Netflix opens up tiny parasol to protect it from the anvil plummeting towards its head

by Joey deVilla on January 17, 2007

The image “http://cdn.nflximg.com/us/layout/headers/member_bg_rd.gif” cannot be displayed, because it contains errors.Netflix, a company whose fortunes reside entirely in the living rooms of America, decided to get in on this online movie thing. Their entry to the market is an on-demand streaming feature that will be rolled out to Netflix subscribers over the next six months. Users will have to work within a total viewing time-limit based on their subscription plan, so a subscriber paying $5.99 a month will get six hours of on-demand video, while the people on the $17.99/mo plan will enjoy 18 hours of online movie time.

The time-capped viewing approach, the fact that this is streaming-only (no time-shifting), and PC-only leaves me thinking that this announcement is no big deal. Netflix has some time yet, but it's actually quite hard to see how they, or any other independent digital video store, hitch a ride on the online digital video train. The device manufacturers and network companies (telcos and cable companies) are in much better positions to control this market.

Devices

People invest a decent amount of money on in-home entertainment stuff: TVs, home theater audio systems, DVD players, and the services required to make use of it all. The TV, for better or worse, is the focus of home entertainment. Netflix probably knows this better than anyone. Unfortunately, their service doesn't get them into the living room; a huge problem for them. To get from the net-connected PC to the TV, you need hardware (and home networking). Obviously the first company that springs to mind is Apple with their Apple TV product, but, with the Xbox 360, Windows Home Server, the largest-selling OS in the world, and other assets, I'd say Microsoft has a pretty fair shot here, too.

What's more, Apple and Microsoft can offer more than just movies and TV shows from the net with their digital home solutions. They can put your ever-growing library of personal media at your disposal throughout the house: your pictures and home movies. And, of course, there's the music thing. As compelling as devices from Sling Media are, they lack the tight integration with the big OS/OS+box vendors' personal media suites.

I know, that barely sounded like English.

Telcos and cable companies

I bring up these guys because neither Apple nor Microsoft have real answers to the question of integrating TV over cable into their media hubs. If there's one hard lesson that TiVo has taught us, it's that the cable company (and, more often now, the phone company) doesn't like giving ground to others in the living room; not when it comes to watching TV, anyway. TiVo does the most creditable job, but, generally, third parties have a hard time going toe-to-toe with the cable companies when it comes to set-top devices. Obviously, the cable companies have little incentive to play nice and open their systems to all comers, since their bundling of services and set-top hardware allows them to charge a premium price. As a consequence, solutions to allow third-parties to tap cable networks, like CableCard, are pretty unsatisfying in practice. If the cable company has that direct line to your living room TV, they're going to fight the idea sharing it.

On the other hand, they cable and phone companies don't have control over the desktops and laptops in people's homes. Since many of us ar building extensive personal libraries of files, photos, music, and movies, bridging that gap is important. Personal computers also happen to be the hub of choice for connecting or synching your digital information with other devices, like iPods and smartphones. So, while there's no question the cable and telephone companies occupy some strategic ground in the digital home, they're far from delivering us a true solution all by themselves.

Whither Netflix?

A lot of companies have some real upside in the emergence of the digital living room. Netflix, unfortunately, isn't one of them. Their current business exploits weaknesses in the old Blockbuster et al business model, and lives in an ever shrinking gap between the bandwidth of DVD+the USPS and broadband ISPs. It's further sustained by the genuine fear among movie and TV studios of an all-digital world but, as services like the iTunes Store and Xbox Live Marketplace expand their video catalog, that's slowly being eroded as well.

The conditions that allow Netflix's core business exist are slowly disappearing. It makes sense for them to move into the gaps early themselves, but their lack of any real strategic stronghold (either of their own making, or through partnerships) in the digital living room leaves them extremely vulnerable. On the one hand, this looks like a feeble response from Netflix, on the other hand, I'm not sure what else they could do.

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{ 1 comment… read it below or add one }

1 Anonymous January 25, 2007 at 4:06 am

KT Technology The service of providing on demand movie and tv content by means of internet or for that matter by postal service is as we can see having limited appeal to the retail consumer market. While Netfix and Tivo offer online services played directly onto your home TV set, companies such as some of our customers offer the consumer to walk into a high street store and within a few minutes walk out again with that new title with him. The real benefit here is that the consumer can playback as many times as he wants, and on any device which can play a DVD disc. He is able to loan it to friends and family and in time it will also reduce the cost. It will be interesting to see which segment of the home entertainment market will show the highest growth.

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