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Out in Front
by Andrew McCaskey
The Netflix Lesson
Here is one smart company that is out in front. Netflix realizes that the download in coming. In fact they pointed out in their earnings call that those who were active users of the Netflix “Watch Instantly” streaming download service were less likely to rent physical DVD’s. That has a lot of implications for those whose business it is to stock and offer rental distribution of physical media – anticipating physical stockage levels by geography, and then disposing of inventory of “pre-viewed” DVD’s in a profitable inventory control plan.
Right now, the bulk of the download activity is through the Roku set-top box at SD resolutions- but as we saw at CES, companies like LG are soon to have the Netflix capability as a standard feature of flat screen TV’s.
Elegant material handling, logistics, and flow optimization on the same scale as Federal Express have been competitive advantages for Netflix for years. The alliance with Roku and price setpoints at the $100 level further cement the relationship with the ‘heavy user’ segment of the marketplace.
The popularity of on-line streaming has even greater implications for Blu-Ray media distribution which has all the inventory and reduction of the administrative hassles of the regular DVD rentals but an even greater commercial risk in determining which titles and how many titles to invenetory.
It looks to me that Blu-Ray has about eighteen months to add either add some really specilized premium content and earn it’s premium pricing or go the same way as the recently discontinued Pioneer LaserDisk of the late 1980′s. Once Netflix figures out a way to do the “Watch Instantly” download and make some money at it, there are going to be fewer reasons to make the inventory stock and logistics decision to handle significant numbers of Blu-Ray titles.
The all you can eat / $100 box strategy is the training ground for consumers to get them used to downloading content. That gets Netflix out of the logistics business, and leaves them shipping only two things: Content bits and Money.
If your business is being canabalized, you are better off… doing it yourself.
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