Netflix Case Study
Your analysis is spot on. It is essential that Netflix rethink their business model this year.
Netflix' greatest asset is also its' greatest weakness. Netflix has an impressive collection of DVDs accumulated over the years. As the party moves away from DVDs and onto the net, they will lose their built-in advantage. As iTunes, and possibly other online competitors, fills in their catalog, there will be shift to online distribution. Netflix’ titles will be in an older static non-HD technology, where on line downloads can adapt more easily.
iTunes will have 2 competitive advantages. These are at both ends of the movie demand curve. First, when a movie first comes out, everyone with an AppleTV can download it the very first day. No running down to Blockbuster and having all copies checked out already or waiting for Netflix to get around to sending you a copy weeks later once the new release demand for that particular title has died down.
Second, online distribution is also ideally suited to fulfill the long tail of demand for low-volume niche movies in many genres. Netflix was able to exploit this advantage against Blockbuster and other bricks and mortar DVD rental shops, who were unable to stock as many titles as Netflix’ central distribution. iTunes can use the online advantage to outflank Netflix, as can any other online distributor with the resources and resolve to assemble a collection to rival Netflix’ DVD collection. The beauty of online distribution is that as soon as a digital copy of a title is catalogued, you have unlimited copies of that title to rent or sell forever. No lost disks, no damaged disks.
I agree that the cost of set-top boxes is a barrier to consumer adoption of online services. The advantage that the AppleTV has in this overcoming this barrier is that AppleTV also ties into the iTunes/Mac ecosystem. It not only allows movies-on-demand, it does so without the $50 a month or so cable/ satellite bill. $600 a year buys or rents a lot
Netflix' greatest asset is also its' greatest weakness. Netflix has an impressive collection of DVDs accumulated over the years. As the party moves away from DVDs and onto the net, they will lose their built-in advantage. As iTunes, and possibly other online competitors, fills in their catalog, there will be shift to online distribution. Netflix’ titles will be in an older static non-HD technology, where on line downloads can adapt more easily.
iTunes will have 2 competitive advantages. These are at both ends of the movie demand curve. First, when a movie first comes out, everyone with an AppleTV can download it the very first day. No running down to Blockbuster and having all copies checked out already or waiting for Netflix to get around to sending you a copy weeks later once the new release demand for that particular title has died down.
Second, online distribution is also ideally suited to fulfill the long tail of demand for low-volume niche movies in many genres. Netflix was able to exploit this advantage against Blockbuster and other bricks and mortar DVD rental shops, who were unable to stock as many titles as Netflix’ central distribution. iTunes can use the online advantage to outflank Netflix, as can any other online distributor with the resources and resolve to assemble a collection to rival Netflix’ DVD collection. The beauty of online distribution is that as soon as a digital copy of a title is catalogued, you have unlimited copies of that title to rent or sell forever. No lost disks, no damaged disks.
I agree that the cost of set-top boxes is a barrier to consumer adoption of online services. The advantage that the AppleTV has in this overcoming this barrier is that AppleTV also ties into the iTunes/Mac ecosystem. It not only allows movies-on-demand, it does so without the $50 a month or so cable/ satellite bill. $600 a year buys or rents a lot