Netflix "Lesson" Less Than It Seems?

There's an article about Netflix in today's New York Times that's worth reading, even if it does seem to contradict itself. (This same article is also available - without registration - via cnet.)

Written by David Leonhardt, the piece is entitled "What Netflix Could Teach Hollywood" and features a nice photo of Netflix chief Reed Hastings amidst a pile of his signature red mailing envelopes.

The article begins by covering familiar territory and talks about how the popular online DVD rental service has given new life to nearly forgotten movies like Francis Ford Coppola's "The Conversation," largely through member ratings and the Netflix recommendation engine.

The result is a vast movie meritocracy that gives a film a second or third life simply because — get this — it's good. Last year, "The Conversation" (average rating: four stars) was the 13th-most-watched movie from the early 1970's on Netflix.

OK, that's interesting.

But that is apparently not what Netflix has to teach Hollywood.

No, according to Mr. Leonhardt, what Netflix has to teach Hollywood is that the selling of exclusive movie rights to pay TV channels is what has allowed Netflix to succeed.

He goes on to say that downloading movies from online services like MovieLink and CinemaNow is the way of the future and that online movie download services would be far more successful, if only they had enough product. If MovieLink had as large a selection of new movies as Netflix, he suggests, Netflix would be withering on the vine.

The problem is that the studios have sold the exclusive digital rights for most movies (which don't apply to physical DVD's) to a television channel, like HBO. The agreements last for years and, since they bring in millions of dollars, the studios aren't about to stop signing them.

So what's saving Netflix - allowing it to thrive when the technology to obliterate it already exists - is yet another attempt by Hollywood to hold onto a fading business model. Remember, this is the industry that filed lawsuits in the 1970's to prevent people from watching movies at home.

Well, that's where he lost me.

Sure, the technology exists. Sort of. Putting aside for the moment the fact that legal movie downloads are not yet available on all computer platforms, the truth is that it still takes a considerable amount of time and effort for the average Joe to download a 90-minute film to a computer (or a DVR).

Then there's the issue of the quality of the video and the near impossibility (again, for the average Joe or Jill) of hooking a computer up to your TV set. And let's not forget that broadband still does not reach most American homes, the way a DVD can.

But the most surprising thing in this article is that early on, Leonhardt  poses this question:

Out of the 60,000 titles in Netflix's inventory, I ask, how many do you think are rented at least once on a typical day?

The answer is 35,000 to 40,000, which means that most of the movies that are being rented on a daily basis through Netflix are "library" or "catalog" titles like "The Conversation," not new releases that are under exclusive license to pay TV channels.

Which kind of undermines his main thesis, especially since the exclusive pay TV window generally lasts three years or less.

Or am I missing something?

Comments

[Becky]

Which begs the question, "Why doesn't Netflix obtain the digital distribution rights to all the older-than-three-years titles?"

[Michael]

It's long been a Netflix talking point that so many of their rentals are not new releases. So, yes, it will be interesting to see how many older titles they have available for download once that service starts. (According to Hastings, some form of Netflix-branded download service will start by the end of the year.)

Theoretically, of course, they can have as many older titles as server space allows, provided they secure the rights.