Posted on Wednesday, December 30th, 2009 by Devindra Hardawar
Things are looking tough for Netflix. The online rental service is trying to convince Hollywood studios to sell them the rights to more video content for their “Watch Instantly” streaming offering, but many studios still seem to be mad about Netflix’s deal with Starz last year. The Starz deal, which in one fell swoop added around 2,500 titles for streaming, allowed Netflix to gain access to newer Disney and Sony movies without asking for permission from the studios.
While great for consumers, the move didn’t win Netflix any friends in Hollywood. Now, according to Bloomberg, Netflix has an uphill battle ahead when it comes to acquiring more streaming content.
Netflix is now relying on their Chief Content Officer, Ted Sarandos, to convince studios to play ball. Sarandos is well aware of the ire caused by the Starz deal, and says that he’s willing to write “big checks” to win over the studios. He goes on:
We have to fight against their fear that we’ll destroy the ecosystem. We’re not destroying anything. We’re creating a new opportunity.
This argument is key to Netflix’s future streaming success, and ultimately their future as a company. As bandwidth becomes cheaper, and more methods for delivering Netflix streaming content to televisions find their way into homes, the company will surely begin to prioritize streaming over snail-mail discs.
We’re already beginning to see that change take place; Netflix recently shifted the Watch Instantly tab on their website’s menu to the first spot, making “Browse DVDs” the second. Who knows how many additional streaming users that change alone could make (currently, 42 percent of subscribers have used streaming in some fashion).
The studios are also worried about abandoning the incredibly popular DVD format. From the article:
DVDs rank as the most profitable part of Hollywood’s film business, with studios keeping about 80 percent of each purchase, according to Tom Adams, president of Monterey, California-based Adams Media Research. Sales will fall about 10 percent to $13 billion this year, according to Adams, who tracks the market. Rentals will total $8 billion, unchanged from 2008. Studios also will get about $2 billion from premium cable in the U.S. and $1 billion from basic cable and broadcast TV.
Streaming is uncharted territory for the industry, which has grown comfortable with the traditional movie life cycle: Release in theaters, sell on home video formats, offer on premium cable channels, and ultimately, collect on broadcast and affiliate licensing. To help ease the transition, Netflix may agree to a purchase exclusivity window which will entail delaying rentals for new releases. It’s bad news for consumers, but Netflix may ultimately have no choice in the matter if they want to remain in business.
Sarandos reiterated that they’re willing to pay big money for licensing deals with studios, which is a wise move in my opinion. At this point, Netflix can really only throw money at the issue to alleviate the fears of studios. There’s no doubt that Hollywood will embrace digital offerings eventually as more than a novelty (consider the industry-ending cries we heard when VHS came about), and it’s becoming all the more clear that Netflix will be a pioneer in the next era of media distribution.
[Source: Bloomberg]Cool Posts From Around the Web: