Netflix
Netflix has done well in spreading its service to set-top boxes, TVs, game consoles and mobile devices, but there may be trouble ahead.
Image:
By Wilson Rothman
msnbc.com
updated 12/13/2010 7:18:59 PM ET 2010-12-14T00:18:59
commentary

Netflix's success at rewiring our TV-watching circuits has made it one of the most successful companies of the Internet age, but because of that, its days at the top are numbered.

Don't worry, we won't be going back to DVDs and straight cable. Instead, media and telecom companies will gain control of on-demand subscription streaming video. Netflix won't be the main destination, just one of many way stations. Each will have its own content, interface — and cost.

The studios are getting antsy because they gave away a lot of content early. When Netflix was a DVD mail-order rental shop with an experimental on-demand streaming program, it got access to awesome content, most notably a Starz movie deal and a handful of popular NBC, Fox and ABC shows. Now that Netflix is huge, those studios want more money. A lot more.

The two experiences
Video on demand is really two separate experiences. There's the pay-per-view offered by cable companies and the likes of Amazon, iTunes and Vudu (owned by Wal-mart). Regardless who you're getting content from, you pay a pretty rigid $4 to $5 rental for movies just out on DVD. Occasionally there are sale-priced items, and lately some studios are experimenting with $8 to $10 fees to stream movies currently in theaters, a good deal if you like indie flicks but don't like paying $14 a seat to see them. After 24 hours (in some cases 48), the movie turns into a pumpkin and you gotta pay to watch it again. Since studios set pricing and control the schedule, you'll see this option proliferate.

Netflix's magic was in unveiling a successful subscription on demand service, where you get all that your eyeballs can eat for a fixed monthly price. Netflix isn't the only one doing this — your cable company already gives you access to shows on demand for "free" with your monthly subscription, via your box, and the network-owned Hulu now offers its Plus service, for $8 a month, with its own rich selection of TV and movies.

But Netflix is the biggest, with a large and growing library and millions of subscribers. This year, most of the connected TVs, set-top boxes, smart phones and tablets you can buy stream video from Netflix. The stuff you queue up in your subscription lives there, and you can watch it whenever.

At least, until you can't find it.

Here today, gone tomorrow
Like any company that has the right to distribute Hollywood content, that right has a time limit on it. Every movie has a complicated schedule of availability, inapt because it's often tied to other distribution deals, too. If a movie is playing all weekend on Comedy Central, for instance, it might not be available on Netflix at the same time.

For Netflix, much of the movie content is tied to its Starz deal, which features, among other things, recent releases from Sony and Disney. But what's available on Starz via Netflix is almost identical to what's available on the Starz cable channels. In my Netflix Instant queue, there are 25 movies, from "Wall-E" to the Coen Brothers' classic, "Miller's Crossing," which are no longer available on Netflix. Only one, "Goodfellas: Special Edition," will be returning to Netflix with any certainty. (If you look at your own Instant queue, you can see which movies and TV series will be pulled from the service, under the "Notes" column.)

But individual movie and TV rights are manageable, as long as there's a steady stream of content. The real danger is that major studios won't be allowing as much content to make its way to Netflix to begin with. Pardon the Mafia lingo, but Netflix is only as big as the studios allow them to be — and they'd better not forget it.

The squeeze
This isn't idle talk. In several recent stories, Netflix has been shown as the target of a dangerously constricting squeeze. The New York Times reported industry chatter to the effect that if Starz re-ups its deal with Netflix, it will charge the company 10 times as much as it did back in 2007. If all the content providers charge more, Netflix will have to scramble for paying customers — or raise the price you pay for the service. In truth, we could all probably pay more than $8 for what's provided, but nobody likes a price hike, on principle.

Time Warner's CEO — and the man we should thank for making HBO awesome — thinks Netflix is small potatoes. "It’s a little bit like, is the Albanian army going to take over the world?" he said, in response to talk of Netflix's ascendancy.

