Posts for 'Warner Bros.'

  • Inside the Stream Podcast: Are FASTs a Road to Gold or a Road to “SLOW?”

    On this week’s podcast, Colin Dixon and I boldly  introduce to the industry a new acronym (technically it’s a “macronym” or “nested acronym”).

    We’re all aware that free ad-supported TV (“FAST) services are currently all the rage and that many are predicting it will become a multibillion dollar streaming segment in the years ahead.  

    Content providers, TV OEMs and TV networks are seizing the opportunity by launching new FAST services to capitalize on two key trends - advertisers’ insatiable demand for premium CTV ad inventory and viewers’ SVOD fatigue especially as economic uncertainty surges.

    All of this makes FASTs a “road to gold” in the short-term.

    But, in the longer-term, an unintended consequence of FASTs’ growth may be to precipitate accelerated churn among SVOD providers. Hence the new macronym: SVOD Losses On the Way (“SLOW”).

    There are still only 24 hours in the day, and viewers constantly make choices about what to watch, what services get displaced and what they’re willing to pay for. If viewers reapportion their viewing time to strong FAST services that are flooding the market, then they’re being “trained” to consume free premium video via FASTs. Further, their expectations for ever-better shows to be accessible without payment also escalates.

    SLOW is a concept I’ve been contemplating for some time, especially as I read one FAST-boosting report or article after another, as well as observing the slowing growth SVODs are already experiencing.

    But this week’s announcements of WBD moving “Westworld” plus a trove of other programming to Tubi and to The Roku Channel FAST services really crystallized things for me. After all, “Westworld” is a show that garnered 54 Emmy nominations and 9 wins in its four-year run. Its popularity has faded recently and HBO cancelled it, but it still boasted a familiar, name-brand cast. For HBO, it was no “Game of Thrones” or “The Sopranos,” but it was respectable. Now all 36 episodes will be available completely for free on Tubi and The Roku Channel.

    To be clear - and as I say in the podcast - I remain a fan of FASTs. I’m only raising the caution flag that the decision-making around which FASTs to launch and what premium content will be included must be made with a lot of strategic awareness. Companies condition their customers what to expect; once this conditioning is set it is incredibly difficult to recondition them.

    Note: There will be a dedicated session on whether FASTs are a road to gold or a road to “SLOW” at VideoNuze’s CTV Advertising PREVIEW virtual event on Feb. 28th afternoon. Sign-up is complimentary. Initial speakers being announced next week.

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  • Inside the Stream Podcast: Evaluating WBD’s New “Warner Pass” Streaming Bundle in France

    In this week’s podcast, Colin and I discuss Warner Bros. Discovery’s plan to launch a new streaming bundle in France dubbed “Warner Pass,” exclusively on Amazon Prime Channels, which Variety reported. Warner Pass will include all HBO content, plus 12 WBD channels including CNN, Discovery Channel, Eurosport and others.

    The move caught our attention because WBD has been quite vocal about its intention to launch a combined HBO Max / discovery+ service (expected to be simply called “Max”), which the Variety report noted it still plans to introduce in France in 2024.

    Colin and I think Warner Pass could offer clues about how WBD will price the combined service eventually (especially in Europe). Yet it raises a concern that having two different streaming brands in France with similar content is clumsy and could cause consumer confusion (not to mention spending required to support two streaming brands).

    Further, as we discussed in December, Warner Pass is yet another step in reversing the company’s strategy on third-party distribution. Prior WarnerMedia management decided to pull HBO from Amazon Prime Channels and others in September, 2021. As I wrote back then, in a direct-to-consumer world, not owning the subscriber, nor seeing their detailed viewing data, are real drawbacks.

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  • Inside the Stream Podcast: Does HBO Max Rejoining Amazon Channels Make Sense?

    HBO Max is coming back to Amazon Prime Video Channels, reversing a move by prior owner WarnerMedia just over a year ago. Removing HBO Max led to an immediate loss of 5 million subscribers who had signed up through Amazon Channels (it’s unclear how many rejoined directly).

    On today’s podcast, Colin and I try puzzle through why WBD, which is now HBO’s owner, would want HBO Max to rejoin Amazon Channels. Although Amazon will surely generate some incremental HBO Max subscribers, their lifetime value is likely to be far lower than HBO Max subscribers who sign up directly with the service. That’s because Amazon has “customer ownership” of these subscribers and shares little to no data with SVOD providers that would be critical to retention (starting with an email address to directly communicate with them). I wrote about my personal experience with this in August, 2021.

    The move seems to suggest a push for incremental subscribers, despite the likelihood of a higher churn rate. That’s at odds with streaming services executives recent emphasis on profitability over pure subscriber growth. It’s possible Colin and I are missing something here. If you think you know what it is please let us know.

