Thursday, March 24, 2011

Netflix -- Now Reality Sets In ... and It Ain't Pretty (as Hollywood Hazes Netflix in Hell Week)

Netflix -- every investor's darling. What's not to love? High quality on demand video streaming -- all for one low "all you can eat" monthly price. Millions upon millions of subscribers continue to flock (I am one of them), and the service looks and works great (well, at least most of the time, with the exception of the other night when the entire service went down for several hours).

But, technology by itself -- no matter how good -- does not a business make. And, in the inimitable words of everyone who works in Hollywood, "content is still king." And, that means that those who own the content are the king-makers. And, those Hollywood owners of content are not willing to anoint Netflix with the crown that most investors believe awaits it.

Instead, this was Netflix's week to be hazed by Hollywood. This was Hell Week.

First, Netflix experienced its first service disruption in years -- the service simply didn't work for anyone for hours. That alone ain't good. But, that is a mere flesh wound as compared with the 1-2 sucker punch that was inflicted by Showtime and Starz this week. Not just on shoe dropped -- both shoes dropped -- and hard.

Earlier this week, Showtime announced that it will no longer make certain ongoing series available to Netflix -- in other words, it is reversing itself and taking back its original content. Why? Because Showtime wants Showtime customers who like those shows to come watch them on Showtime rather than Netflix because basic economics are significantly better. As if that weren't enough, now premium movie channel Starz -- from whom Netflix gets the rights to its most mainstream current movies -- has just announced that it will slow down the availability of those movies. Starz will give itself the first opportunity to make those movies available to the public -- and monetize them via its own service -- and now make them available to Netflix only after 90 or more days when consumers are less rabid about seeing those movies.

This is a powerful -- and disturbing -- 1-2 punch to Netflix. It also may presage a full on Hollywood body-blow to the company.

Much has been written about how Hollywood doesn't want history to repeat itself. Specifically, the media giants ceded the online music business opportunity, in effect, to Apple years ago because they were woo-d by the master "wooer" Steve Jobs. As a result of his charms, they understandably believe that they gave away too much -- waaaaaaaaaaay too much -- and built Apple's business (to the tune of tens of billions of dollars) on their backs. Well, they don't want THAT to happen again in the inevitable mainstreaming of Internet and mobile movie and television distribution (including Internet TV). And, right now, Netflix is the closest thing to the Hollywood bogeyman. A fast growing customer base of millions -- who are being taught the lesson that they can pay $7.99 per month to view unlimited premium video content.

Think about that. Unlimited viewing for $7.99! Of course we love that as consumers, especially when Hollywood built its incredibly lucrative video business on $19-$29 individual DVD sales and $5 one-time video rentals. Netflix's "all you can eat" $7.99/month business model is a very scary monster indeed as compared to the world that was.

So, if the studios can't get that old world back -- which they know they can't -- at least they can keep the new world opportunity away from others. And the #1 "Most Wanted" bad boy in this new world order is Netflix (okay, maybe #2 -- because the pirates always will be #1). So, no more Mr. Nice-Guy. The claws are out. The studios are fighting back.

And, this is just the beginning. This is just the first of many painful weeks to come to Netflix. (Trust me, I wish this weren't the case, because I AM a Netflix user and I WANT a compelling pool of content).

Right now, from everything I read (click on this link to read a particularly compelling financial analysis of Netflix), Netflix's stock price reflects a future reality in which the company must do everything right to meet those lofty expectations. The problem and new reality is this -- THE single most important thing that Netflix must do right in order to grow its subscriber base is to offer a compelling slate of content. But, that "thing" is completely out of its control and in the hands of others. And those "others" are the studios. And, let's face it, playing Mr. or Ms. Nice is not exactly in Hollywood's DNA.

As much as I still want to watch watch watch -- and even though investors continued to buy buy buy during this Hell Week -- I, for one, would sell sell sell ...

Secure Personal Video "Store & Share" -- Right Opportunity, Right Time for CE Companies, Operators, Service Providers

Consumer HD video capture is exploding, fueled by the growing ubiquity of mobile HD video capture devices -- first, the Flip cam that revolutionized easy-to-use high quality video; and, now iPhones and other smart phones that incorporate HD video capture as "just another feature" (i.e., all-in-one). I have written about this previously -- click here for my earlier related post.

Consumers no longer need to plan to shoot what I call "personal video" (of their families, friends) and dust off their old non-pocket sized camcorder; now, all of us have our "camcorders" with us at all times in a mobile form factor (like the iPhone). That means that planning is no longer needed -- we can shoot HD video anytime, anywhere -- either at a planned event (like my son Luca's Little League games) or simply "on the fly", serendipitously. THAT's the power of our new HD mobile video capture reality. This mobile "anytime, anywhere" video capture reality truly is transformative and revolutionary -- and that is why the sheer number of consumer personal videos is exploding.

