In a NY Times Bits blog post, Saul Hansell makes the case that Netflix may be in a great position as online video develops. His point boils down to the fact that Netflix has an existing business that acts as an on-ramp to the new services. Their DVD rental service transitions naturally to a stream-to-the-set-top-box model. But in a blog post today on The Business of Online Video, Dan Rayburn shot some holes in this theory
arguing that Netflix’s streaming business loses money because they pay both for content and delivery. If the business you are transitioning to loses money, the transition doesn’t work real well.
I tend to agree with Dan in the near term. The problem Netflix faces is essentially that their online streaming business model is that of a middleman in a sector that is eliminating many middlemen. And yet, Netflix must go where they are going, because DVD rentals will only decline as video moves online. They face the same basic challenge that Earthlink and AOL have struggled with – how to take a slowly dying but great cash business and leverage it into a new great cash business.
But let me pose a new scenario. What if Netflix were to go out and solve their problem? What if Netflix were to buy its own CDN? If you think about it, their DVD-rental business is already a primitive CDN, distributing data from centralized repositories to the customer using the US Postal Service instead of DSL or Cable. Why not use their cashflow to buy their way out of the middleman position in the internet video business? Is a Netflix/Limelight or Netflix/Panther combination unthinkable?
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Categories: Content Distribution · Mergers and Acquisitions
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I think they or someone like them (a new start up) will have the best chance to explode (or explore) this space; because video needs a retail CDN. If Disney where to have a CDN delivery whould they offer Sony? So I think that having a one stop shop for all of your video needs is a good place to shop.
Hey Rob, it’s an interesting idea but owning the CDN does not solve the problem. Operating a CDN, even regionally, is not cheap as you know and they would still have to pay for the licensing of the content, so the CDN won’t help with that cost.
If they had a streaming only subscription plan, could they sell it for more per month than it would cost them to deliver hours upon hours of video, to each user, each month.
I think it would cost them more to acquire/build their own CDN and run it than it would to outsource to a CDN.
Also, Panther does not support streaming protocols on their network and all of Netflix’s offerings, so far, are all streaming based.