    To wrap up the discussion we also discuss WBD's reported new strategy to collect its streaming services under the "Max" brand in 2023.

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  • VideoNuze Podcast #218 - More Signs That Online Video is Coming of Age

    I'm pleased to present the 218th edition of the VideoNuze podcast with my weekly partner Colin Dixon of nScreenMedia. Both of us have continued to observe signs of how online video is coming of age, and today we discuss some of them.

    We start with news that Comcast will begin selling episodes of "House of Cards" in its Xfinity online store. Putting aside the question of why someone would buy an episode for $1.99 when they could binge-view all 26 episodes in a month for $7.99, both of us thought it's noteworthy that the largest cable operator believes an online-only series is worth selling (and note too, the deal was done with Sony Pictures, and that Verizon also has been selling the series).

    Then there was the report that Disney might acquire Maker Studios, a pure-play online video / YouTube content provider. While Colin and I get a chuckle out of the idea that the Disney flag could fly over Epic Rap Battles and PewDiePie, we agree it would be a smart bet to gain reach into the all-important millennial segment.

    Then we turn to the $18 million investment by Warner Bros. in Machinima, an online video gamer-centric content creator also targeting millennials. The 2 companies already had a successful collaboration with the "Mortal Kombat: Legacy" web series. No doubt the new investment will spur more gamer-centric originals for distribution by Warner Bros.

    We wrap up by discussing just how important millennials are to the video's future. Recent data suggest this group is still pretty glued into the pay-TV ecosystem, but their behaviors are changing fast, in turn leading established media companies to focus on online video more than ever.


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  • AnyClip Licenses Warner Bros. Movies for Clip Library

    AnyClip is announcing this morning that it has licensed thousands of Warner Bros. movies to be able to tag and create searchable clips for its library. Movies include select Harry Potter and Batman movies, Ocean's Eleven, Sex and the City, Dirty Harry, Casablanca and others. AnyClip tags each movie with over 5,000 unique elements to create a rich index. To date AnyClip's has been offering access to 50,000 clips from 12,000 movies sourced from Universal, Vivendi and others.

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  • Premium VOD is a Train Wreck Though It Just Doesn't Matter

    Yesterday marked the official launch of "Premium VOD" by DirecTV, a plan under which movies will be released just 60 days after their theatrical opening (half the usual time) for 48-hour rental by subscribers for $30. The first movie being offered this way, which DirecTV dubs "Home Premiere," was Sony Pictures' "Just Go With It" starring Adam Sandler. Three other studios, Warner Bros., Universal Pictures and Fox have already signaled their intent to release movies on Premium VOD with DirecTV and other pay-TV operators who have expressed interest.  

    Theater owners and the Hollywood creative community are livid about Premium VOD, which they perceive as paving the road to cannibalizing theatrical attendance which would in turn harm a movie's overall economics, creating a dangerous downward spiral. In addition, there's concern that if consumers switch to watching movies on the small screen then the creative license implicit in a big screen emphasis will get squeezed. While their concerns are completely justified, the good news for them is that Premium VOD will be lucky to achieve even minimal success. Instead it will more than likely end up being a short-lived experiment that will have virtually no impact on larger Hollywood dynamics. Here's why:

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  • VideoNuze Report Podcast #92 - Mar. 18, 2011

    I'm pleased to present the 92nd edition of the VideoNuze Report podcast, for March 18, 2011.

    In this week's podcast, Daisy Whitney and I discuss Netflix's rumored $100 million deal for first-run rights to "House of Cards," a new TV series directed by David Fincher and starring Kevin Spacey. As I wrote earlier this week, the deal would be a very significant shift in strategy for Netflix, and Daisy and I get into some of the details.

    On a related note, yesterday I posted the audio recording of an interview I did with Netflix's chief content officer Ted Sarandos at the NATPE conference in January. Ted didn't allude to any first-run deals in that interview, but he did talk about his interest in bidding against HBO for the rights to Warner Bros. films when their deal was up for renewal among other topics.

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  • Audio Interview With Netflix's Chief Content Officer Ted Sarandos

    I'm pleased to provide an audio recording of an on-stage one-on-one interview I did with Netflix's chief content officer Ted Sarandos, at the NATPE Market conference on January 25th. I've been meaning to post this for a while, but experienced a few technical issues in getting it done. The interview is particularly timely given news this week that Netflix may be looking to distribute its first original TV series, "House of Cards," directed by David Fincher and starring Kevin Spacey.

    In this wide-ranging interview, Ted and I discuss topics such as Netflix's content acquisition strategy, how it decides how much to spend on licensing, the critical role that data plays in informing Netflix's decision-making, the future of the DVD business and lots more. Of note, this is the interview in which Ted said that Netflix would bid against HBO for Warner Bros. films when those parties' distribution deal comes up for renewal in a couple of years and that Netflix had the resources to fully compete. That declaration was a departure from Netflix's traditional public posture about working closely with premium cable networks rather than disrupting them, and set off a raft of media coverage.

