Thursday, May 28, 2009

4GM: Consoles, consoles, consoles & Netflix

A little scattered as I'm, you know, running a goddam television show. But the major points are in here for you to criticize and argue over:

British satellite TV network BSkyB is cutting a deal with Microsoft to have their content available on the XBox 360:

Rapid TV News understands that the long-awaited link up between BSkyB and Microsoft’s X-Box is at last going to happen. Full details will be announced tomorrow (Friday, May 29). The unveiling "Experience the Vision' press event will explain more..

... However, providing some sort of BSkyB functionality for Microsoft X-Box/360 users could potentially deliver millions more users in the UK and Ireland to BSkyB.

Do I get a Nikki Finke "Toldja" here? Four years ago I started discussing the idea that American's have an "entertainment space." For too many Americans, the computer is a box in that room over there, and the TV is where I play my games and watch my shows -- and the console got into that "entertainment space" first. Apple had an early lead with its iTunes/studio integration, but bobbled it badly by selling a crippled box. Turns out that while we require our music players to do very little but play music, we demand our video box do a bunch o'stuff. Like play games. And any format of entertainment we might care to toss at it. And bring us shiny new free shows that are, in fact, legally free, on another data stream.

Recent surveys -- whee, actual data -- seem to support the idea that "viewing" habits as we understand them are not evolving radically:

In a nationwide survey of 1,250 broadband households and separate sample group of 250 teens aged 12 to 17, Leichtman found that only 8% of respondents watch repurposed TV shows online, compared with 24% who watch news clips, 20% who view user-generated clips on YouTube and 15% who watch sports news or highlights.

"While online video usage is growing, it is shortsighted to think of this primarily as an alternative venue for watching TV shows," Leichtman said in research notes. "In fact, consumer use of video online remains much more about short-form video."

This in no way contradicts my previous argument about broadcasters creating artificial monopolies by switching 100% to Hulu. The numbers you're seeing here are the results of the failure to embrace that decision. The number cited above is a little useless actually -- a better thing to know is what percentage of teens who watch TV shows watch repurposed TV on computers. But that would emean somebody actually savvy about the emerging business model would have do this research.

There is a parallel in the States to the above BSKyB development -- customer surveys and rumors indicating that Netflix may begin streaming HBO and other quality cable content for an additional monthly fee. This is a bastardized version of cable a la carte ...

... and one of the reasons that I stated, in my last post on the matter, that Netflix will wind up the winner of the future content wars. Netflix has cunningly positioned itself as a pure content company. It will deliver content on a dedicated player, on your XBox, on your Tivo, through the goddam 3000 year old delivery medium of snail mail.

Netflix will give you a movie, or TV show, whatever's available on DVD and now streaming. It does not care, its jobs do not depend on dominating any marketplaces or shares. It's job is to Get You Stuff from People Who Make Stuff. It is catering to strong brands. Better or worse, if I pay for HBO, I know what I'm paying for. I pay for Showtime, I know what I'm paying for. I pay for NBC ... what am I paying for? Kings or My Name is Earl? Dateline or 30 Rock? I like Southland, why am I paying for Last Call with Carson Daly?

If you don't have a brand, get out of the business. Netflix is going to be doing your job better than you in five years.

Netflix is in the prison yard, strolling up to the Mainstream Networks with a sharpened toothbrush clenched in one whitened fist while the Mainstream Networks chat dreamily about how they're gonna go straight and get good jobs when they Get Out. Ain't gonna happen.

Certainly, right now, Netflix is dependent on material produced on other monetized media for it's content. Some people state this fact as a criticism. These people are chimps. That's not a problem. That's smart. In capitalism, letting some other dude pay the bills is a smart play. That border is going to blur as more and more private money moves into production. I would remind you -- Leverage has no major studio. It is coming back for a second season on TNT, a legitimate, well-thought of network. I don't think we're quite at plausible premise yet, but we're getting there.

Network humans vary in quality (we have some very fine ones at TNT) but end of day they are devices through which one transforms monetized eyeballs into financing for content, making their living off the skim. These first attempts at alternate monetization will more often than not fail, but the experiments are getting closer and closer to viability. That need for an intermediary will falter, and that skim will become smaller and smaller. It will never be zero; but it will drop to the point that is the bare minimum to do their job, rather than "subsidizing-giant-useless-buildings-in-the-Valley" levels.

EDIT 5/29/09: And rumors heat up that the XBox/Hulu connection is finally happening. Let me be perfectly clear here -- I've been a longtime optimist on the speed of the transition to digital content delivery, and even I am stunned at how fast things are changing and going to change.

