5 ms·

Netflix a Fast-Growing Rival to Hollywood and Cable

47 points by donohoe 16y ago

blhack 16y ago
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.
- kkowalczyk 16y ago
  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-cable-bill-is-71-according-to-study/16887 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.
  - Vivtek 16y ago
    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 16y ago
      especially if they'd carry shows like Mythbusters Watching Mythbusters Collection 6 on Netflix streaming right now.
      - Vivtek 16y ago
        Oh, goodness, this makes me very happy.
  - lokijuhygtfrd 16y ago
    >A cheap, all-you-can eat streaming plan doesn't bring enough money to be generous when paying for content. Compared to piracy it looks pretty good
  - bmelton 16y ago
    For Comcast to pay 9 times more, they're also paying it to many more recipients. They have to pre-stock the shelves, as it were, and they pay royalties not on user-subscription or acceptance, but on simply distributing the content. Aside from Nielsen viewers, they have no really good way of knowing who is watching what channel. They're not ignorant to this fact either -- that I HAVE to buy ChannelIDoNotWant to get ChannelIReallyDoWant is part of their packaging. They know what sells, and they know how to upsell. They're just taking a little bit off the top. Netflix is doing it differently -- they can tell you exactly what I watched, and how much of it I watched, and pay royalties accordingly. It isn't necessarily that the distribution model is better (though it is), it's that the reportability is FAR more precise. In addition, their overhead is considerably less. They aren't getting the content into my home. I pay Verizon something like $100 a month for my internet plan. In the case of Verizon, they're also a cable TV provider. They're still charging to recoup (or using that as justification for) their costs. Netflix doesn't have to pay this, they just have to pay their own upstream bandwidth charges, not for the cost of maintaining a network end-to-end. Offtopic, Grooveshark is $3 a month, as is Pandora. I don't know how Rdio or Spotify can justify their prices, considering I have (to my mind) every conceivable combination of features I could want in streaming radio by subscribing to both Pandora and Grooveshark, for $4 less a month than either of those services.
- cowboyhero 16y ago
  > 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.
- fragmede 16y ago
  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.
- jamesbritt 16y ago
  "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.
zhyder 16y ago
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?
- chime 16y ago
  If it was that easy I'm sure they would. Netflix most probably has long-term contracts with fixed pricing and terms.
- jerf 16y ago
  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.
- RockyMcNuts 16y ago
  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 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 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.
jawee 16y ago
Did anyone else find it queer how at the end of the article the USPS and Internet were referred to as open source?
paul9290 16y ago
Link to article sans sign up stuff: http://www.nytimes.com/2010/11/25/business/25netflix.html http://www.nytimes.com/2010/11/25/business/25netflix.html
raymondhome 16y ago
Hey guys, Netflix isn't competing with the VOD guys. Netflix can only stream movies after the VOD window has lapsed. Now the 64 gazillion dollars question : who is going to buy Blu-rays when they can watch unlimited movies for $8.99?
raymondhome 16y ago
Netflix is not a rival to Hollywood. The studios can kill Netflix by forming their own consortium to stream movies.
jakarta 16y ago
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.
stelfer 16y ago
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.
wildmXranat 16y ago
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.

47 points by donohoe 16y ago

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.

kkowalczyk 16y ago
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-cable-bill-is-71-according-to-study/16887 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.
- Vivtek 16y ago
  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 16y ago
    especially if they'd carry shows like Mythbusters Watching Mythbusters Collection 6 on Netflix streaming right now.
    - Vivtek 16y ago
      Oh, goodness, this makes me very happy.
- lokijuhygtfrd 16y ago
  >A cheap, all-you-can eat streaming plan doesn't bring enough money to be generous when paying for content. Compared to piracy it looks pretty good
- bmelton 16y ago
  For Comcast to pay 9 times more, they're also paying it to many more recipients. They have to pre-stock the shelves, as it were, and they pay royalties not on user-subscription or acceptance, but on simply distributing the content. Aside from Nielsen viewers, they have no really good way of knowing who is watching what channel. They're not ignorant to this fact either -- that I HAVE to buy ChannelIDoNotWant to get ChannelIReallyDoWant is part of their packaging. They know what sells, and they know how to upsell. They're just taking a little bit off the top. Netflix is doing it differently -- they can tell you exactly what I watched, and how much of it I watched, and pay royalties accordingly. It isn't necessarily that the distribution model is better (though it is), it's that the reportability is FAR more precise. In addition, their overhead is considerably less. They aren't getting the content into my home. I pay Verizon something like $100 a month for my internet plan. In the case of Verizon, they're also a cable TV provider. They're still charging to recoup (or using that as justification for) their costs. Netflix doesn't have to pay this, they just have to pay their own upstream bandwidth charges, not for the cost of maintaining a network end-to-end. Offtopic, Grooveshark is $3 a month, as is Pandora. I don't know how Rdio or Spotify can justify their prices, considering I have (to my mind) every conceivable combination of features I could want in streaming radio by subscribing to both Pandora and Grooveshark, for $4 less a month than either of those services.
cowboyhero 16y ago
> 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.
fragmede 16y ago
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.
jamesbritt 16y ago
"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.

zhyder 16y ago

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?

chime 16y ago
If it was that easy I'm sure they would. Netflix most probably has long-term contracts with fixed pricing and terms.
jerf 16y ago
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.
RockyMcNuts 16y ago
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 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 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.

jawee 16y ago

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

paul9290 16y ago

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

raymondhome 16y ago

Hey guys, Netflix isn't competing with the VOD guys. Netflix can only stream movies after the VOD window has lapsed. Now the 64 gazillion dollars question : who is going to buy Blu-rays when they can watch unlimited movies for $8.99?

raymondhome 16y ago

Netflix is not a rival to Hollywood. The studios can kill Netflix by forming their own consortium to stream movies.

jakarta 16y ago

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.

stelfer 16y ago

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.

wildmXranat 16y ago

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.