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  • Facebook-Warner Bros.: Big Deal or Little Deal?

    Speaking of movies, this week brought news that Facebook was dipping its toe into Hollywood's waters, by offering Warner Bros. "The Dark Knight" for purchase and rental to its members. Though Warner positioned the move as an experiment, Netflix stock went into a free-fall as investors swooned over Facebook's possibilities. But as a former business school professor of mine was fond of asking his class, "Is this a BIG deal or a LITTLE deal?"

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  • What's Up With Amazon Going Hollywood?

    Last night when I read about Amazon getting into the movie-making business through a new crowd-sourcing project called Amazon Studios, my first reaction was, "huh, what's up with that?" Now, having had a night to sleep on it, my reaction is still, "huh, what's up with that?" I must be missing something here. I just can't figure out what strategic value Amazon gains by vetting scripts and financing $2.7 million in prizes to aspiring film-makers.

    It would be different if a video-centric, like YouTube, Hulu or Netflix were pursuing such a project, as it would feed them potentially exclusive, or at least a first window distribution opportunity for feature films, while also strengthening their bonds with their users. But for Amazon, which is first and foremost an e-commerce that competes on price, availability and service, creating new films doesn't quite add up. That said, I do get the value for Amazon's partner Warner Bros.; for them it's another chance to get first dibs on projects that look promising.

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  • As DVD Sales Wane, Experiments With Movies' Digital Delivery Windows Rise

    Yesterday brought more evidence of how digital distribution release windows and promotions are rising as DVD sales wane. First there was news that Disney had teamed up with Wal-mart to allow buyers of the Toy Story 3 DVD to get a bonus digital version of the film playable through the company's recently acquired Vudu digital outlet. That offer was quickly one-upped by Amazon which announced an increase from 300 to 10,000 movies in its "Disc+" program, which provides a digital copy to the user's Amazon VOD account when they purchase a qualifying DVD.    

    Meanwhile at the Blu-con conference in Beverly Hills, studio executives debated how to best calibrate digital, VOD and DVD distribution. Even emerging practices come with exceptions and debates about results. For example, while VOD has largely gained day-and-date release with DVD, exceptions are still made on a case-by-case basis, such as with Universal's "Despicable Me" which will have its DVD go on sale on Dec 14, but its VOD release not until after Christmas.

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  • AlphaBird Spreads Its Wings With Warner Bros./Dailymotion Syndication Deal

    This morning, AlphaBird, a branded entertainment syndication startup, is announcing that it has syndicated 4 digital series from Warner Bros. Television Group's web content arm, Studio 2.0, to Dailymotion. In addition to distributing and selling advertising around the programs, Dailymotion will promote the various series on its homepage every Monday through the end of the year. Ad revenue will be split between Dailymotion, Warner Bros. and AlphaBird.

    The deal is the latest example of premium online video being distributed to a third-party with sizable audience in order to build awareness and viewership (part of what Will has called the "Syndicated Video Economy"). As AlphaBird's CEO Chase Norlin explained yesterday, while it's always challenging to create high-quality content, with the fragmentation and noisiness of the Internet, these days an even bigger challenge is gaining audience.

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  • 5 News Items of Interest for the Week of Aug 2nd

    In addition to producing daily original analyses focused on the evolution of the online/mobile video industry, another key element of VideoNuze is collecting and curating links to industry coverage from around the web. Each week there are typically 30-40 stories that VideoNuze aggregates in its exclusive news roundup. Many readers have come to depend on this curated news collection to ensure they're always up to speed.

    Now, to take news curation up another level, on Fridays I'm going to test out highlighting 5-6 of the most intriguing news items of the week. In case you missed VideoNuze for a day or two during the week, you can check in on Friday to see the these top 5-6 industry stories of the week, some of which VideoNuze may have covered itself. Synopses and implications are noted. Enjoy and let me know your reactions!

    Wired to Produce Short Films For iPad
    The tech magazine recruits Will Ferrell for four short videos that lampoon inventions that failed to take off. Exclusively for its iPad app. More evidence of print pub capitalizing on video.

    Motorola and Verizon team up for TV tablet
    Enjoying success with its Droid smartphones, Motorola now looks to challenge the iPad, with its own tablet device, using Google's Android OS. A partnership with Verizon could mean new online video features for the phone giant's FiOS service. Another sign of evolution in the pay-TV business.

