
9 - the studios are well aware which parties pay them hundreds of millions of dollars a year, and which parties don't
Why doesn't Netflix or someone make their own studio? The main thing holding media back at this point is the existing studios and distributors wanting a ridiculously high cut of everything. Personally, rather than trying to find a way to play nice with those guys, I'd rather cut them out entirely.
Exactly my thought when I read this. Starting a movie studio wouldn't necessarily be any more difficult than it was to build a nationwide distribution network. Seems to me Netflix could start financing the shows on cable and network TV, and then partner with Google and others to build out urban wi-fi networks, city by city to go after the cable providers. Netflix wouldn't even have to win this fight, but applying pressure across the entire value chain of content creation through content delivery would keep any one entity from putting Netflix in headlock.
Because studios are very capital-intensive. You've got to front hundreds of millions of dollars for a year or two before the movie hits theaters. Not to mention that it's like VC - you've got to invest in 5 movies because 2 of them will flop, 2 will be modest successes, and 1 of them will hit it big and nobody knows which ahead of time. So you're talking about getting your hands on like a billion dollars in startup cash for a studio.
1, because it's expensive (take a look at MGM situation over the past decade)
2, having access to 1 studio, especially a no-name studio is extremely non-valuable to Netflix. When is the last time you saw a movie because it was released by Sony Pictures, or Lionsgate, vs. seeing it because the content itself was interesting to you? I'd hazard you've never done any such thing, because effectively zero people consume content based upon who owner is vs. what the content is/who the creator is.
Netflix needs at least 2 of the major studios providing them content, preferably 3 or 4 of the 5 majors, in order to provide access to a wide range of material.
I had the same thought as some have expressed here, Time Warner taking a shot at Netflix,,really? Time Warner ??
But the article makes some valid points. When Netflix started it wasn't viewed as a direct threat to the content owners. Nflix served as the physical distribution arm (and a very very efficient one at that) for media houses. But now with streaming the game is changing.
Each of the players can now setup their own web based distribution base, why would they need Netflix anymore?
Plus there's more competition now. When Netflix launched it was the only one that did what it did (true bb tried, but they were poorly run). With streaming in addition to each Media conglomerates own websites there's also Hulu and lets not forget big dog Google (Youtube and Google TV).
In short content owners have options now, that didn't before. I trust Netflix will come out of this strong, they're a great company with some really smart people, but its not going to be easy
Netflix's greatest coup to date has been integration with so many hardware manufacturers - the bulk of net-connected TVs & consoles have Netflix on there as a gimmie.
But Amazon is catching up - found them on my most recent Sony TV purchase, they're on ROKU (originally a Netflix device), etc.
With that option I find myself using Netflix less and less because the streaming content just ain't that great and Amazon's streaming on-demand service, while more expensive today, gives better content.
The recent rumor of Amazon considering bundling a FREE streaming service with Amazon Prime is very compelling and, unlike Blockbuster & the studios, they can compete in online commerce and have the pockets to play with the studios.
“It’s a little bit like, is the Albanian army going to take over the world?” said Jeffrey L. Bewkes, the chief executive of Time Warner, in an interview last week. “I don’t think so.”
Someone please throw a dozen copies of The Innovator's Dilemma[1] at this guy. Maybe the TW board will wake up and fire him before he runs their company into the ground.
I don't think you're giving Bewkes due credit. It seems like the point wasn't lost on him at all; the industry seems to have realized that the wave is going by, and they got caught flat-footed. See:
"Time Warner’s HBO is in the process of introducing a new online service, HBO GO, which will be available to authenticated HBO subscribers. Mr. Bewkes has also led an industry initiative he has called TV Everywhere, whose idea is to offer cable network programming online for anyone who is a verified cable subscriber. "
They're trying to take advantage of the economies and at least some of the capabilities of the digital distribution platform without losing a huge chunk of profits (subscribers). It makes sense to try and diminish their digital-distribution competition (including Netflix) for business reasons. Netflix jumped the gun on them by hopping on the digital platform first, and at very subsidized prices, so the conglomerates have to play catch-up. Don't forget, though, that this kitty got claws: big media can still price Netflix out of the game, or at least out of this ridiculous growth phase, since they do own/create the content that Netflix thrives on, and can raise prices.
Nah, that seems like a classic textbook late response of a company caught empty-handed by a disruption. The very pressures you cite to preserve their existing business will ultimately kill them without some IBM-style creative thinking.
