The Hot Blog

You're right in that no-one will want Netflix simply as a supply funnel. However, they will want Netflix because of initiatives like this:

http://www.netflixprize.com/

Customer information matters - it's why Tesco in the UK get a 30% response rate on their coupons when the rest of the industry considers 6% a pretty good figure. The Long Tail is not working out for a lot of independent producers because there's no matching system out there to allow consumers to find their products - from the consumer perspective, having to choose from a collective 40-odd years of content means they'll go for popular choices because the odds of those being good are much better than trying random content in the hopes it'll suit their particular tastes. If you have systems that track individual consumer usage and can recommend other content that consumers have a good chance of liking - that's valuable. And that's systems that Netflix have that Sony, Universal, and even Disney don't (...yet...).

It's an opportunity cost game - sure Disney et al. can build a consumer tracking and prediction system of their own, but they take years and hundreds of millions of dollars before they get to the point where they start paying their own way. Just pay Netflix the service fee and focus your resources to where they can get more benefit.

Ask anybody about the last film they saw, then from what studio it was. They won’t be able to answer. Because nobody gives a damn about what studio does what (with the notable exception of Pixar). People want films, not studios. I can hardly see anybody paying 12$ month only to get films from one studio. People likes 1)Freedom and 2)Owning things. Any system not following this will fail. Nevertheless, great post David.

My questions:

1) Will the $12/month include downloads to keep? Kelby is right about people wanting to own things.

2) When will the 30 second media buy/advertising model die? I don't understand how and why this still exists, other than no one knowing what else to do. I understand that more eyes = more sales for advertisers, but do any of you know anyone (other than your parents) who "watch" commercials?

With DVRs and 1000 channels, I don't know when the last time was I even watched a commercial (except for the Mac ads). I guess it's another topic but with shows routinely costing millions PER episode, how the hell can tv as we know it survive??

I would argue against "people like to own things" simply because the usage is trending away from that - especially with the ever-increasing digital content libraries.

Simply put, there is more content out there than you could possibly ever hope to consume. Sure, maybe we have a handful of movies that we enjoy repeat viewing, but as more content becomes available and more systems to match our individual tastes to content it's likely that the "repeat views" content will become an ever dwindling percentage of our total content consumption.

In other words, why pay $30 for 3 movies you'll watch 3-4 times each when you can pay $12 for a new movie per night - ones that have been specially recommended for your individual viewing tastes?

Squirrel- I would agree with you on repeat views for fast food products like series, sport games, mostly anything on television. As for films, I beleive people have a personal affection toward them. Let’s take as an example "The Big Lebowski". If someone loves that film he will wants to own it, even if he would never watch it again. Because that film, as an object, will be part of his identity. People buys object to build a perception of themselves and also for how others will perceive them. If you also like that film and happen to browse through a friend dvds collection and sees it, a sort of instant bounding will happen. Connection through possession of “identity defining objects”. Those will not disappear as consumable.

Piracy and the video game industry were born on the same day. They are both still alive, and well. Piracy can bring broader awareness about a film, drive word of mouth, thus generating more revenues. This can be felt especially when a sequel opens to record numbers.

Kelby - True, I wouldn't want to suggest that people will ever not want to own things, and I agree that despite Tyler Durden's exhortations a lot of self-identity is bundled up in possessions. However, as a relative proportion of usage I see "owned" content decreasing compared to "hired" content - even if the "owned" content increases in absolute numbers (which I certainly hope happens).

Piracy, however, is less well understood - I've seen incredibly bad arguments on both sides. It's like one of those hoary old plot devices "It has the potential for both good and evil". The main problem is that it transfers control from content creators to the general public, which increases risk. Entertainment is fundamentally an industry of risk management - that's why rights tend to be optioned rather than bought outright, why studios insist on creative control even in the case of JK Rowling, why many projects never see the light of day despite having hundreds of thousands of dollars dumped into them. Sure there's great opportunity in digital distribution networks, but at the moment it's a very poor fit with content management.

It's something I wish digital advocates would be a bit more wary of - if you're transferring risk around, especially in a system ill-equipped to deal with it, some people are going to hit the jackpot and some people are going to declare bankruptcy. It's not an ideal utopia where everyone wins.

Squirrel – I don’t think what we are witnessing is a change in consumer habits regarding the platform they choose to get their content delivered. In time of economic difficulties, 'Free' will likely prevail over any other options. There is no crisis in Hollywood or in the DVD business when the whole economy is in crisis. It’s just in line with everything. The DVD sales might actually be up from last year if the purchasing power of families is calculated accordingly. This is what it all boils down. The studios wonder why there is less income from DVDs, think there is a paradigm shift and will sink their own boat by reducing the window and going on digital distribution over all platforms. Seriously, who want to watch a film on an iPhone if given the choice? Sales will go up as soon as people start working again and get confident about their future.