    Bewkes: Rental Delays From Netflix, Redbox Is Paying Off For DVD Sales
    The 28-day DVD delayed release window Warner Bros. struck with Netflix earlier this year is helping the studio gain better sales for films The Blind Side and Sherlock Holmes. The deal helps Netflix position itself as a valued partner in the midst of declining DVD sales.

    Dish to stream live TV on iPad, other devices
    Dish Network takes place-shifting to a new level with plans for an iPad app that would allow remote streaming, likely using its Sling technology. Subscription TV, mobile video viewing and cool devices converge.

    FCC Calls Off Stakeholders Meetings
    The FCC's private net neutrality negotiations are off the rails as a reported bilateral deal between Verizon and Google causes controversy. Next steps are unknown as the FCC's plan to keep Internet playing field level hits a major pothole.
  • Blockbuster Hangs In with New Fox, Sony and Warner Deals

    Netflix wasn't the only distributor modifying how it does business with Hollywood studios this week; Blockbuster also unveiled new deals with Fox, Sony and Warner, giving it "day-and-date" availability of these studios' films for store and mail rental (note, not for its on demand streaming service). Blockbuster also got "enhanced payment terms" from the studios in exchange for giving them a first lien on Blockbuster's Canadian assets (which would imply that if Blockbuster files for bankruptcy, the studios could end up owning/operating a slew of Canadian stores). Seems like steep terms for Blockbuster to hang in there.

    As I wrote a few weeks ago in "The Battle Over Movie Rentals is Intensifying," there are multiple distributors jockeying to be the consumer's preferred movie source. That means consumers need to figure out, on a title by title basis what works best for them.

    For example, I'm a Netflix subscriber and let's say I want to watch the recently released "Sherlock Holmes" DVD. Netflix doesn't get it until April 27th per its 28-day window with Warner Bros. But when I check online, a local Blockbuster store I've never been to shows that it's in stock (though I'm a little skeptical). Do I want to drive down there to find out? Meanwhile, Comcast is offering it on-demand. But do I want to pay $4.99 for it when I'm already paying a monthly Netflix subscription? Alternatively, there's iTunes and Amazon VOD. But then I need to either watch on my computer or on the TV that's hooked to the Roku or temporarily connect my laptop to the TV. See what I mean about the choices facing consumers?

    (Note - online movie distribution is among the topics we'll cover at the next VideoSchmooze on April 26th. Early bird discounted tickets available for just one more week!)

    What do you think? Post a comment now (no sign-in required).

  • VideoNuze Report Podcast #50 - February 19, 2010

    Daisy Whitney and I are pleased to present the 50th (woohoo!) edition of the VideoNuze Report podcast, for February 19, 2010.

    This week Daisy first walks us through a piece she's writing for AdAge focused on viral video. In reviewing data on which videos have broken out online, Daisy concludes that invariably they are also supported by related advertising. In other words, viral video isn't accidental any more (if it ever was) - now it must be stoked by paid support. An example Daisy provides is for Evian's "Live Young" babies ad which has been seen online 76 million times. Evian initially promoted the ad with YouTube takeover ads. Daisy also discusses the online performance of Super Bowl ads based on Visible Measures' new Trends application, which shows a big disparity between ads that were viewed heavily online vs. rated highly when seen on TV.

    Then we discuss my post, "In Trying to Preserve DVD Sales, Studios are in a Tight Spot," in which I described the lengths to which Hollywood studios are going to squeeze out the last remaining profits from DVD sales. As I explain, while the recession has had a dampening effect on DVD sales, the larger problem is that rather than buying them, increasingly consumers are expecting films to be available for rental or subscription or even for free, with ad support. A number of moves from Disney, Sony and Warner Bros. in the last week underscore the consequences studios face as they try to shore up DVD sales.

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  • In Trying to Preserve DVD Sales, Studios Are in a Tight Spot

    It's not news that DVD sales - the lifeblood of Hollywood studios' P&Ls - are in a freefall. In response, the studios are doing all sorts of things to eke out just a little more profitability from the sales of the shiny discs. But as several news items over the last week underscore, the studios have little wiggle room before their efforts to shore up DVD sales have real or perceived consequences for key business partners.

    Exhibit A is the brouhaha over Disney's new plan to release Johnny Depp's "Alice in Wonderland" on DVD 12 1/2 weeks after its theatrical opening, instead of the usual 16 1/2 weeks, regardless of whether it's still playing in theaters. In the past, when a film's "release windows" were distinct and well-separated, everyone in the distribution chain knew they'd have their separate bite of the apple. With collapsing windows, those bites are converging, leaving some feeling they're not going to get their fair share. In the U.S. there has mostly been just grousing about Disney's plan among theater owners, but in Europe there are threats by large theater chains of an all-out boycott of the film.

