I understand the physical costs of the DVD service are high compared to streaming, but one has to wonder if in the end, the ROI is really going to be that much better for the streaming business.
Streaming is digital information and all digital information businesses are headed the same place: zero value.
The music biz has already gotten there. DVD sales are dropping to zero because of piracy. But squawking about piracy is pointless because it's not really the pirates' fault. They are a symptom, not a cause.
The music labels are trying to turn things around by expanding the definition of their business. They defined their business as 'selling plastic disks with music on them,' but there's no law that says that
must be their business. That business went bust, so they're trying to redefine their business to encompass a musician or groups' total career: touring, licensing, endorsements, merchandise.
Similarly, there is no law that says Netflix, or Starz, or hulu, or anyone else needs to define their business as 'selling streaming TV/movie content.' Netflix could define their business like YouTube does - a place that's valuable because you can get everything there, with sorting, PR and community value provided for free by the customers. You give away the streaming content free and charge for something else.
For example, Netflix or someone with that business model is in prime position to partner with the struggling theater business by organizing their customers into a community with an interest, say, in sci fi space adventures, Tyler Perry comedies,
Jason Bourne movies or what have you. When a movie that suits their tastes hits the theater, they could organize groups in each city through Netflix's community to sell out the theater.
This would follow the music-industry model, where music is given away free and serves as loss-leader for the concert appearances where the money is actually made. It would transform the theater business which is currently depending on 3D to help it survive (a strategy that has met with very mixed results) and turn it from an experience where you have to tolerate a bunch of strangers who are idiots, yakking on cell phones, which is why people don't want to go to movies anymore, and make it more like a convention, filled with like-minded people, many of whom you'll already know from the Netflix community. Instead of just selling popcorn, the theaters could sell a range of merchandise related to the interests of that particular group.
Netflix gets a % of the box office for putting butts in seats, and a % of the merchandise (which it can also sell via ads on its website). So Netflix now has a viable business that is based on something more durable than digital content, and the theaters can transform their dying business from an unpleasant experience to an ongoing party.
The infrastructure for the party is already there, let's use it before it all gets torn down. (Ironically, I can think of a great real-world example, on Van Ness Ave in San Francisco there's a concert venue that has lines around the block all the time. Right across the street, there's a movie theater that went out of business and is being torn down!)
Netflix is an invaluable potential marketing source for theaters, because if they give away content free, their customer base will explode. The customers can sort themselves into interest groups, and do a lot of the marketing legwork for theaters and merchandisers.
Netflix, Starz et al are behaving like old media business, defining themselves restrictively in ways that aren't sustainable. Netflix at least is a bit more on the ball; Starz and other content producers are going to re-learn the bitter lessons of the music industry unless they manage to get out of their dinosaur mindset. I'm not betting any money that they will.
The studios will resist the idea of their content being streamed for free online, but they're fools, because that's going to happen whether they like it or not. Since free streaming content in the future is a given, they need to start thinking now how they're going to make money regardless.
And they can do that through the sheer size of the audience that can be coralled into one place online, such as Netflix, where the customers will cheerfully do a lot of the work for the corporations, sorting themselves into groups who are easier to monetize. Just give them the tools to do that!
Only because you're not thinking about it right. Think about the marketing value that you can build when millions of people are online, sorting themselves into groups and telling you what interests them, what they'll pay for, what kinds of ads will appeal to them!
Think about the value of reaching a global audience - the middle class is exploding worldwide and America's entertainment business already is geared for global appeal. Think about making money off just 5% of the Chinese pirates that you currently make no money off. Think about all the new consumers in India, Indonesia, Brazil, etc.
I'm telling ya all, look at the games business. That's leading the charge. Games are a digital content business and they're all charging straight towards FREE as a business model.
For instance, pogo.com gives away games for free but charges for premium subscriptions and even better, for avatars that let you present the image you want to the community that is built via game playing. They also sell badges that advertise your expertise in playing games, which of course is part of your identity.
Now that is smart! They're not selling games, they're selling your identity on the internet. People can get bored of games, but the more people interact with the community, with their avatar and their badges as the "front end," the more invested they will be in their avatar and in the community. They'll keep playing games
in order to buy more stuff that lets them hone their community identity, change it up, and get comments from their friends.
It's the same idea as the theater-going-party notion, except kept entirely online, because there's no convenient infrastructure out there to make it real-world. Which is a disadvantage, because the real-world thing is a great money-maker and community builder, but game content costs far less to make than TV or movies, and lasts longer, so the economics still work out fine.
If you want to see the future of all digital content, you should watch the games industry. For cultural reasons I guess (software people are less resistant to change than the LA entertainment industry), games are pioneering new forms that the entertainment industry as a whole will eventually need to follow. The games biz isn't crying about having to give away their content for free. They're getting busy getting rich from free content.
