My idea, which would still work for people without high speed internet, is to have kiosks in the size and location of Redboxes which contain hard drives with about a Blockbuster’s stores worth of videos and can burn them on demand. This would cost a couple bucks more and would be slower, but would probably be done by the time you’ve gone into the store to buy a Coke or hot dog or whatever. The content providers would probably prevent this though.
Or you could have a friggin huge kiosk inside bigger stores which has a near-Netflix catalog that can also burn on demand. This would be much faster than waiting for Netflix to ship.
You could also burn-to-store if the kiosk doesn’t have it, by ordering off the Internet and having the content streamed to the burning kiosk, then pick it up.
All of this would not be as cheap as buying high speed internet for those who would use it for other things anyway, but it would still be cheaper than cable!
In a way, that early accident of the studios licensing streaming cheaply to Netflix is probably what allowed Netflix to become the monster we see today. Back then, there were a lot of first run movies on Netflix streaming. The selection was somewhat comparable to the new releases at the video store. That is not the case today. The free streaming options are usually 2nd and 3rd rate movies and more oddball stuff. The first-run streaming market is now is fractured since each studio is trying to capitalize their content as much as they can.
Even if Blockbuster tried to get into streaming back then, they’d have to compete against Netflix who already had the cheap streaming licensing deals. The success of streaming would cause studios to charge Blockbuster more for the same rights. And in some cases, Netflix may have had exclusive streaming rights, which meant Blockbuster couldn’t get access to the same catalogs.
As to why Blockbuster didn’t get into streaming before Netflix, that’s likely because Netflix had a postage cost. It would make sense for Netflix to look at ways to reduce that cost, and streaming would be a way to do that. Blockbuster didn’t have a similar cost. The stores were their profit center. It didn’t make sense for them to proactively look at movie delivery systems which undercut their current model.
Well, either you’d be buying a DVD so they’d want to charge you normal DVD purchase pricing or else you’d need some sort of limited-play (and no ripping to your PC) technology. Which already failed with DIVX (and FlexPlay).
OP, there is little about Blockbuster’s business that would have given them any special ability to start a streaming service. You might as well be asking why any corporation, or you yourself for that matter, didn’t get into streaming video before Netflix did. Blockbuster had insight into what movies were popular with home viewers in America, which might have helped them to know what content to license for streaming. Blockbuster also had pre-existing relationships with movie production companies so they would have known who to call to start licensing deals. However, anyone can look at box office receipts and know what’s popular. It can’t be that hard to find production companies’ contact info if you want to pay them money they weren’t looking for. Netflix could do those well enough.
I wasn’t sure if Netflix’s streaming service would ever make money. I knew that Blockbuster paid fees on every film rental. I assumed that Netflix would also pay a licensing fee each time they streamed a film. I believed that bingers would cost Netflix a fortune - particularly when Netflix was giving unlimited streaming movies for free to DVD by mail customers. When I learned that Netflix was licensing films for a flat fee, I thought their cost problems were over and the service would probably become very profitable eventually. I managed to be wrong twice on the same issue. Flat-fee licenses made streaming Netflix viable but those third-party content license fees constrain profits and are generally too much for Netflix to pay anymore.
It was a bold move for Netflix to get into content production. Just as Blockbuster had no particular skills relevant to streaming movies, Netflix had no particular skills applicable to producing content when they started but Netflix has done it well enough to sustain their business. I wouldn’t have bet on them to pull it off.
I wish I could find the article, but I remember back in the day when there was a war between Blu-Ray and HDDVD, that somebody over at LucasFilm said there weren’t going to be physical disks in the new formats for Star Wars. He was wrong on timeframe (it was ultimately released on Blu-Ray), but he rightly predicted that there would be a time where people wouldn’t want physical copies of their media. I remember not being able to wrap my head around it. Of course I want to hold my movie in my hand, and say it’s mine, just like my VHS tapes!!
Since streaming services came out I haven’t bought a Blu-Ray in years. Ironically, I think it was the Star Wars box set. My blu ray broke on my PS3, I didn’t want to buy another one, and I don’t like having to keep track of the disc and take good care of them. Streaming was mature by then, you could buy a streaming copy online from a stable, reputable company like Amazon. I never looked back.
