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.
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.