Netflix - Pushing The Red Envelope

There is a very good recent article in the NY Times discussing how Netflix gained its power, who is threatened by it and why.  On the one hand, the article feels a bit trite in that it looks at the recent offering of a streaming-only package as Netflix' "move onto the web."  However, in the body of the article, it becomes clear that digital distribution has been a part of the Netflix business for over a decade.

For me, the intriguing discussion is about how Netflix threatens the cable television business.  Again, this is a somewhat obvious point, but still worth making.  As online content migrates to the living room TV, it is clearly an alternative to cable.  That's not just Netflix, but Hulu and Vudu and Amazon and CinemaNow and Apple and GoogleTV and.....The point is that online media delivery to the television is making cable systems potentially obsolete, or at least less relevant.  (I covered this point in more detail a few weeks back in another post.)

Two points:  First, cable needs to change.  It needs to be as flexible as Netflix and find a fresh strategy that capitalizes on its unique qualities.  I'll give that some thought and perhaps comment on some possibilities in a future post.

The other interesting question is what Netflix can do to continue its cutting edge success.  Believe it or not, I think Netflix should be developing original short-form programming.  Netflix really is the next HBO, and HBO made its best move when it went beyond simply showing movies and developed its own cutting edge programming.  Netflix has an installed user base of 15 million households many of who actively use the online aspect of the service.  Neflix has a very good user interface and first-rate streaming technology.  It can best capitalize on all of these assets by offering some exclusive programs.

Reed Hastings has always viewed Netflix as a content distributor.  Well, every big distributor uses its distribution system to move some of its own content.  Netflix is a $10 billion company.  It is big enough to tackle that strategy and it should be doing that right now.  I renew my call for Netflix to re-enter the content business.  It is time to revive Red Envelope Entertainment and start making great episodic programs.

By the way, if you want to read a great discussion (and less optimistic view) of Netflix and the NYT article, check out this blog post from David Poland of Movie City News.  This guy really does his homework and makes some excellent observations.