Netflix Killed Blockbuster. Now What?

July 12th, 2011 | by Maddison Paltridge |

Youre fucked. Youve got nowhere else to go. Netflix killed Blockbuster.

The music industry should be paying close attention to the Netflix brouhaha. Every analyst says the same thing, this is about killing the DVD rental business. Imagine if the music business killed the CD? But you can only do that if you have a reasonable alternative in place.

For those who say people will never rent music, remember people rented videotapes, bought DVDs, rented DVDs and now stream movies. Dont tell me what the people want, they dont know. Furthermore, what made streaming so appealing was two breakthroughs, Netflix-compatibility in television hardware and the iPad. Yes, imagine if the music industry had enabled tech innovation instead of thwarting it, maybe it would have been prepared for the future.

In case youve been under a rock, yesterday Netflix split streaming from renting, instead of one low price you got a whopping increase if you still wanted both. People are complaining, but as stated above, what is their alternative? They could go back to buying DVDs, but thats still a bad deal compared to Netflix. As for renting, where you gonna do it? The video shop has evaporated and yes, weve got coin-operated rental machines, but inventory is limited and youve got to leave your house.

So Im laughing. Its the cheapskates revolting.

But theyve got an alternative, streaming.

Now dont say the alternative is BitTorrent. The people stealing dont have Netflix subscriptions, its not worth their while. If you think DVD renters on Netflix are suddenly going to fire up their P2P client and steal you probably call your grandmother for tech advice. Furthermore, theyre afraid to steal. The MPAA and RIAA shenanigans just kill the incentive of those already paying, same deal with copy protection. Harming those who already pay is like making you wait in line for lousy overpriced food at the concert venueoh wait, they do that!

This is Clayton Christensen in action, from the Innovators Dilemma. You build a new, technologically up-to-date business across the street from your old enterprise, and when the time is right, you shift everybody over, both employees and users. Netflix has been building streaming and the time is nighto get everybody streaming so they can get as much money as possible to negotiate with rights holders. And their leverage is incredible, since theres almost nowhere to rent physical product, never mind buy it, and rights holders need that revenue. This is the same way Apple gained leverage over the labels. It paid, and then became the only game in town.

Furthermore, Netflix teaches us that once you get people to pay, you can always raise the price. The music business is about maintaining price points. Huh? Have they never gotten a cable bill? It starts off small and then goes up. Few disconnect, they grumble and pay up. Yes, the increase at Netflix is substantial, Id go up a buck or two at a time, then again, the companys goal is to kill DVD rental by mail. Hell, why buy all the discs, establish warehouses, mail them, incurring postage, when you can stream movies without any of this at all? The music business never got comfortable with the cost savings of digital, too busy placating Wal-Mart it got caught in the past.

Todays big announcement is the launch of Spotify. For those pooh-poohing it, stating theres little name recognition, youre just showing your ignorance of Internet word of mouth. Yesterday nobody knew about Turntable.fm, today everybody but your grandma does. Then again, your grandma still reads the New York Times!

The labels crippled Spotify, making the free offering unclear. It should have been unlimited and then slowly cut off, or maybe you pay a little bit of money for a little more access. But the music business only believes in half steps, it cant go all in, it likes to play it safe. Funny for a business that used to be about the cutting edge, and breakthroughs.

As for those complaining you cant stream everything at Netflix Dont you get it? Netflix is consolidating its position, killing the DVD to ensure studios allow them to stream, theyll want the money!

As for those complaining of streaming costs Yes, its a problem for Netflix, but not for Spotify, because over 2,000 tracks live on your hand-held, theres no streaming of them at all.

Then again, youll understand this when you use it.

Spotify got one thing right that no other subscription site has. Usability. Thats been the key to Apples success. Spotify looks like iTunes and playing the tracks, due to underlying P2P software, is indistinguishable from owning them.

Its a brand new world.

Unfortunately, the movie business is leading.

The music business could have killed the CD, could have driven people to subscription, but afraid of the future and wedded to the past it refused to do so to its detriment. Well see what happens now.

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