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Studios Are the King Makers

26 Sep, 2011 By: Stephanie Prange

Netflix executives, during the past month or so, may have been wishing all the attention were still focused on their old nemesis Blockbuster. As long as Blockbuster was around, Netflix looked like the new, younger kid; the cool kid; the entrepreneur; the next big thing. Netflix represented the future, Blockbuster the past.

Unfortunately, Netflix had to grow up sometime, and its growing pains are starting to show in the company’s stock price, which has dropped precipitously as it has raised subscription prices to offset greater costs and grow its streaming business internationally.

There are a lot of advantages in being the new phenomenon on Wall Street, which is looking for outsized growth, even if it does come by undercutting an older, established business weighed down by debt like Blockbuster. While Blockbuster struggled to move with an enormous debt shackled to it, Netflix could bob and weave and build a better rental mouse trap, one that didn’t involve cumbersome real estate or a debt load and that got great pricing on streaming licenses from content holders who had not yet realized what streamed content was worth.

Now the entertainment landscape has shifted, and Netflix is in the spotlight. The company can’t get the kind of pass offered to new ventures; it will have to grow and prosper under the weight of expectations — and new, higher licensing fees for streamed studio content.

Oh, for the good old days when Blockbuster took much of the heat, Netflix executives must be thinking. But those days may be past for Netflix, which may now find out that the studios can be king makers in the distribution pipeline. Content holders favor whichever distribution avenue will offer them the most profit, and will wring ever more money from distribution pipelines that use their content.

Content is king, and the studios that own it can make or break a distribution partner. In the case of Netflix, I think executives may be finding out they have more in common with Blockbuster and other past studio distribution partners than they thought. Just as Netflix overtook Blockbuster, there are competitors in the wings targeting Netflix.

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