Big Media Cartel About To Punish Netflix?

Hollywood tried this with iTunes and failed miserably. There is no data to suggest that when consumers can’t use their favorite online media service for specific content that they abandon it altogether and flock to a studio or label branded alternative, what happens is that they simply stop watching or listening that label or studio content and select competing content.

“Netflix fans take note: A correction is looming.”

[From Nikki Finke’s Deadline Hollywood Daily » Big Media Cartel About To Punish Netflix?]

Content owners and distributors are backed into a corner because they simply don’t have the leverage that they are accustomed to despite continuing to behave as if they do. NBC’s honcho Zucker walked away from iTunes over a pricing dispute only to come back last year despite having a solid success with Hulu.

Any of these content owners playing hardball and pulling content from Netflix is the equivalent of P&G telling Wal-mart that they cannot carry Tide anymore… it hurts P&G more than Wal-mart. Whether it be Netflix or Amazon or iTunes, these are high volume distribution channels and each one is, and should remain, compelled by their underlying business model that remains focused on what is best for the customer, not Hollywood.

At any rate, Hollywood’s dilemma is only more entrenched when you accept that playing hard ball with Netflix only works if they all hold the line, in effect colluding with their competitors to raise prices, which brings a whole different set of problems to Hollywood in the name of the Department of Justice that they really don’t want to have to deal with.

Streaming video cannibalizing DVD rentals

I can sum up my comments with one word: duh.

Netflix says that DVD rentals are down for subscribers who make use of the company’s online streaming service. Though it doesn’t hurt Netflix’s bottom line, the trend certainly spells bad news for physical media, including Blu-ray.

[From Streaming video cannibalizing DVD rentals, says Netflix - Ars Technica]

PS3 Sinks Lower

Santa was not kind to Sony, who not only suffered body blows in cameras and television product categories, but was hit hard on the PS3 as Nintendo and Microsoft saw gains. At this point the market is essentially Nintendo and Microsoft, there is no compelling reason to consider a PS3.

But early results from this holiday season aren’t promising. U.S. sales of the PS3 fell 19% last month from a year earlier, while sales doubled for the Wii console and rose 8% for the Xbox 360, according to research firm NPD. Analysts say they expect PS3 sales for this month to be flat or lower than last year, while sales for its rivals are likely to rise. And Sony may not reach its goal of selling 10 million PS3 consoles in the fiscal year through March, analysts say.

[From PS3 Sags in Battle Again Xbox 360, Wii - WSJ.com]

I’ve written a lot about this over the last couple of years because it’s a fascinating case study on how misplaced product to market trends, pricing, and the inclusion of an orthogonal product (Blu-ray) dictated aspects of product and price to great detriment.

For Sony to move forward and rescue a very expensive mistake they should consider the following steps: 1) cut the price dramatically to be price competitive with Xbox360, 2) buy exclusivity for hot game titles, 3) bundle content from Sony Pictures and integrate video title content in a streamlined online service, and package the product for family gaming instead of power gaming.

Blu-ray is stillborn, they won a war that simply wasn’t worth winning. Sony would do well to invest minimally in Blu-ray while investing heavily in online content distribution capabilities that become the iTunes for gaming consoles. Lastly, partner up with Netflix or Amazon to integrate their download services with the PS3.

Three Companies to Watch

I can’t say that any of these picks are surprising.

After poring over the Silicon Valley 150 list, there are several candidates. But I think there are three companies that are in particular peril heading into 2009 — Advanced Micro Devices, Sun Microsystems and Palm.

[From O'Brien: The three valley companies most vulnerable in 2009 - San Jose Mercury News]

I decided to look at this from the other direction, pick 3 companies that should weather the economic turmoil and do well. I’m limiting my selections to publicly traded companies and trying to avoid being obvious by picking something like Apple or Google.

1) Netflix: Solid management team and little in the way of serious competitive threats, Netflix is looking forward with a downloadable service that gets high marks and a pricing plan that is appealing. Their balance sheet is moderately strong, with the only caution flag being their cash fluctuates dramatically quarter-over-quarter. What is most in their favor in my analysis? Affordable entertainment that will be a firewall for most families… things will have be pretty bad before broad cross sections of the market find it necessary to cancel their $17 a month 3 DVD Netflix account. Potential weaknesses are a dependence on managing customer churn and physical infrastructure costs. Analysts have recently cut their ratings but that’s on valuation concerns following a rally on the stock, rather than operational issues.

2) eBay: This one takes a little explanation to frame it properly. First and foremost, if eBay does nothing different they will be in for a very rough year ahead, but if they kill that asinine price increase and make amends with their power sellers, they could turn things around. This is a company that should thrive in a down economy and with their stock having been hammered for the last 6 months it should be a bright spot to focus on. eBay has done so much wrong over the last year that I’m willing to bet they finally do something right and their market and brand position are strong enough to provide a good bounce back.

3) Oracle: Ellison gets a lot of credit for calling a big shift in the enterprise software market 3 years before his competitors figured out what was going on, even more so for staking $35 billion to executing on the strategy. Oracle has all of the parts that enterprise IT runs on, and while companies may slow down their IT expenditures they will not stop cold and just like those big oil tankers out at sea… they take a long time to come to a stop. Oracle’s maintenance revenue stream alone ensures healthy cash flow for years to come. Two areas that may come to flank them, the first being a good amount of debt on their balance sheet that will require servicing and probably has some significant covenants that will dictate a precise level of performance the company has to achieve. Secondly, software as a service and cloud computing are not their strong suites and the culture shift is daunting.

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Satellites

Phoneflix has completely changed my interactions with Netflix. Now, wherever I am I can open it on my iPhone and manage my Netflix queue. It’s as random as while watching television or at the car wash or even sitting is a movie theatre watching previews.

TweetDeck (and Thwirl before it) accelerated my twitter usage. Yammer’s desktop AIR client is universally regarded as compelling within our company, contributing to our usage rates.

The Evernote iPhone app is not only handy for putting my notes on my mobile device, but it also serves as notetaker itself when nothing else is available. My connection to Evernote is stronger than just with web and desktop experiences.

For all of the benefits that web-based applications provide, user experience alone is generally not one of them. Small, high performance, persistent desktop apps can intensify usage which can then lead to broader adoption and with mobile apps, specifically the iPhone but eventually more mobile platforms, this goes to a whole new level.

When I talk with companies, big and small, I am struck by the “we’ll do that eventually” attitude that the majority have. The view that these satellite interfaces are somehow optional or just extra is a miscalculation.

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