The other threat is from broadband providers who are pretty irritated about the rise of streamed HD video. Netflix pays companies to handle its streaming video, but those companies are starting to get charged extra by cable carriers. Comcast jacked up pricing on a Netflix partner in November, a price hike the partner was compelled to accept, in order to "ensure [Netflix] customers did not experience any disruptions."

Eventually, these extra charges will trickle down to you. Pleas for network neutrality — that carriers treat all streaming media providers equally — are already falling on deaf ears. It would seem difficult to regulate, especially when there are real costs to such massive bandwidth use, and somebody's got to pay. (In this case, I'm gonna guess that he who has the most lawyers wins.)

Post Netflix
Even though the changes that Netflix has made to American viewing habits are permanent, the company's success may not be guaranteed. For the sake of argument, let's imagine a world without Netflix.

The next biggest star, and one that's more likely to keep shining, is Hulu. Since it's already owned by Disney, Fox and NBC, it's not only set up to get advantageous content deals, but — as Comcast is soon to close its deal to acquire NBC Universal — it is also poised to benefit when it comes to bandwidth restrictions. (Msnbc.com is a joint venture of Microsoft and NBC Universal.)

Hulu's premium service costs $8 per month, and also inserts ads into each show, for which there is no fast-forward option. It's not necessarily a cash cow yet, but it is already learning from Netflix. (It's worth noting that, however unlikely, regulators may force Comcast to sell off NBC's 32 percent stake in Hulu when the deal closes.)

Amazon is another good one to watch. Although its VOD service isn't exactly white hot, it's got a thriving MP3 store, and a book store that is turning a lot of people on to digital purchases. All of those Kindle buyers are instant loyal customers, and that clout — a combination of built-in affluent audience and plentiful and massive content deals with all the major media companies — is what will help it survive. If Amazon really is launching a "Prime" video on demand subscription service this year, it may very well out-Netflix Netflix in a short time.

Cable unbound
By next fall, I predict that we'll have a few interesting new apps on our connected TVs and set-top boxes — ones that, oddly enough, we already pay the subscription for. Comcast will very likely offer its Fancast streaming website as an app. It's a great service, since you can watch almost anything you'd watch on the cable on demand, but without the hassle of that godawful interface. Since it's tied to your account, it automatically knows what premium shows you can watch, and it serves them up without any additional authentication. I can stream HBO's "Boardwalk Empire" to my laptop, so why can't I also get the same app on my iPad or Roku box?

But Comcast doesn't want to steer you away from its core product — 999 channels of stuff that mostly doesn't interest you — so it might limit what shows it makes available via its app.

HBO is a content powerhouse that is moving ahead with a streaming online product. However, since HBO's primary income is through cable deals, its HBO Go service, as it stands, is not available to Comcast customers. Fancast has HBO content so it's not the end of the world, but it's still evidence of the slippery nature of these services. It would be fun to get HBO Go on devices, but it's hard to guess what HBO would charge for that, or — as an upsell for cable networks — if they were even at liberty to charge customers directly.

The reason I have HBO at home is that it's cheaper than not having HBO. Ditto for a home phone line and other "triple play" benefits. Comcast and other cable providers won't let you just pay for distinct services, not at reasonable prices, at least. Expect this kind of magical price shell game to continue as programming moves to the Internet and apps. It will be hard for HBO to charge separately for service — even $20 a month — but it will be easy for Comcast to grant you access to an HBO Go app for "free" if you already subscribe.

(Again, federal regulators, concerned about anti-competitive behavior, are looking into how Comcast intends to distribute Internet video . Still, these giant cable companies and telecoms have a marvelous way of making lemonade out of regulatory lemons.)

These are the twists and turns that are going to keep you paying that monthly cable bill, despite a decreasing dependency on traditional cable programming. And these are the twists and turns that may stall Netflix on the side of the road, with a flat tire — or four.

Catch up with Wilson on Twitter at @wjrothman, or skip the one-on-one and join in the conversation at the Technolog page on Facebook.

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments