NY Times Wrong About Walmart & Netflix

I admire the New York Times and read it often, but I have a problem with the story, "A Force Too Strong, Even for Walmart." Daniel Akst writes:

But the mail-order DVD rental business is competitive. Wal-Mart's departure looks sensible when you consider not only the future of movie delivery but also the market-share battle between Netflix and Blockbuster, which still has actual stores. Then bear in mind that Amazon.com offers a DVD rental service in Britain, and some people think that it may do the same in this country, where DVD rentals could help Amazon leverage its infrastructure and bring in more customers for its merchandise. And when downloading movies becomes an everyday activity, will it be of much use to have a large mail-order DVD rental business like that of Netflix? I am skeptical, and apparently, so are the people who run Wal-Mart.

Walmart got out because they make more money on DVD sales. The deal with Netflix enabled a graceful exit (and Blockbuster is a competitor in DVD sales). Walmart has never taken the DVD-by-mail business seriously and built out the 30+ shipping centers required to be a competitor because it's easier and more profitable to sell DVD's.

Netflix is going to transition millions of customers to online downloads over time. Who else has nearly 4 million online DVD rental customers? They will be well-positioned to convert subscribers from DVD-by-mail to movie downloads, probably starting with a combined offering and eventually phasing out DVD's. Netflix is also adding features like ratings, Friends, and reviews that translate nicely from the analog to the digital world. Why do you think Blockbuster is spending $120 million to catch up?

The story missed the main reason we're still shipping DVD's through the mail: the studios are protecting their DVD cash cow and have only released a fraction of the available movies for download.

The big retailer's decision to abandon the field to Netflix says something about many other businesses that depend on the delivery of information in some physical format. Newspapers, books and magazines, for instance, are still delivered on paper, but eventually many publishers are likely to dispense entirely with paper and ink to deliver materials electronically, to readers who are freed from their desks by wireless networks and portable magazine-sized tablets with vivid screens. There have been several false starts, but the long-term trend is nonetheless clear.

Reed Hastings named the company "Netflix" long before the technology (or the studios) enabled him to provide movie downloads.

Thanks to Joe for sending this in.

Comments

[Joe]

Mike:

You're right, the article really focused on imminent downloads as the reason for the WalMart DVD-by-mail shut-down, and I don't think that downloadable movies on the scale they discussed will be a reality for at least ten years. The main reason is we are not even at the midpoint of the flat-panel and DVD revolution globally, a major and expensive hardware shift to say the least for most consumers, and consumers, if I'm guessing right, who will not be willing to replace their flat-panels and DVD players for another five to seven years (at the earliest) with any new hardware (Web-enabled TiVos, and the like) that would allow for easy and DVD-quality downloads. The equipment to do that, although avaialble in some form today, is not even close to being ready for primetime. Also, as you mentioned, the studios are not going to let go of the DVD revenue stream without dragging it out for as long as possible. 10 years.

Related ...
http://www.pvrblog.com/pvr/2004/09/newsweek_netfli.html

[Greg Andrew]

When I read this article a few days ago I was stunned by the stupidity of it. Yes, downloads will eventually have a major effect on the DVD rental market, but that day isn't going to be here for a while, and Walmart just wasn't willing to put forth the effort to be competitive in the market right now.

[Tony]

The day of the downloads may be closer than you think. Newsweek reported back in September of a deal between Netflix and Tivo, where Divx versions of the Netflix catalog would be downloadable through the Tivo service...

http://www.msnbc.msn.com/id/5915470/site/newsweek

http://www.pvrblog.com/pvr/2004/09/newsweek_netfli.html

Don't expect Divx, as it doesn't have DRM. I predict if any such partnership takes place, it's Windows Media 9

I think anyone who says downloading films will be at least "ten years" away has missed the last 20 years of netowrk development. It is Two to three years.