The power will always be in the hands of those that create and own the content. A pirate without any ships to loot is nothing but a ghost. Audience crave for new films on a weekly basis, either be it rental, on tv, the internet or at the theater. Depending on the quality of the entertainment they are offered, they will spend money for it.

There's a bundle of issues in there, so I'm going to be somewhat piecemeal in my reply. ;)

Times of economic difficulties do weird things to purchasing behaviour. For example, during the late 90's recession in Asia, purchases of luxury goods actually increased - "free" did not prevail, even for the struggling lower middle classes. It's unlikely that the economic crisis has zero effect, but the writers strike last year proved that changes in viewing habits tend to have lasting impact. It would be foolish not to sit down and think about what to do if DVD sales don't pick up. However, I would agree that it would be a wrong decision to close the DVD retail window - but that power may be taken out of their hands by companies such as Redbox purchasing the content through the grey market.

The problem I have with your piracy analogy is that the only recourse creators have is to withhold content - which is a virtual death sentence. Study after study has shown that "quality" is predominantly in the eye of the beholder - there's even one study where researchers could control which of two products subjects preferred simply by swapping which one was on the left or right. Being able to control the market positioning is a really big thing, handing that control over to the public is the equivalent of tossing a coin as to whether you make or lose money.

The example about Asia, a genuine Louis Vuitton bag will never be free. And that is the unique problem that rises in the digital age for music and film. The original exist in an unlimited supply, and is free. The supply/demand model is twisted into a territory where the supply is irrelevant to the demand as it is infinite.

By DVD, I meant to 'Own a Film', either on a disc, tape or digital. The DVD will likely disappear as a technology soon, replaced by the Blu-Ray and digital formats. But then, who wants to own something 'virtual'? Also, can I really own something that is on a WB server somewhere, and that might be shut down at anytime they wish to? There is a bright future for rental with streaming, but it will be much harder to sell a digital file as an object in the same price range a DVD is sold today. It might just be a matter of scale and price. If the cost of duplication of the original file for the studio is null, they could sells their film for 1$. Clean profit in the pocket, no middle man.

It is not about withholding content, but offering it in a way that makes the user experience a positive one. Quality, Speed, Price and Ease of use. This is where iTune succeeded. Who would keep downloading crappy screeners if they could get a clear HD files right away for a good price? Lets say 5$ for opening weekends, and then down to 1$ after 90 days. A discount bin of 0.50$, 0.25$ for classics and everything from the last decade.

Seems like a good plan! But then a smart kid grabs a copy of all the films and offer them for free on a mirror server.

Looking at the video game industry, how do they fought piracy? With format and online verification. It’s very hard to get a pirate game for a PS3 or the wii, because of the complexity to bypass the system and reproduce a compatible medium to play in their system. Also, any game with online capabilities will check if the game is legit or kick the player out.

I believe the road to $$ will be in the format.

Few things crack me up more, then people who use hired instead of rented. Good stuff that one.

Squirrel and Kelby-I'm happy about the discussion that is going on here. Allow me to offer my perspective:

"After that, we ARE heading to a Redbox future. If you want to see something, pay the $1 and see it. Done and done. Even more so, I expect that we will see studios package - as with Epix - unlimited post-theatrical content for a monthly flat rate... $10 - $15."

-----------

Isn't the "Redbox future" already here? I would think that if you were to categorize moviegoers, you would have four layers:

1) True believers/huge movie fans-will pay anything for movies in the theater/and pay for DVDs of movies that they want to own.
2) Semi-believers, who will want to see the movie when it opens, but will be reluctant to buy if their expectations aren't met.
3) Curiosity seekers (i.e., Netflix members), who will rent the movie, but never even consider
buying it, unless it blows them away
4) Everyone else. (i.e.-Grandparents who will buy a movie to watch with their grandkids, with no interest in the movie other than making their grandkids happy)

-----------------------------
Kelby-can you qualify this statement?

"The DVD will likely disappear as a technology soon, replaced by the Blu-Ray and digital formats. But then, who wants to own something 'virtual'?"

When you say that the DVD will disappear 'soon', do you mean in the next five years, or are you thinking more like twenty? The latter seems very possible to me, but the former sounds like a pipe dream. Do you think that the studios are going to be able to get their acts together in the next five years to offer online content only?

