Netflix – The Giant of Online VOD [Video On Demand]

It appears that Netflix has redefined what and how we get to watch our movies at any time at a very practical cost-per-view in our home. The category in the entertainment industry that they are paradigm shifting is called VOD or Video On Demand. It would seem that Netflix has found a very creative and business building application that we could easily describe as a perfect example of Simple, Stupid & Obvious formula.

What do we know about Netflix? Well, a lot. We know that from the detailed description provide on Wikipedia that it is an American corporation that offers both on-demand video streaming over the internet, and flat rate online video rental [rental-by-mail] of DVD-Video and Blu-ray Disc in the United States and Canada [streaming only].

The company was established in 1997 and started its subscription service in 1999. In 2009, it was offering a collection of 100,000 titles on DVD and surpassing 10 million subscribers. In 2007, Netflix announced the billionth DVD delivery direct to the consumer. No middleman or intermediary. A dedicated brand giving a new service to replace the likes of Blockbuster [retail] and On Demand [TV] offerings from added tiered ‘charges’ of VOD on the CABLE TV operator systems [Comcast / Time Warner by example].

We know that Netflix was inspired at the start by its lead principle after being charged late fees for returning a rented copy of Apollo 13 after the due date. Today, Netflix developed and maintains an extensive personalized video-recommendation system based on ratings and reviews by its [subscription] customers.

Some 35,000 different film titles are contained in the 1 million DVDs it sends out every day. Netflix has played a prominent role in independent film distribution. Through a division called Red Envelope Entertainment, Netflix licensed and distributed independent films such as Born into Brothels and Sherrybaby. Red Envelope Entertainment expanded into producing original content with filmmakers such as John Waters but announced plans to close Red Envelope Entertainment in part to avoid competition with its studio partners.

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Netflix is now perceived as one of the most successful dot-com ventures ever. A The New York Times article from September 2002, said that, at the time, Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers. The company’s published subscriber count increased from one million in the fourth quarter of 2002 to around 5.6 million at the end of the third quarter of 2006, to 14 million in March 2010. NETFLIX’s growth has been fueled by the fast spread of DVD players in households; as of 2004, nearly two-thirds of U.S. homes had a DVD player. Netflix capitalized on the success of the DVD and its rapid expansion into U.S. homes, integrating the potential of the Internet and e-commerce to provide services and catalogues that brick and mortar retailers could not compete with. Netflix also operates an online affiliate program which has helped it to build online sales for DVD rentals.

So why has this SSO proposition created such a stir with Cable TV operators and others who have a subscription-based business inside the TVHH [TV Household]?

One of the reasons is this. In March 2011, Netflix announced plans to begin acquiring first-run original content for its popular Watch Instantly subscription service, beginning with the hour-long political drama House of Cards, which debuted on the streaming service in late 2012. The series starred Academy Award-winning actor Kevin Spacey and it was an instant hit.

Netflix is rumoured to have outbid heavyweight programming guru’s HBO and AMC, two of the current market leaders in original dramatic Cable TV programming. As reported on March 15, 2011:

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“Netflix landed the drama project by offering a staggering commitment of two seasons, or 26 episodes. Given that the price tag for a high-end drama is in the $4 million-$6 million an episode range and that a launch of a big original series commands tens of millions of dollars for promotion, the deal, is believed to be worth more than $100 million and could change the way people consume TV shows.”

Initial industry reactions largely echoed this tone, and, while generally positive, have focused heavily on Netflix’s bold, risky, and potentially transformative entry into the original content game. In the face of breathless and rampant media speculation, Netflix response has thus far been reserved and mostly focused on downplaying the potential implications in its core strategy.

How They Did It?

What has Netflix be able to do that no other entertainment industry content player or MSO [Multiple System Operation] subscription models failed to realize—that the TV HH subscriber has wanted all along—access to many more movies and another original programming at a very affordable and attractive price. Why has Netflix become the most subscribed standalone entertainment pay service [having surpassed Sirius XM Satellite Radio] with over twenty [20] million subscribers in just a very short period of time?

The answer would appear to be quite simple, stupid and obvious. They heard the desire of the consumer that if we could get access to all of the cool movie titles at a greatly reduced price per title [with no out of stock so one does not have to wait], not have to get in the car and drive to a retail store to pick-up and return the title [and quite possibly have to stand in line to be charged for returning the title late], by having the title[s] delivered first to my door [keeping it as long as I need without being charged for a late return] to then being offered a new service that uses the broadband connection inside the TV to offer the same service at the click of a remote device, what could be better.

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Things to Ponder

  • Has Netflix built a long term strategy to which they will change how the TV consumer uses their entertainment centers for the long term by possibly unsubscribing [disconnecting] their Cable TV provider and just have this one service for all?
  • Has the Cable TV operator thought about what they can do with or without Netflix that compliments or clearly competes with their current TV dynasty?
  • Has the TV house hold consumer thought about how they can get more ‘bang for the buck’ to convince their Cable TV operator and Netflix that the two must work as one at some point very soon – the entertainment TV screen as compliment to all of the other screens [Internet, mobile, tablet, gaming]?
  • Who else is entering the Netflix content delivery space [i.e. HBO to GO / MAX to GO, HuLu, etc.] and does this compliment, compete or simply confuse the whole TV HH content distribution choices for the consumer?

Feel free to tackle any or all of these questions as the end goal here is discover what the next business move is for Netflix and all of the other TV house hold content delivery services.

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