That's the promise.

But, here's the reality. Yes, we can easily capture HD video anytime, anywhere. But, then what do we do those personal videos? How do we easily and immediately get them "off" our smart phones and into the Cloud without connecting them to our Macs/PCs? How can we privately and securely archive and manage our growing and confusing inventory of personal videos? And, how do we privately and securely share those personal videos with our friends and families? This last question is a critical one -- remember, these are our personal video memories -- we have no desire to share our kid's hoops video with the world on YouTube!

The simple answer is that right now -- perhaps shockingly -- there is no easy, seamless, end-to-end way to do any of that -- especially if the goal is to preserve that personal video's HD quality. Instead, there are "bits and pieces" approaches. As an example, the iPhone 4 (which enables HD video capture) offers the option to share a video via email or MMS. Sounds promising, right? Well, not so much. Both of those options significantly degrade and "dumb down" that video, thereby making it a distant cousin to its HD origins. MMS, for example, still only supports 3GPP video (176 x 144 at 10 frames/second). That means that the iPhone's HD promise is essentially thrown out the window. The iPhone 4 also gives no full seamless private and secure management, archiving and sharing solution a la still photo and video sharing leader Shutterfly.

Now, imagine instead if consumers were given -- out of the box -- a seamlessly integrated easy-to-use and secure Cloud-based private video archiving, management and sharing service (that includes direct wireless upload to the Cloud)? This is what I call the secure high quality personal video "Store & Share" opportunity. Take your average smart phone. Handset manufacturers and carriers -- yes, you are offering HD video capture and you see how critical it is fasts becoming to consumers (just like still photos before it). Why not offer your customers this kind of service out of the box yourselves? Why not own and control that customer experience to increase your NPS (net promoter scores)? Why not own and cement that customer relationship? (Remember, once consumers begin to invest in a service by building their video library, switching costs become significant and lock-in is achieved -- with all of its concomitant benefits). Why not monetize that opportunity yourself via possible new revenue streams?

In other words, why not do this now yourselves before others -- like Google or Apple -- once again co-opt these opportunities from you (as they already have significantly done with VoIP and video calling -- read TechCrunch's recent excellent and insightful post on this subject by clicking on this link). History repeats itself for the unwary -- and, believe me, those and other 800 pound gorillas are all over this consumer personal video archiving, management and sharing opportunity (and recognize how massive it will be).

In other words, why not save face (i.e., empower your customers to easily archive, manage and securely share their personal videos via your own branded personal video "Store & Share" service)? Why not come to the rescue to consumers and solve this fast-growing pain point right now? Don't let Steve and Sergei be the white knights -- service providers, operators, and CE companies -- this is your chance!

"How do we do that?", you ask?

Here's an idea -- we at Sorenson Media can help. We already partner with Shutterfly to power their innovative industry-leading high quality and easy-to-use video service. We already have all the pieces to provide a similar white-labeled (i.e., your brand) service that comes as standard equipment (i.e., is seamlessly married) with your smart phones/hardware. And, this same logic applies to any and all consumer electronic devices that capture video -- all should absolutely offer a seamless private and secure video archiving, management and sharing service out of the box. The benefits are myriad as indicated above -- higher NPS/customer satisfaction and word-of-mouth; more use of -- and dependence on -- your hardware (which means more purchases and word-of-mouth); more customer lock-in (which means more ongoing customer engagement on all fronts, including marketing); and more revenues and monetization opportunities (including the ability to charge for a super-charged feature-enhanced subscription service, as well as impulse a la carte purchases).

And, remember this -- and this is absolutely key -- personal video "Store & Share" can be marketed more effectively than perhaps any other feature because it deals with fundamental human emotions -- i.e., your family, your friends -- and preserving and sharing those memories. Apple, among others, already focuses on the power of personal video to sell more product. Look at their iPhone 4 ads -- live video FaceTime is one of the central marketing messages. And, surprise surprise -- babies with moms are featured in those ads! That's the unique emotional power of personal video -- much more powerful in terms of marketing than premium movie and TV content.

So, we're here to help. That's what we do.

Just like I predicted years ago that live mobile video capture would be a massive opportunity, this secure personal video "Store and Share" opportunity will be big, big, big ... Nothing, I mean NOTHING, is as meaningful as archiving and sharing the memories and moments in time of your friends and loved ones.

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