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.
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.
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.
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.
I bet a significant portion of that on-average $71 cable bill is the big, fat pipe used to get access to Netflix's bits. I pay Comcast about $60/month for my cable internet service. No TV service, though.
The 9 times also includes the pipe - perhaps a more accurate picture of Netflix is - pay $40 for high-speed Internet, $8 for Netflix, save $23 . (save more if you have HD cable and the cable company's DVR, which is a better comparison).
The $30 you save is basically what the cable company pays the cable content networks. So they end up the big losers.
The cable company/ISP might squawk and raise high-speed prices due to all the bandwidth.
And the $8 is artificially cheap - see my comment below, and will probably go up as more content is available and providers get wise.
Some speculation on the end result: Maybe there will be a $10 tier with old movies, TV reruns; then a $20 tier with the basic cable fare, but Netflix will only pay content providers based on what gets watched; a premium tier with recent movies and first-run TV; and pay-per-view.
So the future might look like not that different from today - high-speed Internet $50, $20 for over-the-top content services, plus pay-per-view for stuff not in your bundle - you save a little money and get a much better service. The cable company/telco probably comes out OK in the long run if it remains a regulated monopoly/duopoly, a lot of the content providers do deals with Netflix, the ones that have legit hits and can go viral will do very well, the ones that depend on being bundled will have difficulty staying in business.
> 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.
"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.
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.
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.