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Netflix Still Part of the Home Entertainment Family

6 Jan, 2016 By: Thomas K. Arnold


The Reed Hastings many of us saw Jan. 6 at the opening keynote of the Consumer Electronics Show was a little older and a lot richer than the Reed Hastings I remember from more than a decade ago, asking some of us who are now home entertainment old-timers what we thought of letting consumers rent discs by mail.

Since then, Netflix has become one of the entertainment community’s biggest-ever success stories, a subscription streaming service with nearly 70 million members in more than 60 countries and a market capitalization of more than $46 billion — nearly the same as General Motors Company.

And yet the company’s basic premise is the same: letting consumers watch specific movies and TV shows where and when they want to, with the ability to pause, fast-forward and rewind — just like Blu-ray Disc, DVD and, back in the Stone Age, the videocassette.

Streaming is the new video rental, and Netflix is the new Blockbuster — on steroids, as they say.

In light of this, I find it odd that some analysts and journalists maintain Netflix numbers should no longer be counted in the quarterly tally compiled by DEG: The Digital Entertainment Group. The three reasons that keep getting cited are that 1) Netflix is eating home entertainment’s lunch; 2) Netflix consists mostly of TV series; and 3) if you count Netflix, why not count premium cable channels like HBO, Showtime and Starz.

Yes, subscription streaming revenues for 2015, mostly from Netflix, are up 25% from 2014, while total sales of movies and TV shows to consumers, on physical discs and electronic sellthrough, are down by more than 6%. But when DVD came of age and disc sellthrough began chipping away at video rental, there were no calls to take DVD sales out of the mix. Observers realized the commonality between video rental and disc sales — which is that in each case, the consumer made a conscious decision to watch that specific movie or TV show.

Sure, Netflix offers consumers the viewing equivalent of an all-you-can-eat buffet — but we’re still deciding whether to go with the shrimp or the crab claws. Blockbuster and other video rental chains also experimented with block pricing — and in the early days of home video there were chains that sold monthly memberships, just like Netflix sells monthly subscriptions.

As for the fact that TV shows are driving Netflix viewership, again, it comes down to a question of choice. Consumers are choosing which shows to watch, and when — just as they did in the halcyon days of TV on DVD, which at one point was a $4 billion a year business. I don’t recall anyone saying, back then, that consumers who pick up a season set of “The Sopranos” or “West Wing” aren’t contributors to the home video revenue stream.

As for the contention that if the DEG counts Netflix, why doesn’t it count other premium channels — good point. Maybe the organization should include all transactions that involve consumers choosing to watch specific programs “on demand,” because this is precisely what has always been home entertainment’s distinguishing feature: the consumer choice to watch something at his or her discretion.

It should also be noted that many of the movies that show up on Netflix were sold to the streaming service after, or in lieu of, a disc release — easy to understand, given the huge money Netflix has been offering studios for content.

And now with original programming, delivered to consumers on demand, Netflix is again doing what Blockbuster was doing in its final days — cutting deals to offer exclusive content to its customers.

Reed Hastings may be hailed as a great innovator, a great disruptor — and he certainly is.

But he’s also one of us, a home entertainment guy who simply managed to come up with a clever twist on the concept of renting a movie.



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