Also, I could not agree more with this statement:

"Connection through possession of “identity defining objects”. Those will not disappear as consumable."

In American culture, everything that we 'consume', whether it be chips, movies, cars, etc., tends to define our identities, because we perceive ourselves in our current state in the ways that other people perceive us. From my own experience-I worked in an appliance factory in college. We made the refrigerators for the company that I worked for, but we also made the exact same refrigerators for different companies. The difference between them? The name brand tag that was put on the assembly line. However, one company was charging $500 for the refrigerator, while the other was charging $1300. No difference at all between them...So, do you think that the $800 difference in price is the creation of 'identity' for the people that own them? I would totally agree that it is.

----------------
Foamy-I would disagree with this comment considering the current 'economic crisis' in America:

"Times of economic difficulties do weird things to purchasing behaviour. For example, during the late 90's recession in Asia, purchases of luxury goods actually increased - "free" did not prevail, even for the struggling lower middle classes."

Don't know anything about your Asia reference, but purchasing has slowed down in the American economy, and there are a slew of studies about to be released showing that Americans have flocked to local libraries in droves since the downturn (free content).

Jack Walsh – ‘Kelby-can you qualify this statement? DVD will likely disappear as a technology soon’

I meant that the DVD will disappear as the main platform to own a film. The technology might be around for more years but will be regarded as an oddity like the VHS. The mass market DVD player production should stop before 5 years.
As soon as the economy goes back on track, consumers will jump into the Blu-ray format. The first Christmas the year things get better, there will be a massive consumption of HDtv, Blu-ray players and films. It will happen suddenly, like a road bump in the sales figures. And then it will all be back to normal. The technology change but the cash flow will survive.

Blu-ray is a winner format as its hard to pirate and expensive to reproduce physically.

Interesting view on the consumer layers. I would add that those layers also reflect the technological likeliness one will possess to pirate a film.

1) True believers
Know all the possible ways to copy a DVD / download a torrent.

2) Semi-believers,
Will ask their nerdy friend to make the DVD for them. Might bother watching an illegal stream on rare occasions.

3) Curiosity seekers
Will buy an illegal DVD on the street for 2$. Don’t know what a torrent is.

4) Everyone else.
Cannot even set the clock on their DVD player.

Ironically, the paying user is also the most efficient pirate. Because he is a film lover. People pirate things they like and want. When somebody’s entertainment budget is up for the month, he will turn to piracy.

What could kill the Blu-ray is an universal digital film format, like the mp3 for music. As long this format will not exist, that the quality will be random across the board, that the codecs and viewing format a gigantic mess the DVD -Blu-Ray market is safe. A format as universally accepted and delivering no perceptible compression like an mp3 would be a major threat.

Why are the studios not fighting back piracy? Here’s an idea: setup a digital team-commando somewhere on an island where nobody will ask questions. Rent a building, 20 hackers over two floors and give it a cool name like KTFP. Flood the web with false torrent, virus, empty files! Make the sea a dangerous an annoying place for pirates. Only the hard core will keep at it, the usual consumer will be like –F*&K That- and willturn back to buying content from a legal source.

Poland is right in that Studios are only concerned about DVD and Theatrical. They are too huge of a profit source. For a studio to back off of DVD, they will want to see returns that are comparable. OnDemand isn't cutting it. It takes between 5-8 OnDemand purchases to equal a single DVD sale in terms of profit. Until the OnDemand purchases sky-rocket, they'll stick to DVD/Blu-Ray. They're willing to embrace digital and change, but they want the lowest risk gamble before they go all-in.

Also, in the Bus. Insider Netflix article, didn't Sarva totally overlook NBC/U's stake in Hulu as a digital platform with potential? He's so busy worshipping Netflix that he really didn't inventory the assets of NBC/U.

"I meant that the DVD will disappear as the main platform to own a film. The technology might be around for more years but will be regarded as an oddity like the VHS. The mass market DVD player production should stop before 5 years."

Naah. CD players aren't seen as an 'oddity' are they, just a common or garden household appliance. The usually on the money Bill Hunt of The Digital Bits says that five years from now, the movie delivery marketplace will be one-thirds
DVD, one-thirds on-demand/streaming, and one-thirds Blu-Ray. I'd go along with that.

Glad that someone is responding to my arguments-we should exchange e-mail addresses Kelby! :)

"The mass market DVD player production should stop before 5 years."

Why are you so convinced that Blu-Ray will take over the market? I'm not saying that you're wrong, but it hasn't exactly taken off in the way that Sony thought that it would (much like the PS3 against the Wii).

