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  • Winners and Losers Due to Netflix's Decision to Split DVDs

    Netflix's bizarre decision to separate its DVD business from its streaming business will have significant ramifications for the video ecosystem. Below are some of the clear winners, potential winners and clear losers.

    Clear Winners
    Amazon - Amazon Prime, the e-commerce giant's $79/year shipping service, is positioned to snare lots of disgruntled Netflix streaming subscribers or prospective ones. If Amazon wins the Hulu acquisition derby, opts to give away content to Kindle Tablet buyers starting in Q4, licenses more high-quality content or all of the above, Amazon Prime will become even more competitive.

    Dish/Blockbuster - I'm betting that when Dish was bidding for the Blockbuster assets to form the foundation of its own streaming service, it never imagined that Netflix's own blunders would so nicely soften up the market for its forthcoming entry. And yet here we are. There are still many unknowns, but a well-executed service could be very well received by former Netflix subscribers looking for a viable streaming alternative.

    Redbox - Netflix gave Redbox a huge early Christmas present by ticking off subscribers that are primarily focused on DVDs. Last week Netflix pared back its ending Q3 DVD-only subscriber forecast by 800K. Now, with the Qwikster introduction and the requirement to maintain 2 queues, tens of thousands more will flee. Redbox stands to pick up many of them.

    Pay-TV operators - No company has posed more of a disruptive threat to the pay-TV ecosystem and egged on the cord-cutting bulls than Netflix. Sighs of relief can be heard from pay-TV executives who are now slightly less worried about Wall Street analysts and bratty bloggers sounding the alarm. TV Everywhere still matters, but all of a sudden it's a lot less urgent.

    Potential winners
    Hulu - Since the Hulu auction is ongoing, it's not clear who will own the company or how they'll seek to capitalize on Netflix's split. Before the dust settles though, Hulu and Hulu Plus look like more serious competitors to Netflix's streaming-only service.

    Google/YouTube - Despite assertions of a big play for Hulu and a massive new investment in YouTube, its still a question mark how serious Google is about turning YouTube into a premium content powerhouse. At a minimum though, not having to worry about replicating Netflix's DVD by mail distribution infrastructure to fully compete is a great for Google. Here's a curveball to consider: what if Google were to make a cash bid for Qwikster? Ponder that for a moment.

    Walmart/VUDU -VUDU has been making steady progress, though it's still a teeny-tiny part of Walmart's business. VUDU is a great movie service and certainly has a bigger opening now.

    Apple/iTunes - Though it dominates the online VOD and EST businesses, Apple is still a small player in the overall video landscape relative to its massive size. But with iCloud rolling out, rumors of an Apple television set in 2012 swirling and infinitely deep pockets, an aggressive move from Apple could shake things up.

    Facebook - The social networker has been climbing comScore's video rankings for a while now, and today came news that its planning to enhance how users can share and view video and music. It's still early days for Facebook in video distribution, but with 750 million members, it could build quick momentum.

    Clear losers
    Netflix - Peruse the 16K+ comments on Reed Hastings' blog post today announcing Qwikster and there is little doubt what Netflix subscribers think of this move. Enough said.  

    Consumers - Netflix has brought joy to millions of subscribers who had developed an intense loyalty to the brand. For many, the relationship is now shattered (again, see today's comments), and bitter feelings are motivating them to drop their service. The combined DVD plus streaming package was a huge value for many, and with the Qwikster split those benefits have been undercut. Netflix gave many hope that it could be a bona fide alternative to high-priced service from pay-TV operators. No more. Worse, Netflix's disruptive threat spurred incumbents to innovate; without it, the motivation to invest aggressively lessens.

    Studios/content providers - When a substantial and growing buyer of your product stubs its toe, it's not good news. Media companies across the board have enjoyed getting Netflix's fat licensing checks for a couple of years now, but if Netflix isn't healthy, those payments will dry up fast. Careful what you wish for.
     
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