Monday, April 17, 2006

 

Netflix in Network Era

Here's a rough sense of where I am at the moment with Netflix. First, the 2006 Industry stack:



The stack does not have relative size of competitors in the layers at the moment. Devices are not in the stack as they are a commodity from Netflix's point of view.

Looking ahead to 2010:


First, the digital layer is emerging. This stack can only occur if the MovieLink and CinemaNow ventures by the major studios fails. These companies just announced that they will start to offer the ability to purchase digital downloads (you could previously only rent). But their price point is too high at $20-$30 a download for a new release. This is a venture seemingly destined to fail and piracy will continue to run rampant. This is the point where Apple, Netflix, Google, and other players can step in and negotiate rights with the studios. Of course, On-Demand will only grow from its current form and be the major offering from the cable companies and DirecTV.

The information layer is also becoming more important. This is where the recommendation engines of both Amazon and Netflix come into play. Currently 2/3 of Netflix rentals come from its back library, many of which are the result of a recommendation. This is also where the community reviews of both sites are included. Amazon also owns IMDB.com, which is the number one choice for movie information on the web.

Devices now come into the stack due to both the new format wars (HDDVD vs. Blu-Ray) and Apple's iPod video players which could play movies as well. The content creators will likely lose ground in this area due to decreased revenue from physical DVD sales and an increase in digital sales. The only reason I projected physical DVD sales to rise slightly are the more expensive new formats.

McDonald's has been experimenting with rental kiosks at its locations and so is included. Amazon is about to begin offering digital downloads with an option to purchase the DVD.

Comments:
One way to frame wht challenges is to list a set of 'shifts' from today to 2010 and array them in terms of their likelihood from your point of view. and then develop an 'optimistic' scenario that helsp Netflix and a 'pessimistic' scenario that hurts Netflix. These two serve as the two 'ends' for your analysis; then you can develop a set of implications that Netflix should consider to navigate within this boundary of likely shifts. Good Luck.
 
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