Netflix saw the future and seized it
In early January 2007, 60 Minutes did a segment on Netflix where CEO Reed Hastings spoke of going from DVD rentals to subscription streaming. He also spoke of the AppleTV (nee.. iTV) and a need to get to the market before it becomes the iPod of video.
I can’t find video of the segment, but I can find a CBS News article covering Netflix where it makes mention of the future of the market. The print article doesn’t include any of Reed Hasting’s quotes about a Netflix set-top box or his vision of getting Netflix out of the DVD rental business and getting into the digital streaming business. The article lays down all the reasons Hastings gave for making the switch, without actually crediting him with saying it.
Once it becomes more practical to buy and rent movies within a few minutes on high-speed Internet connections, few consumers presumably will want to wait a day or two to receive a DVD in the mail. If that happens, Netflix could go the way of the horse and buggy.
Online movie delivery already is available through services like CinemaNow, MovieFlix, Movielink, Vongo and Amazon.com Inc.’s recently launched Unbox. Apple Inc. also is emerging as major player, with hundreds of movies and TV shows on sale at its iTunes store and a new device that promises to transport media from a computer to a TV screen.
But none of those online services have caught on like Netflix’s mail-delivery system, partly because movie and TV studios generally release their best material on DVDs first. The studios have had little incentive to change their ways because DVDs still generate about $16 billion of highly profitable sales.
Like already existing online delivery services, Netflix’s “Watch Now” option offers a lot of “B” movies such as “Kickboxer’s Tears.” But the mix also includes critically acclaimed selections like “Network,” “Amadeus,” “Chinatown” and “The Bridge On the River Kwai.”
The studios contributing to Netflix’s new service include NBC Universal, Sony Pictures, MGM, 20th Century Fox, Paramount Pictures, Warner Brothers, Lion’s Gate and New Line Cinema.
“We are going into this with the knowledge that consumers want to watch (media) in various ways and we want to be there for them,” said Frances Manfred, a senior vice president for NBC Universal. “For now, though, we know television is the vastly preferred option.”
The result is an article that seems as if the ground was going to shift under Netflix and their business model will crumble.
How ironic that CBS (still clinging to their broadcast model and falling way behind the other networks in their online offerings) is having a financial hurt while Netflix is thriving.
Netflix’s bet on the coming trend in video delivery was spot on, and they are reaping the profits. According to Engadget:
The movie rental firm somehow managed to see net income rise to $22.7 million in the quarter, up from $15.7 million in Q4 2007. Revenue was also up by 19 percent, and subscriber growth was pegged at an amazing 26 percent. All told, the firm ended the quarter with 9.4 million subscribers, decimating its own forecast of ending Q4 with 9.15 million customers.
The company is reporting that many of its customers are replacing mailed movies with streamed ones, taxing the USPS less and their broadband connections more.