    It's hard not to feel some sympathy for the theater owners as the "Alice" plan isn't a random event. Sony recently ran a misguided promotional campaign giving away "Cloudy with a Chance of Meatballs" DVDs to certain Bravia buyers while the film was still playing in theaters. And it attempted to accelerate the release of the Michael Jackson "This Is It" DVD until theater owners drew the line. No doubt there are plenty of other examples being floated privately in Hollywood.

    Meanwhile, news also broke this week that Redbox, the $1 a day rental kiosk chain had acceded to Warner Bros.' demand that it not rent any films until 28 days after their DVD release, in order to help preserve initial sales. As part of the deal Warner dropped its lawsuit against Redbox. In return, Redbox got lower pricing on its Warner DVD purchases. The deal mirrors the 28-day deal Netflix did with Warner last month, which I thought was a win for everyone. But the key difference in that deal vs. Redbox's is that Netflix has a huge rental catalog available for its subscribers to choose from, meaning new releases are far less important (Netflix says only 23% of rental requests are for new releases). On the other hand, Redbox's whole value proposition rests on low prices and selection of new releases. What is Redbox's fate if it does similar deals with other studios?

    Putting the squeeze on Redbox and its kiosks seems like a dubious strategy by studios. In an age where piracy looms large, studios should be focused on enhancing, not diminishing the accessibility of their product (as a Coke executive once famously explained the company's marketing goal: "always within an arm's length of desire"). While Hollywood doesn't like Redbox's lower margins, focusing on that issue excessively when the product is clearly in decline is missing the forest for the trees.

    Studios' desire to preserve DVD sales is going to further intensify, but defending them is only going to get harder. Certainly part of the reason is that the ongoing recession is forcing many consumers to cut back on their discretionary purchases. But the larger issue is that there's huge momentum behind the shift to online subscription/rental and even free models. The data shows that online viewing hit an inflection point in 2009, with free premium sites like Hulu experiencing extraordinary growth.

    And the data showing online's appeal pours in almost daily; yesterday it was The Diffusion Group reporting results of a study of Netflix users showing that two-thirds of them that have a broadband connection are now using the "Watch Instantly" streaming feature. This week's launch of HBO Go, the premium channel's site for its subscribers, and its distribution deal with Verizon, are evidence that even the mighty HBO can't resist online's allure. Last but not least, in 2010 TV Everywhere rollouts will gain steam.

    There's no denying the truth that DVD sales are under assault from all sides. Studios, desperate to hold on to DVDs' precious profits, are increasingly contorting themselves to keep the DVD cash cow alive a little longer. No surprise though, their efforts are not without consequences. At what point do the studios capitulate and throw DVD sales under the bus? We'll have to wait and see.

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  • It's Official: Netflix Has Entered a "Virtuous Cycle"

    Looking at Netflix's Q4 '09 and full year '09 results released late last Wednesday, plus Netflix's performance over the last 3 years, I have concluded the company has officially entered a "virtuous cycle." For those of you not familiar with the term, a virtuous cycle is when a single change or improvement leads to a cascading series of follow-on benefits which both reinforce themselves and add further momentum to the original change (a hyper "one good thing leads to another" scenario, if you will). Virtuous cycles are extremely rare in business, and when they happen they have profound implications.

    The start of Netflix's virtuous cycle is obvious: the company's introduction of its free "Watch Instantly" streaming feature in January, 2007. Streaming has fundamentally changed the Netflix service offering and consumers are increasingly aware of this. Traditionally, Netflix subscription plans were defined by limits - 1 DVD out at a time for $8.99/mo, 2-out for $13.99/mo or 3-out for $16.99/mo. But with the company's decision to remove the confusing original caps it placed on streaming consumption and move to an unlimited model, Netflix is now providing enormous new value at the same DVD rental price points. Netflix has also changed how it advertises its services, strongly emphasizing streaming (see its home page for example). The "unlimited streaming" message is breaking through and Netflix subscriber growth momentum over the last 3 years reflects this.


    Subscribers grew to 12.3 million at the end of '09, 31% higher than YE '08. To get a sense of Netflix's momentum, '09 growth handily beat '08 (26%) and '07 (18%) growth. The 2.9 million subs added in '09 was 85% above the company's own 2009 beginning year forecast of 1.56 million sub additions. Looking ahead, the mid-point of Netflix's forecast for '10 is for another 30% growth in subs.

    As the streaming benefits have resonated, it's very important to note that subscriber growth is actually getting progressively cheaper for Netflix to accomplish. As the following graph shows, Netflix's subscriber acquisition cost (SAC) has decreased by an impressive 43% from $44.31 in Q4 '06 to $25.23 in Q4 '09 (the 2nd lowest SAC in the company's history). Better still, the quality of these new subs seems high; average monthly churn in Q4 '09 was 3.9%, equal to the lowest churn the company has ever achieved. While Netflix isn't "buying" growth with low-quality additions (an old trick for subscription-oriented businesses), it is however putting more emphasis on the "1-out" service, which, with the addition of unlimited streaming, is an outstanding value for the low-end of the market. Netflix is eager to penetrate this segment, to whom $1 Redbox rentals are very attractive.


