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That's the wonderful world of capitalism. If you want to blame anyone, blame the consumer. Companies like Netflix, Blockbuster, and B&N offer a great product for a good price that can't be matched by the local mom and pop establishment. Do I feel guilty about the small guy that went out of business when I go to B&N or return my Blockbuster movies? Absolutely not. If these local businesses can offer a desireable service that can't be offered by the big companies, then I would absolutely go to them, otherwise, I give my hard earned money to the business that gives me the most back.

Do I always go with the big company? No. I get my car serviced by a local guy. He knows what he's doing and charges me a fair price. I actually drive about an hour out of my way to get to him, but I know it will be done right and I trust whatever the price he quotes me will be fair.

Well, it means no more renting of adult films.

no name

"no more renting of adult films"
that is icky. who knows what kind of germs are on a public traded adult video.

jim winstead

i think the biggest culprits are the sell-through pricing of dvds and the shrinking window of time that movies are available for rental and not on cable/satellite pay-per-view. video stores boomed when the tapes sold for $80, people relied on rental instead of purchase, and it was a long time between the movie showing up for rental and being available through other avenues.

now the $4 rental has to compete with the $10 new-release dvd loss-leader at walmart and the local grocery store.

vn

Excellent point jim winstead. However, would you buy a movie unless you have seen it before?

Bryan

I see it as a free market thing. If a mom-and-pop store wants to survive, they'll have to find creative flexible ways to compete. A lean entity like a small business has many options.

As for bookstores, I have to admit I rarely buy books. I never understood how, with public libraries, places like Barnes & Noble can grow at all. Look at the equation: $20 to own the latest Grisham until long after it's just collecting dust, or nothing at all to own it for four weeks.

Ed

Netfliz hasnt had enough of the market yet to really make an impact. Its all pay per view and the major chains.

IMHO anyway.

dw

Even large Bricks and Mortar and by mail schemes like Netflix have a limited life cycle.

The idea of gettign digital information through a store, no mater hwo larege, or by mail will seem quaint as the horse and buggy in a few short years.

When I got my first 300 baud modem, all expert discussions and conclusions were that individual houshold use would top off at 1200 baud becasue that was much faster than a human could read an an ascii stream. Indeed all the consumer tarrif language was based on that theoretical future limit.

So here I am, a normal home user, getting my data at 200,000 TIMES times that initial speed considerign the 10,000 speed increase and the implimentation of compression.

Today 1.5 mps dsl customers can get a 4 gig uncomressed dvd film in eight hours. A 3mps cabel subscriber could get it in four.

Any look at consumer access speed trends shows that in three years a 4 gig film equal in quality to dvd's one gets from blockbuster and netflix would take about an hour to download. In six years it will be 12 minutes.

Compression advances, which are also without practical or historic limit will cut those numbers to 1/2 or 1/4, and more to the point ameliorate the size increase due to high def.

We are moving to a nexis that will mean near instant pay per view of any film ever made. The studioes, content rights holders and consumers won't pay Netflix, Blockbuster or the post office when they could pay the broadband provider less.

We are talking about a physical format middleman in a transaction where they will become irrelevent.

It doesn;t mean death tomorrow, but netflix will certainly have a shorter ride than the mom and pop vhs stores had.

(thatIn ten years most consumers will be getting data at 100mps. that is a 6 gig film in aminute

Aron

Interestingly, a Blockbuster + Hollywood behemoth may lighten the competive pressure on ma and pa stores if the combination no longer has to compete against itself for price.

All digital is the end point, but recognizing that is not a leap of imagination. The challenge is plotting how this future unfurls and estimating the major landmarks. One can be certain that no one with skin in this game is going to sit by idly. Netflix has a decent chance of extending their relationship with customers into this world. The problem of matching you to a good movie doesn't go away with VOD.

One thing I'm fairly certain about is that in a VOD world the only people who profit directly are the studios and filmmakers, not the distributors. The key for them will be bundling other more specialized services. iTunes still profits on their tracks but that market is not yet mature.

As for ma and pa stores, they will continue to dwindle. But it will be a slower process then may be commonly accepted. A signficiant percentage of the country still doesn't have any internet access or a DVD player. I think there will be a growing divide over low-tech and cutting edge tech into the future as the pace of innovation accelerates.

DW

Aron, netflix doesn't have any more "skin in the game" than the mom and pops do. Netflix has no rights, participation or control over content. none. they are in a tight spot, if they increase their profitablity thye will be killed by some giant competitor (like amazon).

I also can't fathom your statement: "The problem of matching you to a good movie doesn't go away with VOD."

This is not a service netflix does. some of the most hillarious netflix stories come from the inapproprieteness and stone cold idiocy of their "recommendations" feature. there are many many tools and sites out their that do a better job on films. It isn;t a value added at all.

FYI most of the distributors ARE the studios. How much hollywood revenue does netflix account for? just look at the numbers it is 0.01% tops. If they get ten times the business they still won't be a player with any leverage and can easily be sidestepped byt the studios.

Aron

So clearly we have wide disagreement. I'll just take a shot at the most clearly quantifiable part of your argument:

"How much hollywood revenue does netflix account for? just look at the numbers it is 0.01% tops."