When I say "Netflix" is going to win, I mean (whatever Netflix becomes) or (whoever finally buys/co-opts Netflix).


Anonymous said...

Overhead costs are lower for the skimmer. Is it riskier to mine iron ore and coal, turn them into steel, and turn that steel into a car OR buy a car for $20k wholesale and sell it within 7 days for $30k?

What's netflix's overhead? Lots and lots of custom extra-durable DVDs, a cute algorithm, advertising, shipping... I'm surprised they haven't sponsored a Bowl Game or stadium yet. (Or a cycling team. If Astana's broken, they can get on the Lance juggernaut and get half of Europe saying "netflix" every freakin' day.)

However, I don't think vertical integration is necessarily a bad thing as you imply. It's just getting increasingly hard to pull off or maintain.

Doctor Memory said...

That's not a problem. That's smart. Well, yes and no. Not personally getting into the hell that is content production is certainly smart, but it doesn't necessarily mean that depending on the content producers to get you the stuff that your customers want isn't a risk. It's especially a risk when you're dealing with producerS, plural, each of whom is going to want to negotiate a different custom rights deal, and you're not yet a big enough fish in your own pond (a la Apple with the iPod) to dictate terms to them.

So while Netflix clearly has the best possible pipeline for delivering content digitally right now, what's actually going through that pipeline is... wonky. (Quick: which season of "Weeds" is available for streaming...this week?) And as long as the various networks, studios and independent production companies are all wanting to strike their own slightly paranoid deals, it's probably going to stay that way.

p.s. got enough material for a lecture yet? :)

Anonymous said...

In Puerto Rico besides cable we depend very much from Net Flix because we want to watch movies when we want to and NEED TO. But since Net Flix does not allow us to enjoy the "watch instantly" feature, Walgreens RED BOX is taken the maket in every corner with a very secured method -if that is the case of not allowing the island to use "Watch instantly" movies. Maybe Leverage should supply Walgreens RED BOX with the episodes since there is no tv series in their menu. Just a thought.

Liz said...

I'd be streaming content a great deal, TV episodes in particular, if I wasn't currently stuck with satellite broadband (the Broadband of Absolute Last Resort, ugh). Hughes puts strict limitations on how much you can download or stream each day, and a single TV episode would be enough to put me over the limit.

Once a viable alternative to sat broadband appears, I'll be thrilled. And probably a streaming content addict. :-)

Anonymous said...

I love Netflix. So do most college students. You see roommates left and right sharing Netflix. Most of us don't own a TV nor do we watch TV on TV. It's always through Hulu, illegal downloading, or Netflix.

And truly, the only time we beg for a TV is when the Red Sox are playing or its a Superbowl.

mymatedave said...

Here in the UK we unfortunately don't get Netflix, the closest we get is a DVD subscription service called LoveFilm which while good, is no substitute for streaming. And forget about Hulu.

It's a market failure, pure and simple. Give me the legal means of watching what I want to, when I want to and I'll happily pay. Until then...

Mary Sue said...

I threw away my TV in February. Almost anything I want to watch is either "available now" to stream on Netflix, or it's on Hulu. Some things I still have to wait for the DVDs through the snail-mail, but while I'm waiting for one DVD I'm watching seven episodes of Kings and singing that goddamn Five Dollar Footlong Subway commercial in my sleep.

Fuck Subway. Big Town Hero all the way.

Winterman said...

Bring on the Singularity, baby.

Anonymous said...

Posting anonymous for obvious reasons:

8 years ago, Apple changed it all. With iTunes + iPod + Napster-void-filling-equivalents, anyone's mom could download and logically catalog into a music collection any song ever recorded, just by going to a search engine. Further, she could use that media in the way that MOST MADE SENSE TO ANYONE. In the case of music, this happens to be the walkman model. It changed the world.

Now, 8 years later, the white market for music has finally caught on. I don't download black market audio anymore, because I can get a product of known, drm-free quality at a reasonable price from and the iTunes Music Store. The providers have stepped up and filled the gap in the market that I and millions like me represented.

Now, it's video's turn. There's an obvious market opening for any company with the sack to step up and release a white market product that integrates in obvious ways with black content distribution, just like Apple did with iTunes & the iPod. That nobody has done this yet is partly the fault of the black market, which has refused to create an adequate metadata standard similar to the one integrated into the mp3, making it quite difficult for anyone to release an iTunes-like content catalog system for video, but this problem has largely been solved by integration with sites like and The black market has also failed to find a reasonable standard, although the recent widespread adoption of the mkv has accelerated this. Today it is easy to find any blu-ray, dvd, or tv show broadcast in recent memory available for download, commercial free, through a simple search engine. And just like the late 90's, when the mp3 moved from the domain of the tech-savvy geek to the mainstream, video piracy is about to blow up like a goddamned atomic bomb.

