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Wednesday, June 22, 2011

Dad has Netflix here in New York, and has his Apple TV box hooked up to it. For kicks, I downloaded A CLOCKWORK ORANGE and then METROPOLIS. Then Jesse wanted to watch something so I found her VEGGIE TALES 'TWAS THE NIGHT BEFORE EASTER, in which vegetables sing and dance and occasionally proselytize for Jesus. It took about 5 seconds to download and start watching.

Netflix (and, in Canada, Zip) sending disks to people by mail killed Blockbuster. Streaming, downloadable movies and TV shows is a cable killer. Seriously. The only reason not to dump your cable subscription now is because not all content is available from Netflix.

But can Netflix make most content available? Are their economics sustainable? I've seen articles (can't find one right now) that claim that Netflix is losing money on its downloadable video: they're paying far more in license fees than they can possibly get from their subscriptions.

I'm not an industry analyst, so I can't tell you. But if Netflix can afford to get up to, oh, 80% of whatever it is that people want to watch, the cable industry is done for. Who needs cable when you can just watch anything, any time?

Here is a quick, irresponsible back of the envelope calculation: 23 million customers times $8 a month is $2 billion a year. If they've got, oh, say, 10,000 movies and episodes, they can afford to pay $200,000 per. If that $200,000 is on top of ticket sales, DVD sales, and syndication on cable and broadcast, that's nice. It's that way now. But if Netflix means no one has a reason to buy the DVD (they can download it) or watch it on cable or broadcast, then $200,000 doesn't go very far. HBO isn't going to let its content go for that kind of money. Neither should Paramount or NBC.

On the other hand, if Netflix really is a cable killer, then it will be able to drastically boost its subscriber base, and charge more, too. If I'm paying $60 a month for cable and $25 a month for Zip to mail me disks, I would certainly pay $80 a month so I can download absolutely anything any time. If 80 million households pay $50 a month, we have $48 billion to play with, and the license fee can go up to an average of $2,000,000.

Hmm. Well, that ought to be enough to greenlight any number of VEGGIE TALES. But a tentpole picture can sell 10 million DVD units. What would Warner Bros have to get as a Netflix license fee if it's not going to sell $500,000,000 worth of DVDs of Batman 5?

I can feel the earth moving, but who knows where we'll end up?



The problem with Netflix is that it can't support a huge subscriber base - if all of its subscribers watch at once... it dies (much like ROD and the like), so while it does want more subscribers it can't... really afford everyone based on current tech,

By Blogger Elize Morgan, at 11:52 AM  

Since we went from the 4 blu-rays a month (around $30) to just one after getting a streaming device, I wondered how sustainable their current model is.

I bet they will sooner or later introduce revised pricing plans for instant access. For instance, charging a premium for unlimited streaming, or for streaming made available during peak times.

By Blogger daveed, at 1:25 PM  

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