Netflix and the Future of the Entertainment Business

I’m a big fan of Reed Hastings. Not just of his vision, but his honesty as well.   Reed posted his strategy deck on Slideshare.com . While we agree and disagree on a few items here and there, he does a great job identifying the risks created by Cable/satellite/telco (CST) .  The key quote on this slide ( page 26) –  “almost no customers leave cable for netflix”

Reed is one of the smartest guys in the space. This is a must read for anyone interested in the future of the entertainment business.

39 thoughts on “Netflix and the Future of the Entertainment Business

  1. Netflix is great and it is only going to get better as other companies try and claim there share! Go Netflix! :)

    Comment by groovyz -

  2. The BIG LIMIT [bandwidth] to Netflix’s growth is out of their hands. Their access to deliverable content follows close behind, as a hurdle of uncertain height.
    The pipe owners [CST/ISP] are not going to sit idly by while Netflix attempts to flood [many more millions] peoples’ homes with competing ‘virtual product’. There are already people blogging about their ISPs ‘throttling’ bandwidth. The encumbent entertainment delivery providers which also own’the Pipe’ are well positioned to compete with Netflix expansion.
    The other shoe is Google. They are launching the hybrid “Google TV”. While that alone is not remarkable [Netflix also has major connections for streaming video], google is testing the FiOS waters! Currently Verizon is the FTTH leader, AT&T is following and Google could creep in.

    Comment by bojonson -

  3. nice video

    http://www.hukukitercume.com

    Comment by hukukitercume -

  4. My wife finally twisted my arm into getting the netflix account and I can’t say enough good things about it.

    The way of the conventional video stores are fastly declining and going by the wayside, as we see more and more blockbuster stores closing.

    I mentioned to my family that we almost don’t really need cable because we can practically watch whatever we want to watch via the streaming media on netflix.

    Whatever happens, I’m sure we can rest assured that Netflix is here to stay and grow and grow and grow.

    With a busy schedule of investing in real estate and training investors (http://www.reitc.com) and managing property, it’s real easy to just watch a movie or show on netflix when the time is available, instead of renting a movie and then rushing it back to a red box or blockbuster just to make sure they don’t ding you for returning it late.

    I mean, who has time for that?!? That’s my take.

    Comment by dfwreia -

  5. Pingback: Our Jumbo List of 60 Great Movie Blogs | Jinni Blog

  6. Netflix has a good business model, but a major fallback that I see is that there is still no support for Linux. Presumably this is because Microsoft is hoarding the digital media rights through its service called Silverlight. Yet, the Roku player can hook right up to your tv and stream netflix and it runs on a Linux platform. Hopefully Netflix will figure it out because although Linux users are a much smaller demographic than Windows users, It is still a significant enough number to warrant the extra effort.

    Comment by webman21 -

  7. Pingback: Netflix Plan: stay focused

  8. Pingback: The Netflix Touch « She & Him – Nathan Adkisson & Amanda Blake talk about advertising

  9. Pingback: inspiredworlds.com | You Gotta Stream

  10. i’m quite suprised netflix is doing so well as many people I know buy dvds instore or get them for free of sites like Freeblee.com

    Comment by freeblee -

  11. Pingback: 5 Video E-Commerce Lessons

  12. Pingback: El presente y futuro de Netflix - Álvaro Ortiz / furilo

  13. And until Netflix can offer all of their movie selections via OnDemand, they won’t survive. They have thousands of movies available via DVD by mail, but very few that I can actually stream from my PS3/PC.

    If I want to watch a movie, I don’t want to wait a few days for the movie to arrive in the mail!

    I’ll easily subscribe to NetFlix if I could get whatever I wanted online.

    Comment by hawkman02 -

  14. Netflix is undoubtedly way overvalued and he admits it in this presentation. Just segmenting a market and focusing on what looks like an underserved segment does not give you a right to make money….the DVD by mail logistics and recommendation engine are their real differentiation but with streaming taking over as they admit their market power is dying by the day. I respect this guy for coming clean, but he just described his company’s demise.