Contrary to what most people think, corporate America does have a concern for their employees. Switching mainly to or only to streaming would compete or eliminate their brick and mortar stores, putting thousands of employees out of work and financially ruining hundreds of franchise owners. Reducing their customer base (you’re fired from Blockbuster, would you switch to their service?). As well as impacting the local and national economy.
Which leads to an even bigger issue, PR and marketing. There would be a huge backlash and calls for boycotts of Blockbuster as they close their stores. Toys R’ U faced the same dilemma and Sears and any other struggling brick and mortar store face it too.
Finally there’s the time and cost of building an online only infrastructure. It takes time to build the necessary physical locations to house the equipment and personnel. And even more time to see a positive on their investment. Then there’s the cost of getting the licensing for the movies, which will run in the billions. For an already struggling company, how do you tell your investors that you’re going into even greater debt, but don’t worry, we’ll break even in five years and make a tiny profit in the sixth.
$10 a month doesn’t support the infrastructure unless there’s tens of millions of subscribers (Netflix has 52 million and Hulu 17 million according to the article) and that base must keep growing to sustain profits. At some point when the number of subscribers has reached its limit, either prices (or add-ons) must increase or services reduced.
Finally for anyone who thinks streaming is easy, look at the tens of thousands of people asking about how to compete with Youtube. When they learn about the cost of servers and bandwidth, that thought is quickly abandoned.
No particular skills maybe, but the motherlode of market data.
They don’t just know which movies and TV shows people watch, they know the exact moment that people decide to stop watching them, and which episodes compel viewers to immediately watch another.
I agree it was a longshot, though, and betting against Netflix wasn’t unreasonable.
I agree that they have terrific market data. Supposedly they decided to produce the US remake of House of Cards after putting together that that people liked Kevin Spacey movies, David Fincher movies, the original UK House of Cards and political thrillers in general.
But they do seem to have a spendthrift approach to creating content. I think they’re spending something like eight billion dollars this year on movie and television production and I’m not sure their subscriber fee revenues cover all of that cost. Are they going to implode at some point?
Absolutely true, but you can only really rely on that data if you are convinced that producing popular content is a science subject to rigorous data analysis rather than an art. Then, you have to execute a strategy based on that data that works and not misjudge by throwing money at the wrong projects or failing to recognize that production is a team effort and the right amount of executive meddling is necessary to produce a hit. I could see learning exactly the wrong lessons from the data and producing some truly expensive, awful, and unpopular stuff. Netflix didn’t make those mistakes - at least until they signed Adam Sandler.
I’m not going to dive into their books to do a real analysis. They are still profitable and they have a high stock market capitalization, so there are no threats to their ability to continue to get the capital they need for production right now. I don’t think their current revenue covers their production expense but the films they produce are an asset on their books and they will generate returns for years to come. They can borrow against that asset and monetize it in different ways (toy licensing, cable distribution of stale films, theatrical retrospectives, etc.). Imagine that in 20 years, they have a huge back catalog of work that no one else can offer. What if the next Star Wars is part of that catalog?
Once they have an untouchable catalog, they may be able to slow down production of new content and buy up cheap content from their failed competitors to continue to expand their offerings. Their production costs may also drop dramatically if they become a monopsony or oligopsony buyer of video content. I don’t think there are any tremendous threats to them right now but, of course, I have admitted being wrong twice about just one aspect of their business. Also, my suggesting that they won’t collapse imminently is very different than my saying that their stock is worth its current price. I’m not expressing any opinion of their stock value.
AFAIK Amazon rents streaming movies without the customer needing to pay for Prime. There are titles that are included in the Prime benefits, and there are titles for which you pay, and I believe that (most/all) paid titles cost the same whether you’re a Prime member or not.
Really? Please direct me to the massive backlash against Sears and Toys R’Us. The stores are closing from lack of traffic, not evil on the part of the management. (Incompetence yes, evil no.) Even if Blockbuster had a decent streaming and mail order model, the stores would have been phased out as the traffic dropped. The one near me is gone, and no complaints from anyone.
The angry Blockbuster employees going to Netflix instead would be a drop in the bucket.
Ahem. As even the title of the link says, they are talking about cash flow not financial losses. You should look up the difference.
