I’ve been meaning to address this, since it touches upon 3 of my favorite toys/web properties: Netflix, TiVo, and Amazon. This represents a significant convergence play.
From Variety:
"Hollywood is once again abuzz with thoughts of a transformed business
as Wal-Mart, the world’s biggest retailer, has entered the movie
download biz, while Amazon.com is partnering with TiVo in a bid to
expand its presence.In a nutshell,
as one mogul recently put it, "Nobody is making any money at all on
this yet." Of course, movie downloading isn’t the only business that
got ahead of itself during the first dot-com boom. And studios have
plenty of reason to be optimistic this time around. The Internet is
finally transforming the way all people, but especially teens and
twentysomethings, find and consume media, as evidenced by the meteoric
growth of companies like Google, MySpace and YouTube.And Apple’s iTunes is now the main growth driver of the music biz along with a host of smaller competitors. But
despite nearly eight years of trying, the online movie biz still hasn’t
overcome many of the problems that have long plagued and that iTunes
overcame in music.Online prices, for instance, are still on par
and in some cases higher than those for DVDs, even though studios and
e-tailers save the cost of manufacturing and shipping. A key
differentiator for iTunes was its price points, 99¢ for singles and
$9.99 for albums — representing a significant discount vs. CDs."
I found the list of top downloads interesting: 24, Little Miss Sunshine, An Inconvenient Truth, and Studio 60 on the Sunset Strip were the top downloads of this service.
I am not sure if this combination threatens Netflix‘s model. In theory, and additional convergence should be a danger to the internet/snail mail business model.
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Be sure to see the #6 of our disclosures regarding these faster than realtime download and play patents . . .
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Sources:
TiVo and Amazon.com Announce New Service
Enabling Amazon Unbox Video Downloads to TiVo
02/06/2007
http://www.tivo.com/cms_static/press_136.html
Download the latest movies and TV shows straight to your TiVo
http://www.tivo.com/4.9.24.asp
Download business stays elusive
Online movies remain a tough sell
BEN FRITZ
Variety, Posted: Wed., Feb. 7, 2007, 5:36pm PT
http://www.variety.com/article/VR1117958901.html?categoryid=1009&cs=1
How much different is this move by Tivo and Amazon from Pay Per View?
Sure you have more flexibility with downloading, but are the technology development and licensing costs really worth this flexibility?
I really doubt this move by Tivo and Amazon will hinder the Netflix model. All households (over 100 million) have mailboxes… only about 1.5 million own the Tivo DVR.
Although, I personally prefer the Blockbuster model that allows subscribers to return the mailed DVD to any store for another one at the store.
I have Amazon Unbox, ITunes, Neflix, and my XBox 360 on the Internet. I haven’t been able to download from Netflix yet but I honestly prefer using the XBox 360 because it has movies in high-def and it’s already plugged into my Plasma.
Itunes’ movie quality isn’t quite up to DVD standards but it’s a better experience getting the movie compared to Unbox. Netflix, low tech as it is, still has the best bang-for-buck.
Forgot to say… if Microsoft releases an add on that turns the XBox 360 into a Tivo, with USB cable card support, then things would get interesting.
I find myself recording less and less, and just going to the network website and watching the TV shows…
Won’t the apple – Disney combo probably be the first to really make this work?
There is an adoption cycle to everything. Is it not possible that movie downloads is still maybe 6 months to a year away from critical mass?
Actually, Im able to watch the downloadable content on Netflix. While they dont have lots of big names yet, it is available….and the picture quality is quite good.
Is this a Netflix killer? I dont really think so. Will it cause some potential subscribers to rethink some options…possibly. However, I think because of the pricepoint of downloadable movies from vendors like Walmart and Tivo, its not going to siginficantly impact netflix right now
Netflix managers are hucksters.
Netflix, on average, delivers 1.24 discs weekly to each subscriber
There is something very fishy going on. The studios must not be auditing Netflix or the subscribers are not addicted film buffs. The dominant plan is 3 out at a time.
Netflix “delivers 7 million discs weekly to 5.662 million subscribers = 1.24 discs weekly per subscriber. [before 4th qtr report]
About Netflix [Netflix web site]
http://www.netflix.com/MediaCenter?id=1005
Netflix, Inc. (Nasdaq: NFLX) is the world’s largest online DVD movie rental service, offering 5.7 million members access to 70,000 titles. Our appeal and success are built on providing the most expansive selection of DVDs; an easy way to choose movies; and fast, free delivery….
Netflix distributes more than 1.4 million DVDs every business day….
[5 business days, M to F for Netflix x 1.4 million = 7 million eachweek]
Also in the following article:
CNN.com
Commentary: I’ve got series DVD-itis
DVDs supplanted VHS tapes in the late ’90s, but it’s really only in the past five years that TV shows, as opposed to feature films, have become established in the format. Now, says Netflix Inc. spokesman Steve Swasey, they’re a huge part of the online DVD rental giant’s business: fully 20 percent of the 7 million DVDs it sends out per week are TV shows.
http://www.cnn.com/2007/SHOWBIZ/TV/01/11/tv.thedvdhabit.ap/index.html
Usually, I can deduce meaning from any numbers but I am at a loss here.