    Comment by mgcolin -

  15. I buy content everywhere.. I don’t discriminate. I buy it on the iphone, onDemand, at the theatre, Netflix. redbox (ok rent). basically everywhere. give me the access to it and ill buy it.
    That being said, I think Reed really under estimates the risk associated with 2 options. option A. Tiered Broadband and Data pricing. These pricing options are a huge profit potential and increasing market for Telecom and Broadband providers. Unless regulated not too. They will certainly do it at great lengths and the prices certainly have the potential to wipe Netflix off the map. Thats a huge risk for Netflix and quite frankly, there’s more big provider money wanting to up the rates against only a few small players like Netflix. There are limits on the amount of money I will spend on data and broadband. For example, If I wasn’t “grandfathered” into an Iphone data plan.. I would be paying 30 dollars more a month for data right now on that device and thats really too much to be attractive.
    second option is simple.. The big boys dont need to “develop their own”. They would just simply buy Netflix. That would be the smart move for one of them. For example if Paramount or Disney bought Netflix no one would every be able to touch them.

    so some gaps in his discusion i think. I am a fan of the service (I use it). Streaming right now is vunerable, DVD is pretty steady. Future of Streaming depends on regulatory i think.

    Comment by mverinder -

  16. Pingback: blog-thing : Netflix, Reed Hastings, Mark Cuban and Customer Service.

  17. That’s the problem with companies who are solely dependent on others. If companies like Time Warner or Comcast wanted to drive Netflix out of business, they could do it in a heartbeat.

    Time Warner and Comcast provide the bandwidth along with the cable service. If their OnDemand or PPV prices were to drop to $2 for new releases and $1 for older releases or even cheaper, people wouldn’t have the need for a Netflix or any other subscription service.

    For me, don’t really need Netflix. I have a new video store just down the street that’s family owned and rentals are $1.50 for a BLURAY!!

    Comment by hawkman02 -

  18. The bigger issue is, as Mark posts elsewhere, who’s managing the pipe. He’s correct in that the broadband is only so broad, and the occasional dropouts you experience now as a result will only get worse as everything migrates to telco/cable.

    I wonder if after awhile, Mark stops reading the comments, here.

    Comment by Matches Malone -

  19. Thank you for the link to that great overview Mr. Cuban.

    I disagree with your selection of the quote as the most important component because that quote is just a statement of customer habits. It is more vital to explain, understand and respond to WHY customers do what they do.

    If you grant that he is indeed correct that ”almost no customers leave cable for Netflix” – then, why is he correct? Reed reveals that on slide 21 with a simple yet effective philosophy.

    He stakes his success squarely on the ability to be a service of choice, to perform with and deliver to Netflix’ customers, to lead customer satisfaction across all of his current and potential competitors. He explains Netflix’ history of customer service leadership, and their go-forward strategy for “running fast” as he puts it.

    He is confident that he CAN run fast in spite of his competitors. That is very impressive. Publishing the strategy might have been a bit arrogant… but if he is really as good as he thinks he is, good for him.

    Comment by johnakerson -

  20. One issue that I did not see addressed regarding competition is the evolving “ON Demand” feature for certain CST providers. This gives an edge to these companies to allow customers to watch CURRENT seasons of shows as well as select previous seasons.

    Hulu currently offers only a few of the VERY recent episodes of shows, but with commercials and soon enough subscription fees.

    Would this be an issue to the Netflix model?

    Comment by cjnanni -

  21. “Broadband companies could ignore neutrality and restrict the flow of NetFlix bits to protect their own video business, or surcharge NetFlix to be able to stream to our subscribers”

    As arguments for Net Neutrality go, that says it all.

    Unfortunately, it looks like the fix is in, since Congress has pretty much b!+ch-slapped the FCC on re-classifying broadband.

