Tuesday, September 27, 2011

Will Netflix be the new HBO?

By Sarah Sluis

Years after the technology for video streaming was first introduced, the technology's potential is finally being monetized in a big way. When Netflix first started video streaming (around 2005, if I remember correctly), I watched choppy videos on a computer that constantly seemed to be buffering. Now, my television has a "Netflix" button. I browse for and watch flawless, unpixelated videos without any Netflix problems 98% of the time. In recent months, Netflix has made three bold business decisions that promise to shake up the entertainment industry. One, they acquired the rights to the original series "House of Cards," putting Netflix in the company of premium cable channels like Showtime and HBO that combine movies with original content. Two, they raised prices and split their company in two, Netflix and Qwikster. DVD-by-mail and streaming will now be totally separate. Finally, they outbid HBO for exclusive rights to stream DreamWorks Animation's content. Netflix is looking a lot less like mail-order Blockbuster and more like HBO.

Neflix has always been a forward-thinking company. They named their company "Net"-flix when they were a DVD-by-mail service, and their company culture is something of a legend (check out this human resources-created Power Point, which includes an outline of their "unlimited vacation time" policy). It's interesting to see them make so many high-profile strategic changes in such a short period of time.

So far, it appears Netflix is primarily repositioning itself in the home entertainment market, meaning there won't be any threat for theatre owners. Blockbuster may be bankrupt, but Netflix can now count premium cable channels as well as Amazon Prime (which just signed a streaming deal with Fox's TV shows) as competition. There's also a chance that the cost of making these deals will raise the price of Netflix's services. The company reportedly paid DreamWorks $30 million a title, a steep sum when their customers currently pay just $7.99 a month for streaming. With over 20 million subscribers, Netflix does have hundreds of millions at play to acquire content, but it will be a struggle for the company to satisfy 100% of a customer's needs when they've separated DVD-by-mail into a separate business, Qwikster. The companies will now operate with separate queues and billing. Netflix may have willingly gotten rid of its most potent advantage in the business. It's no longer a one-stop shop for any title on a consumer's to-see list.

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