Burning at Both Ends

Any­one who has read this blog in the past (thanks, Mom!) knows that I’m a fan of Net­flix as well as the Fox Net­work show Arrest­ed Devel­op­ment. Today, Net­flix announced that it is going to be bring­ing back Arrest­ed Devel­op­ment in 2012 exclu­sive­ly to their stream­ing video ser­vice; firm­ly plac­ing them in the cat­e­go­ry of a pre­mi­um cable chan­nel. I’m also a fan of Apple and Ama­zon, who along with Net­flix, are busi­ness­es which rep­re­sent the future of the enter­tain­ment indus­try and media con­sump­tion, though in sig­nif­i­cant­ly dif­fer­ent ways.

Jon Gru­ber stat­ed the oth­er day that he did­n’t think Net­flix was capa­ble of cre­at­ing hard­ware to sup­port an “end-to-end solu­tion.” I don’t dis­agree that there’s essen­tial­ly no chance Net­flix will move beyond the app busi­ness and into actu­al hard­ware1. But I dis­agree with the notion that Apple and Ama­zon are pro­vid­ing end-to-end solu­tions. In fact, what Apple and Ama­zon are real­ly pro­vid­ing are mid­dle-to-one-end solu­tions. That is, they take con­tent licensed from a stu­dio and serve it over their sys­tems to their hard­ware2. Net­flix, how­ev­er, is mov­ing to the oth­er end by cre­at­ing con­tent to serve on their sys­tems to some­one else’s hard­ware plat­form via an app. In doing so, they get a wider installed base with no hard­ware invest­ment (which no one oth­er than Apple has real­ly yet to crack; though the Kin­dle Fire from Ama­zon is just a week old).

Net­flix has dab­bled with being a stu­dio in the past, or at least a financier of inde­pen­dent film. Their fold­ed Red Enve­lope Enter­tain­ment—which backed some real­ly great indie films—was a wor­thy try, but com­pet­ed against some of their bread & but­ter con­tent providers. While that fact has­n’t changed much, the stakes have. When Net­flix made the deci­sion to close their Red Enve­lope Enter­tain­ment divi­sion, the Apple App Store had just launched and the iPad had­n’t even been announced yet. That land­scape has com­plete­ly changed, with pre­mi­um net­work HBO hav­ing a real­ly ter­rif­ic app now that lets sub­scribers watch their shows on demand. The abil­i­ty to watch Game of Thrones any­time, any­where has sure­ly helped HBO’s sub­scriber num­bers and I think this is what Net­flix must have it’s eye on.

The price of Net­flix’s stream­ing ser­vice puts in the range with HBO and now Net­flix has the killer con­tent which will com­pel fans to sign up if they weren’t already sub­scribers. Thus they stand a chance to gain sub­scribers at the expense of pre­mi­um cable providers like HBO, espe­cial­ly among the grow­ing num­ber of cable-cut­ters (you don’t need a cable sub­scrip­tion to watch Net­flix shows; you do for HBO’s).

So, which is a bet­ter busi­ness to be in between hard­ware and con­tent pro­duc­er? I hon­est­ly don’t know, but giv­en the night­mare of con­tent licens­es all these tech com­pa­nies are hav­ing to nav­i­gate, I have a good feel­ing that pro­duc­ing pre­mi­um con­tent might be more as appeal­ing as get­ting into the hard­ware game. Though the mar­kets for iPads is essen­tial­ly the same age as the mar­ket for stream­ing video apps on such devices, the play­ing field among stu­dios looks a lot more leve than hav­ing to tak­en on a jug­ger­naut like Apple’s iOS devices from scratch.

You’re move, Ama­zon.

  1. This is the com­pa­ny that is rac­ing to dump phys­i­cal media, for one thing! []
  2. Note that, in the case of Ama­zon’s print pub­lish­ing, they are con­sum­ing the entire busi­ness between author an read­er. Now that is as much an end-to-end solu­tion as one could have, short of pro­vid­ing advances to authors. []