    Sans Net Neutrality, the costs of implementing a vertical diversification strategy like streaming would likely have been prohibitively expensive for NetFlix. This is a key reason why preserving Net Neutrality is so important.

    Comment by sinisterx -

  22. With the last of the video store closing I have to rely on RED Box or just “Go Amish” in relation seeing movies. As for TV it Hulu or Itunes. If Hulu goes subscriptions I am going to throw out the tv.

    I absolutely refuse to use Netflix, For me to pay 108.00 annually subcriptions makes no sense when only watch maybe 5 to 10 movies a year.

    Comment by richpdx -

  23. Mark,

    The blind spot in Reed’s model is the fact that he offers a service – not a product (the product belongs to the movie studios – Netflix is just a delivery method). This service is dependent upon the pipe into a person’s home. Too little bandwidth and the person won’t take advantage of the streaming upon which the future of Netflix is dependent.

    On the flip side – in a FTTH situation the person who runs the fiber will own the home. Nobody is going to run a fiber to a home that already has one. Netflix needs to partner with these broadband providers whenever possible – yet I see no planning on Reed’s end to engage these people.

    An independent telco, municipality or other entity who runs FTTH has no incentive to work with Netflix. If Amazon or WalMart created or improved their Affiliate programs then these broadband providers would have incentive to work against Netflix. Drop Netflix and join Amazon’s service and get your first month of Amazon’s streaming service free plus $10 off your IPTV bill. Sign up for WalMart’s streaming service and get your first month free plus a $20 WalMart gift card. You get the idea.

    If a similar service to Netflix arrives and this new service has put these partnerships in place – then that new service will eat Netflix’s lunch in the broadband providers service area. That new service could even come from BlockBuster. How ironic would that be?

    I’m working on a couple of IPTV deployments and right now and Netflix will be part of those plans but a partnership with a new Netflix-type service provider that pays commissions to the operator or provides a widget on the TV could easily make Netflix obsolete.

    Chris

    Comment by alargeregular -

  24. Pingback: NetFlix On Its Market | All my RSS

  25. @sirdonic

    On point 1, “first purchase doctrine” will not apply and the expectation would be that they’d pay the studios for each stream. This is covered on slide 16.

    On point 2, Apple’s biggest advantage is Steve Jobs’ influence within ABC/Disney. Even if other studios stay away, ABC/Disney have a lot of assets that can make Apple products more desirable. We saw this with iPad and the ABC app, even though hulu is unavailable. If Apple can offer content in an untethered portable environment (iPhone/iPad/iPod offline), that would be huge.

    Comment by Rocky Agrawal -

  26. Great, honest evaluation of their market position. But I see two potential problems for Netflix that are missing from this presentation:

    1. The gradual progression away from physical DVDs to streaming content is also a shift in negotiating power to the content providers. The price point for a sale of a DVD is capped by the retail price, and Netflix can reuse the same DVD as many times as it wants, making it very profitable. It’s not clear that non-physical, all digital content will follow the same “first purchase doctrine” rules. Content providers may instead demand a fee per each and every usage which would cut deeply into Netflix’s revenue model. Am I wrong in this?

    2. Reed states that the giants like Apple have no advantages over Netflix other than the ability to spend money. I disagree. Apple’s installed base via iTunes and its bandwidth infrastructure would be huge advantages if it started a competing subscription model.

    Comment by sirdonic -

  27. Pingback: Top Posts — WordPress.com

  28. Pingback: links for 2010-05-29

  29. Impressive, however, for those of us that get or receive you by email, I would’ve liked the slideshare link you provided to go directly to the deck in question.

    Otherwise, I see where you’re going with your latest round of craziness. I think you’ve made a few wrong assumptions, and that will ultimately hurt you, until you fully understand, The Law!!!

