Slow and Steady, Netflix Pulls Ahead in Streaming Video

With the spate of deals announced last week between the Hollywood studios and Blockbuster, on the one hand, and its arch rival Netflix, on the other, the movie industry is well on its way to establishing a distinct new release window. If you’re willing to put cash on the counter at Blockbuster or other brick-and-mortar video store you can rent the movie the day it comes out on DVD and Blu-ray. If you want it as part of a subscription service, you’ll have to wait a month.

From the studios’ perspective, the delayed subscription/discount window is an overdue change. They make more money per rental with Blockbuster, which shares revenue with the studio from each transaction, than they do with Netflix, which doesn’t. Ditto Redbox, which recently settled its litigation with Warner Bros. by agreeing to the same 28-day window as Netflix accepted. (It’s still in litigation with two other studios but the likely settlements in those cases will no doubt look a lot like the Warner deal.) There’s little upside for the studios to letting subscriptions and discounted rentals cannibalize a la carte rentals from which they benefit directly.

Netflix, on the other hand, has been harshly criticized over the 28-day deals in some quarters, accused of selling-out its subscribers, or capitulating to the studios. But those criticisms overlook how profoundly Netflix’s long-term strategy has changed. Movie release windows, while once a crucial issue for Netflix, are no longer central to its long-term strategy. Bargaining away an early DVD window in pursuit of more pressing strategic goals isn’t likely to have a long-term negative impact on the company.

Netflix is in the process of transforming itself from a movie rental company into a utility. As was clear at the Consumer Electronics Show in January, its streaming app is rapidly becoming ubiquitous on connected consumer electronics devices and set-top boxes. Now, it has begun to colonize mobile devices as well, introducing an iPad app and developing an app for the iPhone and iPod touch. An Android mobile app also appears to be in the works.

Soon, it will be nearly impossible to buy any device, whether TV, set-top or mobile, that does not come bundled with Netflix service. Not all of those embedded apps will be activated, of course. But their presence will help create something no Netflix competitor will be able to touch: a de facto interoperability standard across multiple devices and platforms.

If you’re a Netflix subscriber, you’ll soon be able to rent DVDs, as well as stream video directly to your TV or set-top box, or on your iPad or Android smartphone. That has implications not just for its current competitors, like Blockbuster and Redbox, but for other video service providers as well, including cable and satellite providers.

It’s no accident that Netflix pushed hard in its recent studio deals to increase the amount of TV programming it can make available for streaming. As it emphasized in its press release on the Fox agreement last week, the deal gives it access to “current hit series like ‘Lie to Me,’ ‘Bones,’  ’24,’ and ‘King of the Hill,’ as well as complete seasons of library TV hits such as ‘Prison Break,’ ‘Arrested Development’ and ‘Buffy the Vampire Slayer.’ ”

With more than 12 million subscribers able to access their subscription movie and TV content from multiple devices, both in and out of the home, Netflix is positioning itself to become a formidable over-the-top video provider.

For Netflix, then, the more content it can make available for streaming, the more valuable its de facto platform becomes. If that means waiting 28 days for the DVD, that’s a trade off Netflix will be more than happy to make.

Question of the week

Would you stop using Netflix if all new releases were delayed by 28 days?
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Paul Sweeting

Principal Concurrent Media Strategies

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2 Comments Subscribers to comment

  1. I do not mind, personally. It is just convenient and less pricy than to buy a content package, anyway. I think Netflix is a half cloud service platform that enables users to change the consumption pattern of video contents. It is newer than the content (via download) licensing business model such as iTunes. I have a feeling that its early high growth stage will attract new entrants (or challengers).

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