My evil thoughts:
Understated for revenue share to content owners,
Under use by subscribers
Smaller plans getting more popular
Neither are good for business in the long term.
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Netflix board members include people who trade large blocks of Netflix stock.
Jay Hoag and his VC company, Technology Crossover Ventures (TCV), acquired 12.1 million shares of Netflix this past summer. That’s almost 18% of shares outstanding at 9/30/06.
Partners of TCV are on the Board at Netflix, including Jay Hoag.
At the moment, with Netflix at about $23.00/share, Hoag/TCV is sitting on a paper profit of over $190,000,000. What are they likely to do? Sit on it and possibly watch it fade away?
Twice before, they sold significant shares in the late January timeframe (in 2004 and in 2006).
Hoag/TCV had invested in Netflix early and helped Hastings take Netflix public and Hoag/TCV received shares and/or options and/or warrants for their investment in Netflix.
Hoag/TCV took some part of their gains off the table in 2004 and 2006.
• Hoag/TCV sold 1,498,600 shares (pre-split) on 1/26/04 for $113,219,230.
• Hoag/TCV sold 2,000,000 shares on 1/27/06 for $54,560,000.
Anyway, this past summer Hoag/TCV decided to re-up their investment in Netflix. They acquired 8.3 million shares through the exercise of warrants (kind of like options) at a cost of $1.50/share. Then they bought 3.8 million shares in the open market at an average cost of about $19.50/share. The cost basis of the 12.1 million shares is therefore about $7.21/share.
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Source of Netflix Subscriber Projections [first made in 2005, reiterated each qtr]
Netflix Web Site
“Online DVD rental is a rapidly growing and still-young market.
In just five years, the total market has grown to an estimated 5.5 million subscribers at the end of 2005, with total estimated rental revenue of nearly $800 million.
Adams Media Research and Netflix internal estimates project that the total market will have more than 20 million online subscribers in the next five to seven years.”
See from the article below that Adam Media’s projection of the Total Market is 13,000,000 households, not the 20,000,000 shown above.
http://www.businessweek.com/smallbiz/content/may2006/sb20060525_268860.htm
BusinessWeek Online
MAY 25, 2006
Hot Growth Companies
By Timothy J. Mullaney
Netflix
The mail-order movie house that clobbered Blockbuster
THINKING BIG. But CEO Reed Hastings is thinking much, much bigger. The 45-year-old engineer is committed to hitting 20 million subscribers between 2010 and 2012. That’s nearly 20% of U.S. households. And he doesn’t buy the idea that Web movie downloads will wipe Netflix out — not with studios protecting the 60% of film revenue that comes from DVD sales and rentals. “Any great investment has at its heart a contrarian thesis…and ours is that DVD will dominate for a decade or more,” says Hastings . …
Mind you, plenty of people don’t think Netflix can pull all this off. Adams Media Research President Tom Adams says the market for Netflix-style rentals, where most consumers pay about $18 a month for all the movies they want, will crest at around 13 million U.S. households. Adams says many consumers rent on impulse, and Netflix makes them order ahead. And Blockbuster has also dabbled in film investing, to little effect. About 25% of Netflix shares have been sold short by investors, most of whom are betting that movie downloading will clobber the mail-order phenom. …
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Sub Growth
2005 – 60%
2006 – 51%
2007 – 27% to 33% – Netflix projection
2008 – 15% 10% – my guesses
2 years, no change in the 20,000,000 figure?
What about Blockbuster?
What about DVD rental kiosks – thousands rolled out in grocery stores, drug stores, etc – a beautiful model for new releases?
What about booming VOD, including day & date with home video being tested by Comcast and Time Warner?
What about competition for eyeballs from the new generation of game consoles?
Rick
What need did Netflix meet? Are others meeting the same need today?
The key differentiator for Netflix was catalog films. That was the need that they met (of course they included new releases in their offerings). Before Netflix, there had not been a model that significantly made available and monetized ‘catalog’ films.
Then Blockbuster adopted a similar model that heightened the availability of catalog films. Recent developments make it so catalog films will be widely available from retailers. First through mail order from Wal-Mart by mid year, 2007, and then additionally from other retailers through in-store download and burn kiosks. See below for background:
‘’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’
Red Herring
The Business of Technology
Wal-Mart Intros Movie Downloads
…Wal-Mart will use the foray into digital movies as a way to build a full-service online store aimed at home entertainment.
“We view this as the first step to move toward a multi-format and multi-channel strategy,” said Cameron Janes, director of digital media for Wal-Mart. “We are looking at leveraging the digital platform to support manufacturing on demand and offer a range of movie titles.” Those include independent films, foreign films, as well as hard-to-find titles.
Willem de Zoete, head of HP’s digital entertainment services business, said the company is building a business based on custom DVD distribution.
About 60,000 DVD titles will also become available through a mail-order service in which consumers have an option to go online and order the discs. The service will launch mid-year.
