Posts for 'Netflix'

Looking back over two dozen posts in May and countless industry news items, I have synthesized 3 key topics below. I'll have more on all of these in the coming months.

1. Broadband-delivered movies inch forward - breakthroughs still far out

In May there was incremental progress in the holy grail-like pursuit of broadband-delivered movies. Apple established day-and-date deals with the major studios for iTunes. Netlix and Roku announced a new lightweight box for delivering Netlix's "Watch Now" catalog of 10,000 titles to TVs. Bell Canada launched its Bell Video Store, complete with day-and-date Paramount releases, with others to come soon. And Starz announced a deal with Verizon to market "Starz Play" a newly branded version of its Vongo broadband subscription and video-on-demand service.

Taken together, these deals suggest that studios are warming to the broadband opportunity. This is certainly influenced by slowing DVD sales. Yet as I explained in "iTunes Film Deals Not a Game Changer" and "Online Move Delivery Advances, Big Hurdles Still Loom" broadband movies are still bedeviled by a lack of mass PC-TV connectivity, no real portability, well-defined consumer behavior around DVDs and the studios' well-entrenched, window-driven business model. Despite May's progress, major breakthroughs in the broadband movie business are still way out on the horizon.

2. Broadcast TV networks are embracing broadband delivery - but leading to what?

Unlike the film studios, the broadcast TV networks are plowing headlong into broadband delivery, yet it's not at all clear where this leads. In "Does Broadband Video Help or Hurt Broadcast TV Networks" and "Fox's 'Remote-Free TV': Broadband's First Adverse Impact on Networks?" I laid out an initial analysis about broadband's pluses and minuses for networks. I'll have more on this in the coming weeks, including more in-depth financial analysis.

On the plus side, in "2009 Super Bowl Ads to Hit $3 Million, Broadband's Role Must Grow," "Sunday Morning Talk Shows Need Broadband Refresh" and "Today Show Interview with McClellan Showcases Broadband's Power," I illustrated some opportunities broadband is creating. On the other hand, "Bebo Pursues Distinctive Original Programming Model" and "More Questions than Answers at Digital Hollywood" explained how exciting new programming approaches are taking hold, challenging traditional TV production models. Broadcasters are in the eye of the broadband storm.

3. Advertising's evolution fueled by innovation and resources

Last, but hardly least, I continued on one of my favorite topics: the impact broadband video is having on the advertising industry. Over the last 10 years the Internet, with its targetability, interactivity and measurability has caused major shifts in marketers' thinking. With broadband further extending these capabilities to video, the traditional TV ad business is now ripe for budget-shifting. We'll be exploring a lot of this at a panel I'm moderating at Advertising 2.0 this Thursday.

In "Tremor, Adap.tv Introduce New Ad Platforms" and "All Eyes on Cable Industry's 'Project Canoe'" (from Mugs Buckley), key players' innovations were described along with how the cable industry plans to compete. Content providers are being presented with more and more options for monetizing their video, a trend which will only accelerate. Yet as I wrote in "Key Themes from My 2 Panel Discussions Last Week," many issues remain, and with so many content start-ups reliant on ads, there may be some disappointment looming when people realize the ad market is not as mature as they had hoped.

That's it for May. Lots more coming in June. Please stay tuned.

Online movie delivery is back in the news, but dramatic change is still well down the road in this space as usability, rights issues and incumbent business models/consumer behaviors pose formidable hurdles.

Yesterday Netflix announced a $99 appliance with Roku, enabling the company's "Watch Instantly" streaming service on TVs. That news follows Apple's deals with a number of big studios in early May obtaining "day-and-date" access to current titles. And today brings news that Bell Canada, that country's largest telco, is formally launching its Bell Video Store, also providing day-and-date delivery, of Paramount titles to start (and soon others), plus portable viewing on Archos devices.

Netflix, which I last wrote about here, took a shot across the bow of Apple TV and Vudu by introducing the Roku box, the lowest-priced broadband movies appliance yet. Apples-to-apples comparisons aren't fair as the stripped-down Netflix/Roku box doesn't have a hard-drive or equivalent processing. That inevitably means lower quality delivery vs. locally-stored content with the others, plus uncertainty about HD-delivery. Netflix/Roku's big advantage is that it's a value-add service for current Netflix subscribers, meaning no new fees as with the Apple TV/Vudu approaches.

However, Watch Instantly has older titles and amounts to less than 10% of Netflix's total catalog. I don't see that changing much; Watch Instantly runs smack into studios' incumbent windowing approach and deals with HBO, Showtime and Starz for premium TV. Netflix's model is built on the home video window, so new online delivery rights must be obtained which will be a tough road. However, with Paramount, MGM, Lionsgate and others splintering from Showtime recently to set up their own premium channel, it's possible that some studios' rights may loosen up, but of course at a price.

Still, I don't see the Netflix/Roku box breaking 10% penetration of Netflix's sub base any time soon, barring a box giveaway. Enlarging the value proposition by licensing the Roku technology for inclusion in other devices (e.g. Blu-ray) could also help drive adoption.

Meanwhile, today Bell Canada is announcing the formal launch of its Bell Video Store. In beta since late '07, it offers 1,500 titles, now including day-and-date delivery from Paramount (and others soon according to Michael Freeman, Bell's director of product management who I spoke to yesterday). This is noteworthy, as it appears to be the first time a service provider has received day-and-date online access from any studio. If other providers follow suit we may finally witness some internal competition with sacrosanct-to-date Video on Demand initiatives.