"The first Christmas the year things get better, there will be a massive consumption of HDtv, Blu-ray players and films."

Completely disagree here. The average American has too many problems to worry about in their own life than a DVD format. (Do you think people sit awake at night, thinking, 'my kids would have enjoyed that movie so much more if it was on Blu-Ray!!!')

If you're waking up at 5:30 in the morning, and you have to get your kids ready for school, go to work, pick them up again after school, cook them dinner, and sit down late at night to help them with their homework-are you really gonna give a crap if your movie is in HD or Blu-Ray? And if you're buying them a movie for a birthday present, are you gonna think "I should buy a Blu-Ray player for ~$200, and then get my kid the movie that he wants (which costs more in Blu-Ray)?"

"Ironically, the paying user is also the most efficient pirate. Because he is a film lover. People pirate things they like and want. When somebody’s entertainment budget is up for the month, he will turn to piracy."

I don't think there is any irony there. The paying user is the most likely person to use "Redbox". I would bet that the average age of a Redbox user is without a doubt, over 30, because those are the people with kids (and going to McDonald's/Walmart on a regular basis), and those are the people most likely to make the 'impulse' $1 Redbox purchase. If your kids are whining at you to rent a movie, is it easier to calm them down, or is it easier to spend $1 and rent the movie that they want? I would argue the latter from my experience!

\

Sorry I am not around to get into this, folks... but I am glad the conversation is swirling. I will join the fray in the next day or two... things a little crazy right now...

Dr Wally - Guys like technology. As soon as the economy gets better, they will buy this giant HDtv they've been dreaming of to watch the superbowl and the latest blockbuster. And Porn. *Hd Porn* They are not doing it now because of the heat they will get from their wife to justify a +$2000 investment.

Anybody that watched a game or film in HD knows it’s not just a gimmick. You can actually follow the ball on a wide shot. People will flock to Blu-ray when employment numbers falls under 7%. Will that be in 2 years, 5 years, more? Whenever it happens DVD will disappear like the Dodo.

Jack Walsh – I agree that the average American won’t wake up in the night, but they will definitely think about it when Christmas season comes or on special occasion like a birthday. Also, the more the format will spread, the more the kids will cry for it. "Dad my friend has (x Pixar film) on Blu-ray and it’s so muuuuch better, I want!"

Renting will move to streaming platform. Red Box and Netflix are just content provider, they can easily disappear when a new technology emerge, like this one:

"Best Buy Inc. is partnering with online video provider CinemaNow to create a new a movie downloading service that will be integrated into most Internet-connected electronics -- including televisions, DVD players, computers and phones – sold at the store."

Kelby: This has always been an argument that I can't buy into:

""Dad my friend has (x Pixar film) on Blu-ray and it’s so muuuuch better, I want!""

For one thing, most sane (and typical middle class) parents would never spend money to replace their existing DVD of a movie with the Blu-Ray version, just because their kids are whining. Why would anyone give into that? It's like buying your kid a Jeep Cherokee for their 16th birthday, and then running out 6 months later to get them a Range Rover, because their friends have one.

"Jack Walsh – I agree that the average American won’t wake up in the night, but they will definitely think about it when Christmas season comes or on special occasion like a birthday."

You think that the 'average American' is coming up on Christmas season, and thinking "You know what? We should put down $200+ on a Blu-Ray player, and then spend $25-30 a disc to replace our entire collection of movies?". I think part of the problem with the arguments on this blog (no disrespect intended to anyone), is that nobody seems to realize or acknowledge that the 'average household income' in America is 50k a year (up from around 42k five years ago). If you have a mortgage, and kid expenses, do you really think that you're concerned, at all, about the pixel quality of your DVD collection?

The topic that I'm most interested in here is whether or not the mainstream media has any idea who the 'middle class' is? Do politicians? Do film execs? When they're spending ~$50-100 million for a movie where the audience is unknown, do they consider the fact that people who have a household income of 50k a year, are not going to pay ~$20-40 to take their kids to a movie that might be crappy, when they can wait to pay $1 at Redbox?

IO - "Hire" is used fairly synonymously with "Rent" in British English. You yanks are just weird.

The conversation has moved on since I last had the chance to check, so I wont move it backwards except to say that the Asian example was used to say the relationship between recessions and people turning to low-cost (or free) options is not perfect - consumers aren't terribly rational animals and don't always do what we predict.

Thanks for signing in, . Now you can comment. (sign out)

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

URL:
Remember me? YesNo

Comments: