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Summary:

Today just might be the happiest day for all my friends who worked for networking and telecom companies at the turn of the century, but lost their gigs thanks to the greedy machinations of Broadbandits. They are soon going to find new employment, thanks to collective […]

Today just might be the happiest day for all my friends who worked for networking and telecom companies at the turn of the century, but lost their gigs thanks to the greedy machinations of Broadbandits.

netflix.gifThey are soon going to find new employment, thanks to collective delusion of companies big and small. The new idea? They all want to offer consumers online video (including movies) to watch on their PCs – an unproven market – which is looking as crowded as midtown Manhattan during rush hour.

Lets check off the players for now – Amazon, Movielink, CinemaNow, Apple and a bunch of others who I refuse to remember because a brain only has limited capacity for names that will soon be relegated to the dustbin of failed ideas. Latest to jump headfirst into a pan of boiling oil is Netflix, which is going to spend more than $40 million in order to offer a streaming video service that would allow you to watch but not burn the movies on DVD or other media.

I thought you could do exactly that with any cable company’s video-on-demand service. And you can‘t watch those movies on your big screen, no software required. Just because a company thinks it can stuff DVDs in an envelope, it can make a go of the online video business. Remember all those people who got into online music business, only to leave with lighter wallets and bruised shins.

Here are some fun facts about this “new offering” from Netflix:

* It’s streaming, not download. GOT that!

* No burning video to a DVD

* Still, this is free to existing subscribers, the only “applaudable” move by NetFlix. Or, as Donna Bogatin says, “unlimited DVD rental does not equate to unlimited online movie watching.”

* Only 1,000 titles will be available, or less than 2 percent of the Netflix catalog.

* You need a 3 megabit/second connection to watch a DVD-quality movie. Oh, let’s see how those discount DSL users really feel about the picture quality of NetFlix.

“It’s a nifty marketing gimmick for Netflix … it’s not a breakthrough in the web-based movie distribution business. .. it’s just streamed movies over the Internet,” writes Cynthia Brumfield. Word!

By Om Malik

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  1. Blockbuster is eating their lunch with their new Total Access subscription plan and and now Netflix wants to add a new distraction. Streaming movies on a computer is not the answer and never will be. This looks purely like a PR move to let The Street know they are developing their own digital plans.

    I can think of a few things I would spend $40 million on before this.

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  2. Ah yes, 3MB connection. We have the lower one, the 1.5 MB connection. We watch lots of video on our TV (TV hooked up to computer via s-cable). My wife, who really is not interested in the details, knows one thing. Streaming video pauses and it pisses her off. We are Netflix subscribers, but I don’t think we will be streaming movies. Netflix via mail is good enough for us.

    Besides, with all the stuff at peekvid.com, who needs streaming Netflix? We will just go watch House and Sienfield episodes. Sure, it is flash from dailymotion and bad quality, but at least it does not pause.

    My wife was all excited to get a “fatter pipe” until she saw how much they charge… Now she says…”Ishnogood”

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  3. They should give that $40 million to ijigg.com, a site that just launched yesterday but is on the first page of digg today. The beauty of any system, online or off, is its simplicity AND quality, or lack thereof. The streaming media market exists in the United States, provided that services are as simple as operating a TEEVEE AND the quality is AT LEAST as good as analog cable.

    I don’t think that this is terribly hard to achieve, especially because not all of us are near our tv sets with a nice digital cable box, but we do have laptops with highspeed internet that are perfectly suitable devices for watching on-demand movies.

    The idea is not that one thing will take over another thing, but that ultimately more choices will exist for end-users who are on the go.

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  4. I don’t know Om…I think this is pretty killer.

    One thing that I really want is a basic cable subscription, but where every show is time shifted and I can watch it whenever I want. That’s basically what netflix is trying to do.

    And this isn’t just a gimmick. They’re putting $40 million into this, which is most of their operating profit. It’s a big bet.

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  5. Easy on the criticisms!
    Apple simply made an MP3 Player, but they did it better. HP a printer, but again, better. Sure, Netflix quality may not be ideal, its streaming, and I can’t burn, but it is better simply because it is paid for through a service I already have. I don’t have to pay someone else, have another set of terms, or marketing newsletters to delete. I can now watch movies from anywhere, conveniently, with no additional cost. Hooray for Netflix!

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  6. I think Om is missing the point here. Sure the offering is weak right now, and PC only right now.

    However, ever tried to find something to watch on your cable TV’s video on demand service? Not a whole lot of variety.

    What makes me salivate about the Netflix offering, is the future potential of their 70,000 items on catalog. We’re finally getting to the point of being able to watch anything at any time, not today, but hopefully in the near future.

    At some point also, I fully expect Netflix to be a source on AppleTV so we can browse the catalog, and stream directly to TV. Other providers may also talk with AppleTV and other similar devices to act as a streaming source.

    Its the potential that rocks, not the immediate capabilities of this service.