    While Netflix's financials already reflect the virtuous cycle impact streaming is having on the business, it is likely there is much more to come as streaming takes further hold. Netflix revealed that 48% of its subscribers streamed at least 15 minutes/mo in Q4 '09, up from 41% in Q3 '09 and 26% in Q4 '08 (Incidentally, I think it's conceivable that 80% or more of recently-added subscribers are streaming). But it's just in the last year that Netflix streaming has begun to make the move from computer-only consumption to TV-based consumption, truly making it a mainstream experience. Netflix has inked deals with all the major game consoles (with a Wii marketing campaign beginning in '10), plus numerous CE devices, Blu-ray players, etc. Just ahead is a future where Wi-Fi will be ubiquitous in all new TVs and Netflix's deals with all the major TV manufacturers will ensure it is even more front and center for consumers.

    To make streaming attractive, Netflix has had to essentially build a second content library. As I've suggested in the past, this isn't easy, as the company must navigate a thicket of pre-existing Hollywood rights and business relationships. Most notably, Netflix has run into the premium cable networks (HBO, Showtime, Starz and Epix) which have a monopoly on Hollywood's output for their release window. Netflix's deal with Starz was an important first step but still, I've been skeptical that Netflix would land streaming deals with the others.

    I'm now gaining more confidence that this will indeed happen, especially for these networks' original productions. Netflix is simply getting too big to ignore. It represents a whole new revenue opportunity for premium channels, plus an important loyalty-building outlet. Further out though, while Netflix CEO Reed Hastings says he wants the company to be a distributor for these premium channels, I think it's nearly inevitable that Netflix will compete head-on with them for Hollywood's output. Economics dictate that eventually it makes more sense for Netflix to bid directly for Hollywood rights than work through a premium channel middleman.

    In fact, Netflix already has tons of Hollywood relationships, and its recent deal with Warner Bros, creating a 28-day DVD window is emblematic of how Netflix looks at streaming content acquisition going forward. In that superb deal, which was ludicrously criticized by some, Netflix simultaneously helped a critical partner sustain its DVD sales window, while gaining cheaper access to more DVD copies on day 29 and increased streaming rights for catalog titles. As Hastings pointed out on the Q4 earnings call, given the inconsistencies in DVD release strategies, most consumers have little-to-no idea when a title becomes available on DVD, so, while still early, opening up the 28 day window has caused no subscriber complaints. And the company's analysis of subscriber "Queues" indicates, just 27% of requests are for newly-released titles.

    Importantly, Netflix's strategy is to pour savings from its DVD deals into streaming content acquisition. As I noted recently, Netflix's detailed subscriber data and usage analysis gives it a huge asymmetric advantage in negotiating additional streaming licenses from Hollywood. Netflix can surgically concentrate its resources on only those titles it knows its subscribers will value. Over time, as DVD sales continue to collapse, Netflix will be there to offer its subs a broader and broader rental selection.

    The biggest challenge to Netflix for streaming content acquisition is how much it chooses to spend. Netflix's relatively small size among giants like Comcast and others is what prompted me to suggest over a year ago that Microsoft would acquire Netflix. I'm officially retracting that prediction now, as 2009 demonstrated how much streaming progress Netflix can make on its own. In fact, I think all rumors of a possible Netflix acquisition are off-base; I see the company remaining independent for some time to come.

    Netflix is now riding a serious wave and its executives recognize the mile-wide opportunity ahead of it. The product is immeasurably stronger and more appealing with unlimited streaming included. That's in turn leading to impressive sub growth with much-reduced SAC and improving churn. The number of devices bridging Netflix to the TV is growing and portends ubiquity at some point down the road as these devices further leverage Netflix's platinum consumer brand. Streaming content selection is improving, bringing side benefits of reduced DVD postage and inventory costs. With millions of subscribers Netflix now has both the economics and the scale to be a very significant player in the video ecosystem.

    Last but not least is a very favorable competitive climate. Aside from a hobbled Blockbuster, astoundingly, Netflix doesn't have any other direct DVD subscription/online streaming hybrid competitor (Amazon and Apple, are you paying attention?). And while Comcast and other multichannel video programming distributors ("MVPDs") are rolling out TV Everywhere services (5 years later than they should have, in my opinion), these are still early stage, and still encumbered by archaic regional limitations. Indeed, Netflix's growth may well cause these companies to consider their own over-the-top plans, as I've suggested.