If you tease apart Netflix's financial information you come to a cost of DVD content that Netflix pays directly to studios of roughly 1$ per rental. Average rental usage is in the 6.5 discs/month neighborhood. That's 2.6M subs * 6.5 * 12 * 1 = 200M$ a year at going rate. I believe the estimated total movie market (not just rentals) is in the 10B$ range on REVENUE. So we are looking at 1/50 or .2%. This figure is deceptively low as 10B$ is a revenue figure not a profit figure, and the 200M that Netflix contributes is very high margin (compared to, for instance, the chunk related to movie theatre revenue). Blockbuster, for instance, contributes about 5 times that figure. Whereas their growth is flat, Netflix's growth is 70% Y/Y.

That's my quick math anyway. While I don't think .2% is that accurate, it should be on the low side. The behemoth chunk of the money is now in DVD purchases, followed by movie theatre. The studio's concerns are mostly there. Technology and content delivery costs are a smaller item of consideration.

Aron

Correction: 2% above, not .2%

DW

I am sorry I didn't realize you don't have the slightest idea and hadn't read up on Hollywood or even glanced at Variety. We don't have have a disagreement, it is simply that your numbers seem to be pulled from a hat and are really REALLY uninfomred.

$10b in hollywood revenue? Did you say that seriously?

Wow.

Home video sales alone (not rentals) in the United States alone are $34 Billion dollars. Theaters, DVD Sales, DVD Rentals, PPView, Premium Cable, Normal Cable, Sydication bring the total to way way over $780 billion in the US, now take a breath, US markets comprise 23% of Hollywood revenue. Do the math. Now your figure of $1 per netflix film is way way off. You are counting postage. Netflix revenue sharing is in the range of $0.50 for the first few weeks of first run films, as low as $0.10 for the majoprity of the rest of their films.
Hollywood is probably getting $10-20 million from netlfix.

My thumbnail of Netflix contiribution to hollywood revenue of 0.01% was a VERY generous estimate. It is more like 0.003%. They are not a player.

Look Netflix owns no content rights. none. They own no digital distribution channels. none. They own no digital rights technology.

vn

DW, Aron is right on considering that the discussion here is about DVD RENTALS. In that segment, Netflix is not as insignificant as you claim. No need to brag about what you know when stating facts. Facts speak for themselves.

Aron

Looking around the web there is not a single reliable value for these figures but from:

http://money.cnn.com/2005/01/14/technology/dvd_sales.reut/

http://www.hollywoodreporter.com/thr/television/feature_display.jsp?vnu_content_id=1000761271

we see that:
DVD Sales: 15-16B
DVD Rental: ~9B
Box Office: 9.4B

These are revenue figures as received from the customer, not $$ received directly by studios. That is, Blockbuster rents for 4$ but the studio only sees 1$ of it. Best Buy sells a DVD for 18$, but the studio only sees 12$ of it. Etc.. A recent HackingNetflix link suggested that 11.4B$ was the total dollar amount the studios saw from the retail/distributors for DVD home video.

It's clearly not 780B$, which would exceed the Social Security budget, is 8% of GDP, and would require every American citizen to spend 2,700$ on movies a year.

The 200M$ figure I gave for what Netflix directly pays in DVD content is correct. I correctly excluded postage. Rev.Sharing deals are in the 1$-1.25$ range per rental, and half of Netflix's content roughly is not even Rev.Share.

So, Netflix is approaching 2% of studio revenues for the DVD home video market, which as we see from the Box Office returns is a large component of their total revenue.

The biggest key thing in understanding why studios don't push VOD harder is seeing that they get 12$ from selling a DVD and 1$ from a rental. VOD *might* increase the 1$ received, but would certainly never push it to 12$. The studios are very much focused on selling in this scenario as the priority item. With VOD, they can set the terms in such a way that VOD distributors have very limited content availability (old releases, and high prices). Netflix however can buy a DVD just like anyone else and rent it all they want. That is, the studios don't have nearly that much power over Netflix.

VOD will happen. But if you want to understand why it hasn't happened yet or won't happen in the near future, technology trends are not the primary thing to focus on.

vn

Aron, just a correction: Blockbuster owns the discs at their stores.

D Bates

Netflix and Blockbuster may shut down the mom and pop shops, but they get a lot of help from the Blockbuster, Hollywood Video and Movie Gallery stores. Same way Wal-mart has taken out nearly all of their competition across the country.

Side note concerning the comment about no more adult video rentals, there are several sites similar to netflix that deal in adult videos. I think there are even a few that rent mainstream and adult movies as well as games for most major systems. I am using gamefly right now for games with fair results so they may be helping shut down the corner video store as well.

"DW, Aron is right on considering that the discussion here is about DVD RENTALS."

Aron is a confused person, look at the topic title, it is about VOD not DVD rentals. Yet you are aggrating numbers not including pay per view. hmmm. No offense but both of you don't understand the business. Netflix has no "skin in the game" on demand projects. you are talking about companies 100X bigger than Netflix much more vested. the idea is ludicrous and uniformed.

netlfisx doesn't even have a toe in DRM

vn

Huh, I don't see VOD anywhere in the title. Can you read?

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