Saturday, January 29, 2011

TiVo's Best Strategy? Cord Cutters

Unfortunately, Tom Rogers and his team don't seem to think so.  This recent article on TiVo's struggles gives a clear picture of the challenges TiVo is facing.  Major cable providers have no reason to partner with TiVo.  They all have their own DVR's and TiVo would probably only confuse customers and cannibalize the cable provider revenue.

Tom Rogers
If you read the quotes from Rogers, he really sounds a little desperate.  (Sorry to say it, Tom, but that's the impression I got.)  He is quick to criticize Apple TV and Google TV, while he is still working hard to forge relationships with cable providers.  The problem is they don't want what he is selling, and TiVo Tom isn't getting the message.

At the same time, there are a growing number of people who are dumping their cable service -- the cord cutters.  They would love to have better technology to manage and record their broadband programming.  TiVo is in a great position to deliver that with their TiVo Premiere service.  It might take a little repricing and positioning, but it could easily become the hardware of choice for cord cutters.

But Rogers apparently thinks that market is too small and isn't really chasing it.  It's a real mistake.  By the time that market is large, all of those people will have implemented other solutions.  He can criticize Apple and Google all he wants, but they will both probably be doing a lot of business that could have belonged to TiVo.

As I mentioned a few posts back, TiVo seems too focused on exploiting technology rather than building a business.  There seems to be no real forward thinking strategy there at all.  The company seems content to just pick up the scraps instead of fighting for a place at the table.

TiVo was a visionary company a few years back, and now I think they've squandered it and the entire industry is passing them by.  I honestly hate to be so critical of any company or executive, but I just don't see any passion or vision there.  Maybe I'm just not getting it....

Friday, January 28, 2011

Feedback on Netflix' Place in The Media Landscape

If you read my posts and tweets, you know that I am an avid observer of Netflix and its ongoing impact on the entertainment business.  I also spend some time chatting about it offline with other folks in our industry.  One of my favorite bantering partners is my friend Jack Wrigley of XStreamHD.  (By the way, XStreamHD is a very cool delivery and management system for HD content.  Check it out here.)

Jack sent me a couple of interesting items in response to my last post, and I wanted to share them with you.  First, one of Jack's friends is an industry insider who would prefer to remain anonymous.  He has a good perspective on how Netflix could evolve.  

He astutely points out that studios are highly unlikely to give Netflix rights which devalue their other distribution windows.  Therefore, he believes that the bulk of Netflix' streaming catalog will probably continue to be films that are past the pay TV window.  They will get some fresher titles from smaller distributors and perhaps Paramount and Lions Gate.  Those titles will be the marketing hooks, but the older titles will be the bulk of their business.

Reed Hastings
This would allow Netflix to survive as a non-competitive addition to offerings from cable companies, and that means that cable companies would actually be able to offer Netflix streaming as an additional pay service that does not threaten their existing relationships.  That's a potential win-win model for Netflix and cable.  Consumers could get Netflix streaming for $9.99 on a stable SVOD channel, or for $7.99 through their broadband connection (with its inherent fluctuations in delivery speed).  That actually makes a lot of sense -- probably more sense than Netflix trying to muster the money and power to fight HBO, Showtime, etc. for rights in the pay TV window.

Glenn Britt
With that said, recent comments from Reed Hastings and Glenn Britt don't seem to indicate that they see a natural partnership between Netflix and the broadcast side of the cable business.  They both see Netflix as a driver for broadband services, but if they think it could evolve into a SVOD service on the broadcast side, they aren't saying so.  It's possible that Netflix sees a cable SVOD model as potentially cannibalizing its existing service at a much lower margin, rather than creating incremental additional distribution.  As always, time will tell.

Ok, that's it on Netflix for a while.  I'll find some other interesting stuff to explore in the next post.

Sunday, January 16, 2011

The Love-Hate Relationship of Netflix and The Studios

This recent article in the Hollywood Reporter gives a comprehensive view of both the public and private statements of studio execs when talking about Netflix.  There are a couple of great points that shed light on the future for the current star of the home distribution marketplace.

First, it is clear that Netflix is an important buyer of films and television programming.  Studios are happy to have Netflix in the mix, taking up some of the financial slack from the collapsing DVD market.  It is also true that the prices being demanded of Netflix for premium programming are going up quickly. It appears likely that Netflix' acquisition costs for some programming may go up by a factor of as much as 10 from one contract period to the next.

So, Netflix is currently in a strong position, but facing a looming dilemma.  It has a distribution base that is quickly approaching 20 million subscribers.  That translates to revenue of somewhere around $2 billion dollars a year.  However, with acquisition costs going up, it is predicted that Netflix will soon be paying somewhere north of $1 billion in annual content acquisition costs, and the prices will continue to rise.

The studios are pressuring for the much higher license fees and Netflix is acting cool, but there is an even larger complication.  There are many aggressive streaming competitors currently entering the market.  If Netflix wants to maintain its market share and subscriber base, it needs to retain the position of being the premium supplier of streaming content.  That means maintaining access to all the best programming.  That won't be easy with more bidders in the mix.

If Netflix really wants to maintain a reasonable cost structure, it needs to bargain harder with the studios, and that means saying "No" to deals that are too high.  But each of those lost deals will go to a Netflix competitor who will get bragging rights along with the premium programming.  If that happens a few times, it won't be hard to start turning some consumers away from Netflix and towards the competitors.  And this will be happening at a time when Netflix might need to raise its prices in order to maintain margins (in the face of the rising acquisition costs).  Not a good combination - raising prices as competitors are publicizing victories in acquiring some desirable pieces of programming.

Bottom line -- Netflix is still one of my favorite companies, but it is going to be facing some real challenges in the not too distant future.  It's not going to fail; I don't even think it will lose money.  However, it is going to have to fight harder to remain successful.  Netflix made the switch to digital streaming look easy, and I suppose it was when competition was scarce.  With the heat being turned up by both studios and competitors, Netflix should start reexamining its strategy now and staking out a more defensible position.

I still believe original programming may be the key to maintaining the Netflix subscriber base when times get tough.