    For years I have been saying that broadband video is the single most disruptive influence on the traditional video distribution value chain. Netflix's success with streaming and the consequences that are yet to play out are resounding evidence of this. Above and beyond YouTube, Hulu, Amazon, Apple and others, Netflix is by far the most important video distributor to watch.

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  • Top Rental Data from Netflix is More Evidence that Warner Bros. Deal is a Win

    Following my 2 posts late last week (here and here) about how Netflix's new deal with Warner Bros is win for everyone, the NYTimes has posted a terrific interactive map showing the top rentals in 12 geographic areas of the U.S., sorted by zip code. The map is based on data that Netflix provided to the NYTimes. Playing around with the map, you'll quickly hunger for more details, but you'll also get a sense of the mountain of viewership data Netflix maintains on its 11 million+ subscribers. This data, when combined with the Netflix's algorithms for predicting its users' preferences, further demonstrates how valuable a deal like the one with WB could be for Netflix as it emphasizes streaming.

    In the digital era, data is king because when used properly, it can dramatically improve the quality of the product delivered, in turn driving user satisfaction and profitability. Netflix has always used data very effectively; examples include how it has chosen sites for its distribution centers so that most Americans are within 1 day's delivery, or how it has recommended other titles based on yours and others' preferences, or how much inventory of newly-released DVDs it decides to build. Now, as Netflix shifts its business from physical to digital delivery, it has another big opportunity to leverage the data it has collected from its users.

    While a lot of attention was focused last week on the new 28-day "DVD window" which precludes Netflix from renting recently-released WB titles, I believe more attention should be paid instead to how effectively Netflix will be able to use its trove of data to selectively tap into WB's catalog of titles to boost its streaming selection. Using the data it has collected on physical rentals and search queries, for example, Netflix should be able to literally request title-by-title streaming rights from WB. That's not to say Netflix will necessarily receive access to those particular titles, but by being able to focus its requests, Netflix avoids wasting energy asking for things that are unlikely to have much appeal to its users.

    It's interesting to talk to friends who are Netflix users, including those who don't work in technology-related industries. They have an amazingly high awareness and usage of Netflix's streaming and recognize that it represents the company's future. It's also obvious to them how meager the options are in Watch Instantly as compared with DVD and desperately want more choice. Netflix knows all this, as Netflix CEO Reed Hastings said last week, "our number one objective now is expanding the digital catalog." But Netflix is in a tight position to get new releases due to existing output deals that Hollywood studios maintain with HBO and other premium channels for electronic delivery. So, as with the WB deal, and others likely to follow, Netflix is trying to be clever about how it builds its streaming catalog by tapping into older, but still valuable titles.

    It's unclear whether Netflix will conclude similar deals with other Hollywood studios. If it can't then the above-described benefits will be limited. In fact, as a couple of people pointed out to me last week, with Hollywood also highly dependent on cable, it's not readily apparent that helping Netflix build its streaming selection is actually in their interest as TV Everywhere services continue to roll out. WB is actually an interesting example; on the one hand, Time Warner's CEO Jeff Bewkes has been the strongest proponent of TV Everywhere, but on the other hand, WB's deal with Netflix creates more competition for it. In short, Hollywood will have its hands full trying to recast its distribution strategy in the digital era.

    DVDs are not going away overnight, but the user data Netflix has will be an enormously valuable tool in helping transition its business to digital delivery and add more value to its subscribers. As long as Netflix complies with its users' privacy expectations, that gives it a big strategic advantage.

    What do you think? Post a comment now.

  • 4 Items Worth Noting for the Jan 4th Week (Netflix-WB Continued, comScore Nov. '09 stats, TV Everywhere, 3D at CES)

    Following are 4 items worth noting for the Jan 4th week:

    1. TechCrunch disagrees with my Netflix-Warner Bros. deal analysis - In "Netflix Stabs Us In The Heart So Hollywood Can Drink Our Blood," (great title btw) MG Siegler at the influential blog TechCrunch excerpts part of my post from yesterday, and takes the consumer's point of view, decrying the new 28 day "DVD window" that Netflix has agreed to in its Warner Bros deal. Siegler's main objection is that "Hollywood thinks that with this new 28-day DVD window deal, the masses are going to rush out and buy DVDs in droves again." Instead, Siegler believes the deal hurts consumers and is going to touch off new, widespread piracy.

    I think Siegler is wrong on both counts, and many of TechCrunch's readers commenting on the post do as well. First, nobody in Hollywood believes DVD sales are going to spike because of deals like this. However, they do believe that any little bit that can be done to preserve the appeal of DVD's initial sale window can only help DVD sales which are critical to Hollywood's economics. Everyone knows DVD is a dying business; the new window is intended to help it die more gracefully. And because new releases are not that critical to many Netflix users anyway, Netflix has in reality given up little, but presumably gotten a lot, with improved access for streaming and lower DVD purchase prices.