Yes, it's theoretically possible that the TV industry is inefficient enough that the oligopoly can keep out new entrants, but Netflix already has way too much market share for that to work out in the cartel's favor.
No, Netflix doesn't. If the studios don't sell netflix a streaming license, then Netflix has no streaming business. I am aware of no law that requires the studios to sell such a license; even if there is, I doubt that it requires the studios to sell such a license on more generous terms than it sells license to cable companies, who pay lots more than netflix.
I agree. Moreover, even if they choose to continue to do business with Netflix, any businessperson would see the potential for raising prices, and Netflix may make a big bruhaha now, but in the end, they'll pay it because they'll still make money.
Netflix' ridiculous profits and growth rate represents a demand unanticipated by the content providers that serve it. The only reason they didn't capitalize on this potential and raise prices is because of the length of the contract. As soon as it lapses, expect Netflix' profit margins to get a whole lot skinnier, and their growth to slow down. This looks like a classic case of a binding contract slowing down delaying the market response to unanticipated innovation. It's not the conglomerates shutting Netflix down with extreme malice and prejudice; it's the market adjusting and redistributing the newfound pie.
> Time Warner’s HBO is in the process of introducing a new online service, HBO GO, which will be available to authenticated HBO subscribers. Mr. Bewkes has also led an industry initiative he has called TV Everywhere, whose idea is to offer cable network programming online for anyone who is a verified cable subscriber.
And that's what you're doing wrong Mr. Bewkes. As I don't have cable anymore, I'll never be able to access HBO GO or TV Everywhere. I will not re-signup for cable at $75/month now that I have Netflix for $8/month, even if you add tons of tertiary services to your cable offerings. With these tactics, the most you can do is slow down customer defection to Netflix. And even then, you will never get back a single customer you already lost to Netflix. They get their users better than you get your viewers.
Get your content on Netflix and/or make your content available to any Roku/XBox/Wii/PS3/iPad/iPhone/PC/Mac like Netflix for a fair price and I'll sign up. I am no fan of DRM but I will use Silverlight if I must.
45 comments
[ 3.4 ms ] story [ 102 ms ] threadThat's the essential problem that the industry has to deal with: there is way more content than most of us have time for.
On a tiny scale they're experimenting with a hybrid model of "instantly available" and "waiting for DVD."
I have TWC here and can't get Sat, and am paying $75 a month for 40 analog stations; soon as I figure out how to switch to, say, Google TV + Netflix without loosing too much, I'm switching.
Honestly, if netflix failed and nothing took its place, I expect we'd just buy/rent dvds for a few years and wait it out. But I don't think they are going to fail. The sad truth is that there is so much content out there that it's pretty easy to live without the latest.
Movies, news and TV shows will continue, and online pricing will, in the course of time, adjust to reflect a profit margin that doesn't involve existing cable TV.
That doesn't mean Netflix is going to rule - it's much more reasonable in my opinion to assume a cabal of motion picture industry will form and cut out the middle-men.
My 0.02c.
And it's a pity that you're almost certainly right, since Netflix actually does what it does well.
If it isn't a threat, why bother even talking about it...
Do the corporate PR types and CxOs really think they are being smart and sly when they all of the sudden, out of the blue start telling everyone "we are doing very well, we are not afraid of anyone, everything is fine" and not arouse suspicion?
Last time this kind of excessive chest pounding and excessive boasting happened in a company I worked for, a week later we read from CNN financial news that we have been sold to some no-name equity holding company... and it wasn't because we were great, it was because things were going South.
Now what I am interested in, does the management actually brainwash themselves to believe their own lies or do they know things are bad and just try to lie and talk their way out of the problem with pure "leadership" and "decisive" chest pounding...
By "free and low-cost entertainment options" do you mean pirated content? I do not see non-pirated content competing effectively with big-budget movies and television the way that non-pirated textual content (blogs, sites like HN) competes effectively with newspapers and magazines.
1 - Netflix thinks streaming is the future.
2 - dvds are covered by first sale; streams are not
3 - ergo, netflix needs a license to stream, which they didn't need for dvds
4 - they got this by a clever backdoor agreement with Starz for a paltry $25MM. This agreement ends soon.
5 - the studios are now aware of this and want a lot more money, maybe so much to make it uneconomical for netflix
6 - this is a huge and growing piece of netflix' income, yet still a small piece of the studios'. Therefore, the studios most likely have all the cards in a negotiation.