By using ExtendMedia's platform, Bell is also enabling downloads-to-own directly to Archos portable devices. With a couple million satellite homes and fiber IPTV fiber-based deployments continuing, there are multiple three screen options looming for Bell. Yet for now these are limited. Michael confirmed Bell has no plans to offer a branded movie appliance a la Netflix/Roku, meaning it will dependent on XBoxes and other PC-TV bridge devices.

Netflix announced this morning that it was removing the usage cap on its "Instant Watching" feature for unlimited plan subscribers. This feature allows subscribers to choose from 6,000 titles (and growing) to stream and view on their PCs. Up until now subscribers received an allocation of streaming hours based on their monthly subscription level (e.g. 17 hours if subscribing at $17/mo). Now the hours will be unlimited. It's a smart move for Netflix and a great value proposition for Netflix subscribers.

AP first reported the change yesterday and is depicting it as a preemptive move against Apple, which is anticipated to announce tomorrow that movie rental downloads will be available in iTunes. The price point is expected to be $3.99/download. This is a major departure for Apple's iTunes, which has, of course, stuck religiously to its purchase download model for both music and videos.

Others have also depicted Apple's move as a direct strike at Netflix, but I think this battle is illusory. Rather, I view Apple's introduction of rentals as clear competition for the likes of Movielink, CinemaNow, Amazon Unbox, XBox LIVE and other rental stores, but not a blow to Netflix. The value propositions are very different. That's because Netflix very wisely has made the Instant Watching feature a value add for its subscribers, not an incremental fee.

As a $16.99/mo subscriber myself, I love the fact that Netflix is unmetering Instant Watching, and am hard-pressed to see why anyone would drop their subscription in favor of Apple's rental model, unless they envision consuming a lot of movies on their iPods (now there's a slim segment of the population!).

From an economic standpoint alone, the breakeven is only 4+ movies, which is likely well below the monthly consumption of most of Netflix's full unlimited subscribers. And with Apple's rental model, users are still subjected to all the same online movie limitations all the other services have suffered from: no easy playback on TVs, lack of portability, viewing window limits, etc. Granted iTunes downloads enable watching on-the-go (vs. Netflix's streams), but I don't see that as a big differentiator. With Netflix you get the best of DVDs' advantages and now unlimited online delivery.

Now, if Apple were to pursue subscriptions, that would be a direct attack on Netflix. Yet even this approach might not be that successful. The fact is, Netflix has spent heavily on marketing over the years, and its strong brand awareness and 7 million subscriber base are quite meaningful advantages.

Online movie delivery, whether rental or owned, still has a long way to go to achieve mainstream success. Apple will certainly nudge the category forward, but not dramatically. Still, Netflix needs to remain aggressively on offensive to retain its leadership mantle. This is a category with lots of moves yet to be made.

Am I missing something? Post a comment and let everyone know!

Yesterday's announcement by Netflix and LG Electronics that they are partnering to develop a new set-top box generated a lot of coverage. For me the deal shows at least 2 things. First, there is an endless reservoir of optimism concerning consumers' willingness to adopt standalone devices for broadband-delivered video. And second, that Netflix, which has been all over the board in the last couple years in trying to define a broadband delivery strategy, has seemingly made yet another misstep in this critical area.

Regarding the optimism about standalone devices, as many of you know, I recently wrote about this in a post entitled "Broadband Video on TVs is a Mirage" in which I concluded that these broadband appliances are unlikely to gain widespread market appeal. Though little information was revealed about the Netflix-LG box, for now, I don't see any reason to believe that this new box will be an exception to the logic I laid out in that post. At best I view standalone broadband appliances (e.g. AppleTV, Vudu, Moviebeam, Akimbo, etc.) as appealing to only a small sliver of consumers.

My logic applies to Netflix-LG as follows: how many people are realistically going to shell out $400 (assumed price) for a new box, plus spend the time involved to install it, when the principal benefit is to be able to watch a small subset (6K out of Netflix's current 90K catalog) of content Netflix already makes easily available on the robust DVD format? I'd say maybe 10% of Netflix's current base of 7 million, max. That would be 700K boxes TOTAL - hardly the kind of numbers that make a CE executive's eyes pop.

A greater issue is that this new box seems to represent just the latest in a pattern of dubious moves by Netflix, coupled with poor communications, regarding how it intends to gracefully migrate from its current DVDs-through-the-mail approach to succeed in the broadband era.

For the last two years Netflix has publicly appeared to jump from one broadband approach to the next. For example, yesterday's box announcement was accompanied by news that Anthony Wood, whom Netflix brought on board just 8 months ago as its V.P. of Internet TV, would be departing from the company, reversing Netflix's previous plan of developing its own box (which itself was an ill-considered idea).

The LG box approach continues Netflix's pattern of cloudy planning and communications. On a day that should have been all about articulating why this new co-developed LG box is, at last, the correct approach, Reed Hastings, Netflix's CEO seemed to veer completely off message in his remarks to the NY Times, stating that "We want to be integrated on every Internet-connected device, game system, high-definition DVD player and dedicated Internet set-top box. Eventually, as TVs have wireless connectivity built into them, we'll integrate right into the television."