© 1993-2006 Red Herring, Inc. All rights reserved.
http://www.redherring.com/Article.aspx?a=21142&hed=Wal-Mart+Intros+Movie+Downloads#
‘’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’
‘’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’
Cleared for Takeoff
Imagine in-store download and burn to DVD kiosks at Wal-Mart, Target, Best Buy, and/or Walgreens? Extremely cost effective availability of tens of thousands of titles. The content owners, retailers, and consumers all win. And the environment, too. No more online, physical DVD rental models that involve millions of physical deliveries and returns each week.
Video Business Online
Download-and-burn cleared for takeoff
Movielink plans summer test with new CSS-enabled discs
By Paul Sweeting — Video Business, 2/8/2007
FEB. 8 | The DVD industry has cleared the way for retailers and consumers to burn movie downloads to DVD for set-top playback.
The steering committee of the DVD Forum on Jan. 31 formally approved technical specifications for a new type of recordable disc for use with in-home and in-store burning of CSS-protected movies, removing the last remaining administrative hurdle to commercial deployment of download-and-burn services…
Online download services have been waiting for the approval to give consumers the option of burning movies they can now only play on their PC or portable device.
Studio-owned download service Movielink plans to begin testing burn-to-DVD downloads this summer and offer it to all consumers by the fall, chief marketing officer Mary Coller Albert said…
Wal-Mart also is said to be considering adding download-to-burn for its just-launched service.
“We expect that to improve over the course of the year, and we’ll continue to aggressively explore/evaluate opportunities and models for this option over the next year,” Wal-Mart said in an e-mailed statement…
With the final specs approved, disc makers can now begin manufacturing DVD Download blanks for sale to consumers and in bulk for enterprise applications such as in-store burning kiosks.
The discs are similar to standard DVD-R’s but are “pre-keyed” with CSS decryption codes so they can accept encrypted data.
The use of CSS—the same copy-protection system used on commercially pressed discs—is considered critical to ensuring that discs burned from downloaded movie files will be compatible with all set-top DVD players…
Initially, download-and-burn may be a bigger opportunity for bricks-and-mortar retailers that bring in DVD burning kiosks rather than for online download companies…
“In theory, it can be a very nice revenue generator [for retailers] without having to give up any kind of significant footprint,” Goodman said.
© 2007, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
http://www.videobusiness.com/article/CA6415121.html
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Paramount and Lions Gate have recently given catalog films to iTunes.
Barry, let’s remember that some of us (family guys, etc) like the TV version of the movie better than the Netflix version – and with deals Tivo is giving us commercial-free TV for around $10 per month. No cracked discs, no potty-mouthed actresses, always something on that you kinda want to watch. And the price is right. Hmm. Sounds good to me. Probably a lousy stock, but a good service.
Dramatic Interview Quotes from Netflix Management
June 7, 2006
The New York Times
What Netflix Could Teach Hollywood
http://www.nytimes.com/2006/06/07/technology/07leonhardt.html?ei=5090&en=f5560e6361bf4018&ex=1307332800&pagewanted=all
Reed Hastings, CEO
“Americans’ tastes are really broad,” says Reed Hastings, Netflix’s chief executive. So, while the studios spend their energy promoting bland blockbusters aimed at everyone, Netflix has been catering to what people really want — and helping to keep Hollywood profitable in the process. [30% of Netflix rentals are those ‘bland blockbusters’]
February 1, 2007
digitalmediawire
The DMW Interview with Ted Sarandos
http://www.dmwmedia.com/news/2007/02/01/the-dmw-interview-with-ted-sarandos-netflix-chief-content-officer
Ted Sarandos, Chief Content Officer
“At the end of the day, Blockbuster doesn’t have the ability to change the existing merchandising policies that create demand. They’re purely in the demand fulfillment business, and we’re squarely in the demand creation business.”
February 1, 2007
digitalmediawire
The DMW Interview with Ted Sarandos
http://www.dmwmedia.com/news/2007/02/01/the-dmw-interview-with-ted-sarandos-netflix-chief-content-officer
Ted Sarandos, Chief Content Officer
“What Netflix has done an amazing job of is personalized merchandizing, based on billions of movie ratings and incredibly sophisticated algorithms that put the perfect movies in front of every individual subscriber.”
February 15, 2007
indieWIRE
World Cinema Web
http://www.indiewire.com/movies/2007/02/world_cinema_we.html
Steve Swasey, Director of Corporate Communications
“We are a bastion of distribution for smaller independent films that wouldn’t see the light of day otherwise.”
February 15, 2007
indieWIRE
World Cinema Web
http://www.indiewire.com/movies/2007/02/world_cinema_we.html
Steve Swasey, Director of Corporate Communications
The mainstream audience still wants to watch the films on DVD, Swasey contends, “which will be the preferred delivery method for at least 5-7 years.”
[Who thinks mail-order physical DVD will own rental until 2012 to 2014?]
I tried this service out last night. It worked great. I was at school and made my selection on Amazon.com. I got home and there it was waiting for me ready to watch on my Tivo.
The pricing only makes this attractive for rentals, though.
sweet
sweet