Three years ago we received a six month gift subscription to Netflix as a Christmas gift. We didn’t make full use of it for a while – watching a full length movie each night just took too much time – but then we discovered the joys of watching TV shows via Netflix. Top quality programs such as The Wire, Deadwood, Friday Night Lights, Rescue Me and many others were soon a nightly occurrence. Because the episodes were only an hour long, it was easy to fit one in each evening. To me, watching a television series after the fact has great advantages that make are well worth the wait: no commercials, cliff-hanger episodes on consecutive evenings rather than a week or more apart, watching when it’s convenient for you and not when TV programmers say you can watch it, and many more. With three DVDs in our rotation, a red envelope in the US mail delivery system worked quite well.
Recently it became evident that Netflix was changing its model of delivering content. By streaming programs live via the home’s internet connection directly to the television, Netflix would save an enormous amount on postage. Not having a Wii or an XBox or a Blu-Ray, I purchased a Roku box for $50. This device sits ontop of the TV and attaches to your home internet service wirelessly. Soon you’re viewing TV shows and movie on your TV via Netflix whenever you want, not having to wait for the red envelope to arrive. While not everything is “on demand” this way, much is. It’s great.
But now the content producers – the television networks, movie studios and the cable TV providers that charge mightily to deliver that content to your home TV – have targeted Netflix with economic destruction. In today’s New York Times, the chief of Time Warner, when asked about the growing dominance of Netflix, disparagingly said “It’s a little bit like, is the Albanian army going to take over the world? I don’t think so.” And so now when contracts for the provision of content come up for renewal, Time Warner and the like will be seeking exponential increases of the original prices they agreed to pay Netflix.
These guys never learn. First it was the music recording industry ignoring the potential of online music sharing and downloading to protect their cash-cow CDs; then it was the newspaper industry wedded to its print product and the enormous profits it produced while disparaging the potential of the internet for online delivery of news. And now you have the movie and TV studios slamming Netflix because that company has figured out how to make the leap from pricey DVD sales/rentals to more affordable instant downloads via the internet.
Each of these media industries had a core product that was hugely profitable. Technology, however, created new delivery systems for those products – music, newspapers and movies – that were far cheaper and much more desirable by consumers. Although these new delivery systems were better for the customer, they yielded far less profits for the established industries. Rather than embrace the change, downsize their operations where needed and find new revenue streams from innovation, the established media companies sought to kill the new technology in its cradle, not because the new systems harmed consumers – they were clearly beneficial – but because the new technologies harmed corporate profits. If the lessons of the music and newspaper industries’ fights against new technology is any indication of the outcome of this latest battle, Netflix has nothing to worry about.