Thursday, July 29, 2010

Click and Watch Online

CNET on the success of Netflix:

In the quarter that ended June 30, 2009, Netflix spent $9 million on acquiring films and television shows for its streaming service. Last week, Netflix reported that for the same period this year, it spent $66 million--more than seven times as much.

...For the first six months of 2010, Netflix has paid the studios $116 million for streaming content, compared with $31 million for the same period last year. Some analysts expect those payments to keep going up as the company continues to fill out its film library.

Netflix's ability and willingness to shell out big bucks for higher and higher grades of movies and TV shows was clearly illustrated earlier this month when the company announced it had struck a $100 million deal with film financier Relativity Media to acquire about a dozen movies per year starting in 2011. As part of the agreement, Netflix will offer the upcoming film, "The Fighter," starring Mark Wahlberg, Amy Adams, and Christian Bale.

As movie theater attendance and DVD sales continues to decline, those seem like good figures.

There are a lot of skeptics when it comes to online movie and TV streaming services. Mark Cuban is probably the most prominent of traditionalists. (CNET has some background). The new Netflix numbers seem to answer his contention that 'The Future of TV is TV', a remark I've always thought of as pretty short-sighted.

CNET's article continues:

So, how did Netflix do it?

First, delivering digital versions of films over the Web is far cheaper than shipping physical discs. As Netflix users have opted to watch more streaming movies and receive fewer DVDs delivered by mail, the company has been able to trim postage and DVD-acquisition costs. For example, Netflix spent $24 million in the June quarter this year on DVDs, compared with $43 million during the same period last year, according to the company's June earnings report.

To me, it seems clear that the future of viewing both movies and TV is online. Theaters and TV networks will have to adjust to the digital revolution. People simply won't turn on the television at a prescribed time to catch a show, they'll watch it online when they want to. The same applies to movies -- fewer and fewer will go to the theater to see a movie. They'll just catch it online when it's convenient.

This comment catches my eye:

Clever horse trading and old-fashioned cash payments are important, because Netflix likely needs the studios more than they need Netflix.

I can't see that being the case much longer. It may not be Netflix the studios find themselves having to deal with in the future but, once theater attendance bottoms out and DVD sales are a thing of the past, it will be one or another of the digital delivery services. And, studios won't just need these services, they'll rely on them to show their movies. There won't be another game in town.

Netflix is expected to have over 20 million subscribers by next year. There are two ways of looking at that. If all 20 million went to any given movie and paid $10 a ticket that would be $200 million -- a nice take at the box office by anyone's standards. On the flip side, if all of them stayed at home and watched a competitor's movie via an online streaming service it would represent a huge box office loss for the other guy.

Monthly subscription rates for Netflix are lower than the price of seeing at least one new movie at the theater every weekend, so, admittedly, the math isn't that simple. But, by the same token, the numbers can't be ignored (much longer). Sooner or later a substantial percentage of those 20 million subscribers (and the subscribers at all the other online movie and television streaming services) will decide to stay home and watch content online.

Of course, this may not ever come to pass. I remember them saying HBO would fail -- why pay for it when it's free on TV. Nobody thought CDs would catch on because the sound quality was bright and brittle compared to the silky sound found on venerable vinyl. Nobody thought DVD sales would ever slow...

Change is a hard thing to adjust to, but the notion that theaters will continue to be the primary venue for watching movies is romantic, even quaint. In a few years the personal computer will be the new exhibitor, a 'theater' chain with convenient locations in almost every home, with no lines, no need to fight traffic or find parking, and no over-priced popcorn which shows movies any time day or night, whenever you want them.

I don't see how Hollywood studios or TV networks can bet against online streaming of content.

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