    Comment by Matches Malone -

  30. Very interesting. Thanks, Mark :-)

    Comment by Jeff Nabers -

  31. Piracy is a HUGE issue. Many of my friends who enjoy films, don’t tend to get their fix the legitimate way. I don’t like to partake in films as much as they do, but I do enjoy a good TV show every now and again. I am a college student paying my own cable/internet bill (which I have chosen to omit Cable TV from for expense purposes), but have never seen it fit to sign up for Netflix myself.

    The main reason for that is Content Overload. I have a problem paying explicitly for subscription video content, because I know I’m paying for a whole lot of content that I’ll never watch. I will, however, buy a DVD because my valuation for that product is higher. I’m an anomaly.

    Comment by Frederick -

  32. My main issue with online subscription based models are that they can never really “own” their markets–look at the record industry for example. They try to curb pirating by making the music available online but there are tons and tons of sources you can get them for free from. Rather than charging a fee to view, set a fee for ownership of the titles. 10 movies for $10 that you own forever is a much better deal imo. AmbitionIsSexy.com

    Comment by thecza -

  33. For all the people here who claim to watch Hulu, does the quality not bother you? I only have a 40″ TV, but even broadcast HD sometimes looks awful from the compression artifacts. Netflix non HD streaming is almost unwatchable on anything but documentaries.

    Comment by arbeck -

  34. ”almost no customers leave cable for netflix”

    I fit into that almost no one category. I don’t own a television and surviving on Hulu/Netflix/more obscure Internet channels has been a blessing. Go to the bar for the sports games I can’t miss and only watch the movies and shows I truly love. The rest of the dead space time that would be filled by mindless television has been replaced with work. I sense this demographic must be growing as well.

    Comment by goodbadger -

  35. I didn’t leave cable (more accurately DirecTV) for Netflix, but I have left it for the combination of Netflix, Hulu, and a variety of other services that allow me to stream TV shows and movies instantly instead of waiting for them to show up on television. Sweeps is a nonsense antiquated notion and needs to go the way of the dinosaur. Prime Time is simply too hectic and who really watches TV at that time of the day? We’re wrestling two kids to bed, checking on the news that we missed because of other commitments, talking to friends and family on Facebook, etc. Then we can sit and watch our shows. Hulu/Netflix allows me to watch things at my leisure on my schedule. Granted, a DVR does the same, but it comes attached to that pesky 85$ minimum television bill.

    Comment by slucas76 -

  36. How about an iPad/iPhone friendly slideshow/video (flash free) Mark:) I however concur, while I truly enjoy Netflix, there is not enough content available for me and perhaps others to ditch there cable/sat connection. This will change no doubt in the future..

    Comment by worldbfree4me -

  37. re: not leaving cable for netflix:

    I am an avid user of netflix and it is an accompaniment to my cable. I absolutely will NOT pay $5 to rent a movie via cable (Comcast’s “On Demand”) yet have no problem plunking down $9.95/mo for netflix movies via mail and streaming to my computer (as well as to the tv now as well).

    Cable is there for convenience and netflix is there to replace a significant portion of my movie theater budget.

    Has anyone heard of redbox? $1 for new release movies at kiosks all over the neighborhood (Chicago). Can even reserve online.

    Comment by therugelachman -

  38. There are only two things keeping me on cable. ESPN and Fox Sports. Between over the air broadcasts, netflix streaming, netflix disc rentals, my blu-ray collection, and my library I have more than enough content to keep me busy. If I need to see episodes of something more current, I have Amazon unbox. But I like sports. There is too much content on ESPN that I can’t get any other way. The biggest obstacle though is that I am a huge baseball fan and all the Mariners games are on FSN. Even if I were to pay for MLB.TV, I can’t watch them there because they are blacked out.

    Comment by arbeck -

  39. Great link, Mark. As an avid user of Netflix streaming, it’s easy to see how this is the future. I’m sure cable will try to insert themselves into this profit picture, to Netflix’s detriment.

    Comment by dxkraus -

Comments are closed.