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  7. I have to agree with you, Om, this is a pretty stupid move. For one thing, people don’t sit in front of PCs watching movies. They lie in bed, they lean back on sofas and eamon chairs, … you get the idea.

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  8. I am a longtime Netflix subscriber and I think it’s a great idea. Why it cost them $40 million to build out I dunno but it’s a great idea still.

    To the other poster who said streaming video “ishnogood” I can only point to Fox’s offering. They have found the perfect delivery platform that streams beautifully in the best quality I’ve seen on even very low speed connections. Check it out:

    http://creative.myspace.com/VOD/prison_break/index.html

    For $40 mil I’m sure Netflix can offer at least that much. Whoever it was at Fox that made the choice to use that codec and platform deserves a raise. It kills ABC’s and CBS’s offering quality-wise. Although ABC’s is more attractive. http://abc.go.com

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  9. Well, I was looking forward to at least trying it out, and then found out that despite my having a 15mb connection (FIOS), I wouldn’t be able to do that on either 1) my desktop (Win2K) or 2) my primary laptop (OS X).

    Nice move, guys.

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  10. i am going to hold my ultimate opinion until netflix gives me access to the new service and I can try it out myself. that being said, i feel pretty optimistic about this idea and i am unsure as to why you doubt it so quickly Om.

    I am not sure you can equate cable provider’s on-demand to this service netflix has proposed. with cable you can get maybe 100-150 movies at a time on demand (this is including HBO, STARZ, SHO) and the movies are only available for a defined period of time, then they disappear. Not to mention the quality of movies provided by cable is exceedingly low. Not to mention network tv shows are not included in cable on demand either. 1000 movies is a great start. I am sure this will quickly expand to a larger number of titles, or maybe that is my optimism poking through.

    this next point primarily concerns me, but i have no qualms with streaming an almost dvd quality movie on my macbook pro core 2 duo. the tv is boring, now i can pick from 1000 movies to watch anywhere i want, whenever i want, and i don’t have to go through the hell that is stepping into a blockbuster retail outlet.

    i should really start writing for netflix.

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  11. GigaOm Sees ‘Collective Delusion’ in Video…

    Om Malik predicts that many new video ventures will “soon be relegated to the dustbin of failed ideas.”…

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  12. oh yea, the pc only thing reallly sucks…i hope that is fixed soon.

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  13. If they can offer this cross-platform and at no additional cost to their current customers, I don’t see how it can be a bad thing. Given the choice to stream a low-quality movie instantly from Netflix or drive to a Blockbuster store to pick up a “free” rental, I’d choose the former.

    The popularity of iTunes, YouTube, BitTorrent, etc., proves that not everyone watches video on a large screen in their living room. It seems to be a generational thing, just like IM vs. email or SMS vs. phone calls. It won’t be long before portable, convenient video is the norm and HD content is offered as an optional upgrade on your multifunction set-top box.

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  14. Please remember Netflix does not own this content. If they are going to stream it on the web the rights holders (studios) are going to demand a payment every time it is streamed this will limit the number of titles available and will require that Netflix charge for the service. So while they have a fantastic collection of titles most will not be available on this service.

    Besides, they currently only have one major competitor with rentals when they get into streaming content they will have 100’s of competitors.

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  15. Netflix had no choice but needed to get into this market. In 2-5 year, DVD rental business will be 10% of today’s market. But, it would be harder for Nextflix to win this market as there are lots of players with deep pockets and technology.

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  16. Bryan Campbell Tuesday, January 16, 2007

    I don’t know, I’m sitting in a hotel room right now and debating whether I should pay $14 for a movie… getting free streamed video or a downloadable movie for a reasonable price seems reasonable to me… movielink.com is a pretty good service.

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  17. I agree with that Bryan. I have been in that same position, in a hotel with the choice of overpriced PPV or a downloaded movie, and of course the downloaded movie won.

    Movielink and Cinema Now are both great for that.

    As far as there being a lot of competition in this space, even though Netflix is technically a late entry they have a user base that already associates them with nex-gen movie viewing schemes. That base will follow them into the next method and they will have a sizeable market chunk automatically that should carry them through the storm.

    Blockbuster would also benefit from their base but (right or wrong) they are associated with the old way of doing things.

    Ultimately the biggest winners of the downloadable movie race will be the cable companies themselves. Ip-TV plays in their favor as well as the captive audience that they have for TV and broadband. Once they figure out how to attractively package their offerings in a way that covers both the PC and the TV screen they will dominate.

    Comcast and Time Warner should already be dominating this space…

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  18. I agree with earlier comments calling this service DOA is a little premature. Everybody seems to be demanding downloads of HD-quality movies. This would take way to long. The whole point of this is instant gratification and I don’t want to wait 4 hours for my movie to download. And most people don’t wan’t to deal with files sizes of several GB. So with those constraints in mind, I think streaming DVD quality video and being able to watch the movie immediately sounds pretty good to me. Comparing this to cable VOD is comparing apples & oranges because of the limited selection on cable. And it’s not too hard to hook up your computer to a big-screen TV. You don’t need Apple TV for that.

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  19. Why would you expect them to allow you to burn it to DVD? First off, even if you rented the actual DVD, burning it yourself is illegal and secondly you are only renting it, it’s not DTO content.

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  20. I haven’t been able to try Netflix streaming service yet (don’t have the option to), but I’m hopeful that I can stream to my Xbox 360 in the living room. Seems possible on the surface (stream is wmv format). If that’s the case, I won’t have a problem with their strategy. I’ll use it as a way to augment my current membership. I like Netflix and love that they offer high-def movies that are available for no premium. If I can stream to the living room, this will help address the instant gratification need, which is currently the only gap I see in the Netflix service.

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  21. I’m interested to know how the ISP’s are going to react to this new trend. In the UK we’re already plagued by fair use policies and monthly bandwidth limits. This is going to put even more of a ‘strain’ on their networks and ‘force’ them to put charges up.

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  22. I think episodic content like TV programs that run 40-50 minutes is a better approach. This content is smaller file size. I also am willing to watch this content on a monitor. I also multi-task with TV programs compared to watching movies. When I watch a movie, I prefer to sit in a darker room and view it on a TV while sitting in a comfy chair.

    I do believe most IP-based services will fail until bandwidth increases and there are more means of making the transition from computer to living room a better experience.

    The real issue isn’t delivery method IMHO, but rather sifting through all content, getting appropriate recommendations based on my interests, and having a large on-demand catalog. IOW, Tivo for any content I can find on cable, time and format shifted. That is a long way off.

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  23. For people who travel and have a netflix sub I imagine this is a nice feature.

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  24. Streaming movies through Netflix might not be a world beater, but I’m totally confident that video has yet to see its finest hour. There will be legitimate, market-grabbing challengers to Akamai and Limelight.

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  25. I’m surprised no one has mentioned the fact that netflix can leverage (for existing customers of course) their extensive recommendation data into the VOD space with this. Providing it free just increases the switching cost a little from netflix to BB.

    Selection is not great yet, but who cares. This is effectively their public-beta/ please-the-Street rollout, not that different from when cinemanow trialed their advanced stuff like Burn-to-DVD with their ‘mature’ titles first.

    As for the hundreds of other online video startups out there, this proves that for the moment this is better off as a feature to an existing offline service, rather than a service in its own right, much less a standalone company.

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  26. Why hate on this one? Sure, it’s not the best product but Netflix has to start taking some steps in this area or get left behind.

    Moving from physical to digital distribution is a huge transition for Hollywood and it ain’t gonna happen overnight.

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  27. The average user with 300 films/shows in their queue will have about 4 or 5 (1,000/70,000 = 1.5%) films/shows in their queue that can be streamed. Within 1 month they will be done with their preferred films and then can rework their queue to find more streamers.
    Netflix can only offer limited selections with its new service because most popular film titles are tied up in long-term electronic subscription distribution agreements between the major film studios and premium cable channels, like HBO and Starz Entertainment Group.
    Netflix and others were sued on January 3, 2007 by Internet search engine Lycos over the way they provide recommendations to customers for movies or television shows.

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  28. Netflix is trying to get the geeks to stay instead of jumping to Blockbuster. I like it. I like watching movies in a corner of my laptop while I work and if it means I can watch some that my family doesn’t care to watch without walking to the mailbox in freezing rain, I like it.

    I’ll have to disagree with you on this one…although a deal with TIVO plus this would by far have been the best of both worlds.

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  29. Om,

    Guess you weren’t one of the ones who bought a new tv. Guess you dont have a PC hooked to that new tv.

    Well I can hook my laptop to my TV HDMI connection , and in less than a minute have the Netflix stream on the TV in full screen mode and pic is pretty good. Not much of a hurdle. Or I can use my dedicated HTPC to do the same thing.

    Wow that was tough. I think you are premature to call this DOA.

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  30. Hahahahahahahaha!

    Please make more predictions so I can bet against you. Thanks!

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  31. Om just got called on by Slate.com for being wrong.

    ‘—esteemed tech journalist Om Malik predicted that this move would “soon be relegated to the dustbin of failed ideas.” Netflix has more than doubled its subscriber base since then, and today nearly two-thirds of them use Netflix’s streaming video service.’

    http://www.slate.com/id/2265755/

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  32. Well now, here we are down the road 3 1/2 years later, and Netflix has somehow managed to leverage its “failed idea” of a streaming video service from the “dustbin” into a market capitalization of $6.4 billion, and its stock has since risen from $19 to $130 a share.
    But, unfortunately for Mr. Malik (and most of the other self-important, self-appointed “tech market whizzes”), his words of wisdom from 2007 will always remain online to serve as an abject lesson. Because once you’re an ass on the internet, you are an ass forever…
    “Don’t take yourself so seriously, Om; no one else does.” Word!
    http://www.slate.com/id/2265755/

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  33. RT @nilofer: As a board member, I read this story of Netflix cash and shudder. http://t.co/dFxWzsyi…

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