    The argument about new, widespread piracy by Netflix users is specious. With or without the 28 day window, there will always be some people who don't respect copyright and think stealing is acceptable. But Netflix isn't running its business with pirates as their top priority. With 11 million subscribers and growing, Netflix is a mainstream-oriented business, and the vast majority of its users are not going to pirate movies - both because they don't know how to (and don't want to learn) and because they think it's wrong. Netflix knows this and is making a calculated long-term bet (correctly in my opinion) that enhancing its streaming catalog is priority #1.

    2. comScore's November numbers show continued video growth - Not to be overlooked in all the CES-related news this week was comScore's report of November '09 online video usage, which set new records. Key highlights: total video viewed were almost 31 billion (double Jan '09's total of 14.8 billion), number of videos viewed/average viewer was 182 (up 80% from Jan '09's 101) and minutes watched/mo were approximately 740 (more than double Jan '09's total of 356).

    Notably, with 12.2 billion views, YouTube's Nov '09 market share of 39.4% grew vs. its October share of 37.7%. As I've previously pointed out, YouTube has demonstrated amazingly consistent market dominance, with its share hovering around 40% since March '08. Hulu also notched another record month, with 924 million streams, putting it in 2nd place (albeit distantly) to YouTube. Still, Hulu had a blowout year, nearly quadrupling its viewership (up from Jan '09's 250 million views). But with 44 million visitors, Hulu's traffic was pretty close to March '09's 41.6 million. In '10 I'm looking to see what Hulu's going to do to break out of the 40-45 million users/mo band it was in for much of '09.

    3. Consumer groups protest TV Everywhere, but their arguments ring hollow - I was intrigued by a joint letter that 4 consumer advocacy groups sent to the Justice Department on Monday, urging it to investigate "potentially unlawful conduct by MVPDs (Multichannel Video Programming Distributors) offering TV Everywhere services." The letter asserts that MVPDs may have colluded in violation of antitrust laws.

    I'm not a lawyer and so I'm in no position to judge whether any actions alleged to have taken place by MVPDs violated any antitrust laws. Regardless though, the letter from these groups demonstrates that they are missing a fundamental benefit of TV Everywhere - to provide online access to cable TV programming that has not been available to date because there hasn't been an economical model for doing so. In the eyes of people who think that making money is evil, the TV Everywhere model of requiring consumers to first subscribe to a multichannel video service seems anti-consumer and anti-competitive. But to people trying to make a living creating quality TV programming, the preservation of a highly functional business model is essential.

    These advocacy groups need to remember that consumers have a choice; if they don't value cable's programming enough to pay for it, then they can instead just watch free broadcast programs.

    4. 3D is the rage at CES - I'll be doing a CES recap on Monday, but one of the key themes of the show has been 3D. There were two big announcements of new 3D channels, from ESPN and Discovery/Sony/IMAX. LG, Panasonic, Samsung and Sony announced new 3D TVs. And DirecTV announced that it would launch 3 new 3D channels by June 2010, with Panasonic as the presenting sponsor. 3D sets will be an expensive proposition for consumers for some time, but prices will of course come down over time.

    Something that I wonder about is what impact will 3D have on online and mobile video? Will this spur innovation in computer monitors so that the 3D experience can be experienced online as well? And how about mobile - will we soon be slipping on 3D glasses while looking at our iPhones and Android phones? It may seem like a ridiculous idea, but it's not out of the realm of possibility.

    Enjoy your weekend!

  • VideoNuze Report Podcast #45 - January 8, 2010

    Daisy Whitney and I are pleased to present the first VideoNuze Report podcast of 2010 (and the 45th edition overall!).

    In today's podcast we first discuss my post from yesterday, "Why Netflix's Long-Term Focus in New Warner Bros. Deal is a Win for Everyone," in which I assert that the new 28 day "DVD window" that the deal creates helps Netflix, Hollywood studios and ultimately consumers. There is a lot of consternation in the blogosphere and Twittersphere about whether Netflix is hosing its subscribers with this new policy, but I believe there's actually little risk of that, and the payoff for Netflix is better content for its streaming catalog as well as lower costs for its DVD purchases. While WB surely doesn't expect to sell more DVDs due to the deal, it can only help make the DVD model's demise a little less disruptive.

    Switching gears, Daisy then reviews some of eMarketer's predictions for ad spending in 2010, with particular focus on online video advertising, which eMarketer expects to grow from about $1 billion in '09 to $1.4 billion in '10. Listen in to find out more.

    Click here to listen to the podcast (12 minutes, 30 seconds)

    Click here for previous podcasts

    The VideoNuze Report is available in iTunes...subscribe today!

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