I don’t know what bandwidth costs, but most of their servers are probably paid for already. As available streaming from other providers diminishes, they had to create content or else die. Most of it seems quite inexpensive. I had quit Netflix streaming for the very reasons mentioned here, but I came back for the MST3K series. I stayed subscribed, and they are probably making money off of me. Ditto for the people who subscribed for other shows. This is not new, it is the exact model for HBO which has worked pretty well.
Really? Tens of thousands of people want to set up a streaming service? I see lots of them already, from MSNBC to porn sites. Someone competing with YouTube would have to find a way of getting content, and advertising. Servers and bandwidth scale with growth, and you could probably do most of the initial stuff on the cloud anyway. But if you do who the hell is going to add content to your site when they can add it to YouTube for free, have lots of users who might find it, and maybe get paid if it takes off.
I’ve wondered if it’s just a negotiating tactic done up in proof-of-concept clothes. Like: you won’t give us the rights to show your TV series at a reasonable price? Doesn’t bother me; we can make our own. You look skeptical? Don’t be skeptical; here, check this out: Oscar-caliber talent, doing Emmy-caliber work. Bang. Done. That’s how easy it is for us. Watch this: we just did it again! And again! Ready to drop your price yet? Because we’ll pay an okay price, but we see no reason to pay more; and, oh, hey, look: we just did it AGAIN! That was EFFORTLESS! So, yeah, we’re clearly not bluffing; what offer will you accept now?
They could make money creating those shows — but they could also lose money unsustainably doing that, and it wouldn’t matter, so long as the bluff works.
One aspect of the Netflix streaming business that amuses me is that their main competitor seems to be Amazon. But at least up until a couple of years ago, the content was hosted by Amazon Web Services.
That could be part of it, but the major point of it is viewer lock-in; if Netflix intends or receives any advantage from studios for this, it’s just a bonus. Fomr NetFlix’s standpoint if they’re producing hit Marvel shows, thn the fans who want those shows will… start with or stay with Netflix. They won’t go to Amazon or Hulu or whatever and it makes it that much harder to . Meanwhile Amazon is trying to do the same thing on their side of the fence with their highly-rated content.
Yeah, although that’s not that uncommon in other industries.
Apple’s biggest competitor in phones is Samsung. But Samsung manufactures plenty of parts that go in iPhones.
Lots of car companies either develop joint platforms with competitors or license parts from each other.
For the company supplying their competitor, they have plenty invested in providing that service, and they’re presumably making a profit on it. They could refuse to do business with the competitor, but that might lead their competitor to get the service from someone else, and now you’ve got more competitors. Often better to have your competitor paying you a nice profit and grow your slice of the whatever supplying business.
For the company purchasing from their competitor, sure, it’s not great to give money to a competitor, but replicating what you get from them might cost you even more. Better to just buy the stuff you need and try to differentiate elsewhere.
Wasn’t Blockbusters whole deal they were making more money off late fees than actual rentals which is why they kept the late fees going on for far too long despite the fact everybody hated them?
IIRC late fees weren’t just adding on another rental period on time of the original rental, you were actually penalized every single day the rental was late and a four day rental you had for another four days would be 2.5x the original cost instead of the 2x if you had rented it for eight days.
The no more late fees that came at the end was an elimination of late fees as instead you had to pay a $2 or so “restocking fee” if you kept it past the original rental period, which was loads better than the system before it.
There’s a Family video just up on the corner near here. Every once in a while they would send us a “Free Rental and half off for a week” and we’d rent whatever there. They stopped doing that probably when they saw they weren’t really getting us to return as customers. Just recently that store partitioned part of the building off and leased it to a dentist office, so clearly they aren’t in need of the entire space they had for their business, but as was mentioned before, Family Video owns all of their buildings and land, and I remember reading a few years ago how the founder said they also have no significant debt, which is what really killed Blockbuster. Family Video presumably knows the market very well, and is able to run a profit on their basic business, which seems to include a lot of children’s videos as mentioned before. They are also constantly hiring, which is no big news these days, but they were doing it for years as the market turned more to streaming. I assume that they don’t pay very well, and people probably don’t think of it as a very secure job either.
IIRC, the “no more late fees” thing was, by dint of waiting too long, you’ve now purchased the item at full price — but if you then bring it back on a tight enough timetable, you can instead simply pay a restocking fee and get back the difference (which, as I understand it, sometimes meant “in store credit”).