7 - the closest comps are "hundreds of millions" that cable companies pay the studios, so expect the studios to expect that type of money from netflix
8 - to the extend that cable companies are worried netflix streaming cannibalizes their offerings, they are of course communicating this to the studios
9 - the studios are well aware which parties pay them hundreds of millions of dollars a year, and which parties don't
10 - I hope netflix pulls this out.
2, having access to 1 studio, especially a no-name studio is extremely non-valuable to Netflix. When is the last time you saw a movie because it was released by Sony Pictures, or Lionsgate, vs. seeing it because the content itself was interesting to you? I'd hazard you've never done any such thing, because effectively zero people consume content based upon who owner is vs. what the content is/who the creator is.
Netflix needs at least 2 of the major studios providing them content, preferably 3 or 4 of the 5 majors, in order to provide access to a wide range of material.
But the article makes some valid points. When Netflix started it wasn't viewed as a direct threat to the content owners. Nflix served as the physical distribution arm (and a very very efficient one at that) for media houses. But now with streaming the game is changing.
Each of the players can now setup their own web based distribution base, why would they need Netflix anymore?
Plus there's more competition now. When Netflix launched it was the only one that did what it did (true bb tried, but they were poorly run). With streaming in addition to each Media conglomerates own websites there's also Hulu and lets not forget big dog Google (Youtube and Google TV).
In short content owners have options now, that didn't before. I trust Netflix will come out of this strong, they're a great company with some really smart people, but its not going to be easy
But Amazon is catching up - found them on my most recent Sony TV purchase, they're on ROKU (originally a Netflix device), etc.
With that option I find myself using Netflix less and less because the streaming content just ain't that great and Amazon's streaming on-demand service, while more expensive today, gives better content.
The recent rumor of Amazon considering bundling a FREE streaming service with Amazon Prime is very compelling and, unlike Blockbuster & the studios, they can compete in online commerce and have the pockets to play with the studios.
ref - http://technolog.msnbc.msn.com/_news/2010/12/07/5605985-amaz...
If they updated it or got more of the main library in there, I'd be all about it again though.
Someone please throw a dozen copies of The Innovator's Dilemma[1] at this guy. Maybe the TW board will wake up and fire him before he runs their company into the ground.
1. http://en.wikipedia.org/wiki/Disruptive_technology
"Time Warner’s HBO is in the process of introducing a new online service, HBO GO, which will be available to authenticated HBO subscribers. Mr. Bewkes has also led an industry initiative he has called TV Everywhere, whose idea is to offer cable network programming online for anyone who is a verified cable subscriber. "
They're trying to take advantage of the economies and at least some of the capabilities of the digital distribution platform without losing a huge chunk of profits (subscribers). It makes sense to try and diminish their digital-distribution competition (including Netflix) for business reasons. Netflix jumped the gun on them by hopping on the digital platform first, and at very subsidized prices, so the conglomerates have to play catch-up. Don't forget, though, that this kitty got claws: big media can still price Netflix out of the game, or at least out of this ridiculous growth phase, since they do own/create the content that Netflix thrives on, and can raise prices.
Yes, it's theoretically possible that the TV industry is inefficient enough that the oligopoly can keep out new entrants, but Netflix already has way too much market share for that to work out in the cartel's favor.
Netflix' ridiculous profits and growth rate represents a demand unanticipated by the content providers that serve it. The only reason they didn't capitalize on this potential and raise prices is because of the length of the contract. As soon as it lapses, expect Netflix' profit margins to get a whole lot skinnier, and their growth to slow down. This looks like a classic case of a binding contract slowing down delaying the market response to unanticipated innovation. It's not the conglomerates shutting Netflix down with extreme malice and prejudice; it's the market adjusting and redistributing the newfound pie.
And that's what you're doing wrong Mr. Bewkes. As I don't have cable anymore, I'll never be able to access HBO GO or TV Everywhere. I will not re-signup for cable at $75/month now that I have Netflix for $8/month, even if you add tons of tertiary services to your cable offerings. With these tactics, the most you can do is slow down customer defection to Netflix. And even then, you will never get back a single customer you already lost to Netflix. They get their users better than you get your viewers.
Get your content on Netflix and/or make your content available to any Roku/XBox/Wii/PS3/iPad/iPhone/PC/Mac like Netflix for a fair price and I'll sign up. I am no fan of DRM but I will use Silverlight if I must.