Interesting perspectives in this article, IMO. But it has its own blind spots. I like how Hastings gets past the senseless IPTV hype, but I think he stops short of the article under the thread "The New Laws of Television" (Piracy is Good? The New Laws of Television by Mark Pesce.) First off, if Netflix migrates to an online distribution model, which is an eminently logical next step for them, they will have to depend on the updated ISP nets and broadband last mile connections that the telco or cable plants provide. And if cable companies and telcos update their networks, as they are doing, then they too can get into the game of offering huge libraries of video material, for non-real-time download. I guess I'm saying that the current IPTV and cable "real time program" distribution models are not the only model these two players can offer their customers. Since people would have to rely on their broadband provider to get this new Netflix service anyway, the broadband providers can not only compete, they could also block Netflix downloads, unless forbidden by law. The other objection I have is that if the movie studios are hesitatant to make their content available to Netflix for online distribution, Netflix should wonder whether the studios might have a point. After all, if this content gets pirated, which it will, people will soon discover they can bypass Netflix too! It might be easier for movie studios to accept distribution of their content only within walled gardens, where at least there is a semblance of control. Mark Pesce's thesis was that even the Netflix companies of the world can be bypassed, once the "power of the Internet" is unleashed. Which goes a step beyond this article's vision. Bert -------------------------------------- http://www.redherring.com/Article.aspx?a=3D12195&hed=3DNetflix+CEO+Dishes= +on +Web+TV§or=3DIndustries&subsector=3DEntertainmentAndMedia Netflix CEO Dishes on Web TV Reed Hastings says cable, telecom, and satellite companies just don't get the business model of the Internet. May 26, 2005 Netflix CEO Reed Hastings sounds a little like a character in the new Star Wars film as he talks about the future of video on the web. He expects "an epic battle ahead between the forces of control and the forces of freedom that will play out over the next 10 or 20 years." That may sound like science fiction, but the scenario is real enough. And the future of Netflix depends on its outcome. With the stakes so high, Mr. Hastings is not afraid to call a winner. "The future of video is web television, not what companies are now calling IPTV," he said this week during an interview with Red Herring. As Netflix has grown its online DVD rental service to 4 million subscribers, giant competitors like Blockbuster and Wal-Mart have jumped into the market. The big players have validated the business model, and offered Netflix its chief competition, at least for now. But looking far, far into the future, the next generation of competitors will come from companies that are now investing in video-on-demand and IPTV services. The telcos, cable companies, and satellite companies are spending billions to deploy the networks to supply digital content straight into the home, and companies are already offering select services in several cities. The reality of IPTV is far off, but as technology grows commonplace, the DVD won't be the medium of choice. When homes are rigged with 50 to 100 megabits of bandwidth, consumers will want immediate access to digital video in their homes. Companies that lay down the pipes, like cable operators or telcos, will fight companies that sell service distribution service over the Internet. "Netflix can likely beat the telcos in the online video distribution game, but cable will be much harder," said Laura Behrens, an analyst with Gartner G2. Cable has already invested in the network infrastructure and done major deals with movie studios to distribute content. Mr. Hastings knows that online distribution will be the company's future down the line, but he is quiet on the details. Last year, Netflix announced a deal with TiVo to develop technology for a joint entertainment offering and pledged to work with Hollywood studios to secure content for digital distribution. Mr. Hastings said Netflix will start offering direct Internet service this year, and will dedicate 1 to 2 percent of its annual revenue to the service over the next five years. With $506 million in annual revenue last year, that's roughly $5 million to $10 million for the offering each year. "All I can say is the first efforts will be underwhelming," said Mr. Hastings. Content Is Still King Mr. Hastings notes that the biggest barrier to the online distribution model is content. Movie studios are deathly afraid of online distribution because piracy over the Internet is already cutting severely into their business model. In a true sign of what piracy and online distribution can do in the new era, hours before the world premier of the latest Star Wars film, the movie was available for download from the Internet. It's a situation with which the big telecom, cable, and satellite companies struggle. But Mr. Hastings thinks these companies are making a mistake in underestimating the power of the Internet. "They don't get the economics of open system innovation," he said. "They get very well how to do the economics of proprietary systems and it is fundamentally a different ecosystem." Mr. Hastings points to new mediums like blogs and podcasts as emblematic of the rapidly changing media landscape that runs over the Internet. IPTV companies will create 200 or 300 channels, while the web will have more like 5 million, he predicted. Already, companies willing to embrace the economics of the proprietary model are trying to beat Netflix in the online distribution space. At a symposium at Stanford University in Palo Alto, California, on Wednesday entitled "Next Generation Media Networks" (see Desperate Telcos Push IPTV), Bob Greene, senior vice president of Advanced Services at Starz Entertainment Group, stated, "Netflix can not replicate the subscription model online because it violates our rights. Our subscription model does not run out until something like 2011, 2012, 2013." Although Mr. Hastings won't discuss the accuracy of Mr. Greene's comment directly, that kind of outlook, concentrating on locking up content for decades, is the "the ultimate proprietary view," he said. "We are more like a Yahoo or Microsoft with an emphasis on openness, variety, and selection." Blockbuster Battle For now, though, Blockbuster is the company's biggest threat over the next year. With Blockbuster pledging to spend $120 million on marketing this year and pushing to gain 2 million subscribers by 2006, the company could easily outspend Netflix. Competition from Blockbuster even caused Netflix to drop its prices last year from $22 to $18 per month, and has forced the company to run at a break-even rate, dedicating 18 to 19 percent on marketing costs. The high spending has caused the company to report a loss of $8.8 million for its most recent quarter, with a projected loss of $15 million for the year. But the plan is to get big, fast, battling Blockbuster in the short term, and using the DVD business model to pull its subscribers into the Internet distribution future. In a signal of Netflix' success last week, Wal-Mart announced it was getting out of the online DVD rental market and referring its customers to Netflix. Although Mr. Hastings won't disclose the financials of the deal, he said the partnership was a symbolic victory and a psychological boost for the company. ---------------------------------------------------------------------- You can UNSUBSCRIBE from the OpenDTV list in two ways: - Using the UNSUBSCRIBE command in your user configuration settings at FreeLists.org - By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word unsubscribe in the subject line.