With a stack of (free and Free) software and a $33/month internet connection, I have a home theater pc running on a Mac Mini that automatically selects new TV shows based on a subscription list that I create, and downloads them the same night they air. Each show takes about 10 minutes to transfer to the computer that sits under my television. Each episode is commercial-free and has no unskippable ad content. Using a DVR-like interface (one that is on par with DirecTV's DVR and vastly superior to Comcast/Time Warner's) controlled by a simple universal remote, I can select from a list of recorded content, indexed by episode number, season, show name, and air date. All in Hi-Def 1080/720 video, all with 5.1 surround sound.

If I don't want to engage in piracy, this same htpc can use my netflix streaming subscription, my Hulu account, my Youtube account, and South Park Studios' website.

Listen: If I'm out with friends and they recommend a show or movie to me, I can go to a public search engine with my smart phone, enter in the name of the film, and when I get home, that movie will be waiting for me to watch in blu-ray perfect HD. It is trivial for me to port that video into an ipod/iphone/psp-optimized format for mobile viewing. It will be available when I want it, how I want it, for as long as I want it, in whatever format I want it.

This is the future of content delivery. There is no stopping it.

I'm a reasonably well-seasoned techie in my early 30's, and I set this system up in a weekend with a terabyte of storage for under $600. That means in 1 year, 18 months tops, the price will have halved, the installers will be polished, the software will STILL be free, and this sort of thing will be taking off in homes all over the country.

THAT is the market reality. The producers of audio content found a way to cater to the "honesty-inclined" pirates of the world by agreeing to give customers what they wanted, on the terms in which they wanted it (fancy that). Video is going to have to do the same, or perish.

Anonymous said...

One more thing in addition to my last comment:

The democratization of derivative content created by the video black market is amazing. Did you know that one can download an add-on subtitle track for illegally distributed versions of Ben Stein's film Expelled, which refutes the lies told in the film WHILE THEY ARE BEING TOLD.

Doctor Memory said...

Anonymous, above, nails it completely.

The avalanche has started. The pebbles don't get a vote.

Dave K said...

the only time we beg for a TV is when the Red Sox are playingGet your buddies to pool some cash and grab MLBTV for a year, or monthly, whatever works.

BruceFromOhio said...

I donj't give a rat's patootie what its called, who sells it, or how it works: if you can get me episode IV of season III of BSG when I want it, you own me.

Mike said...

Don't forget Tivo. Right now I can log on to and tell the box under my TV to record a show, then download it to my computer so I can watch it there, or put it on my iPhone. And while I'm on my iPhone, I can go to Netflix and add a movie to my streaming queue so I can watch it when I get home, since the new Tivos support Netflix streaming.

Anonymous said...

Anon @9:12 PM indeed does nail it.

Look, my situation epitomizes what's wrong with the model now, and how the future will adapt to consumers like me:

I am an American living in New Zealand. As such, I cannot access Hulu, Adult Swim, South Park Studios, etc., and I must adhere to Region 4 DVD coding.

Anyway: what I want is access to any show from any country in any language, owned by whomever. There are US shows which run on second-tier cable channels that I cannot access internationally in any from ("Ace of Cakes" and "Venture Brothers" come to mind). Further, I have friends and acquaintances spread throughout four different countries who "love" whatever show, shows I'm sure I would also love, that I cannot access. And so on. We all know the drill.

The point is this: whichever company/companies can provide reasonably priced, searchable, universal access to entertainment will win. It would be like a cross between the Apple Store and Pandora, only including any TV show that went into contract with the service. This would include, of course, not merely entities like John's production company or even TNT, but individual show producers: imagine a system in which pilot episodes were made directly available to consumers, rather than having to be formally greenlighted by a network?

These are but a few ways in which the "suits," as John implies, will become little more than glorified investors—much less hands on, much less wealthy. Meanwhile I can watch Japanese game shows, American cooking shows, British sci-fi dramas, and Romanian Idol if I so desire, all in the same night.

Anonymous said...

As a brief follow-up:

Xbox 360 shows promise as a kind of media hub attached to whatever service. But the interface MUST get better. It is a tremendous pain in the ass to cycle through window after window using only the controller, and the even these windows are not very intuitive. If a "hub" is the future (and I think in many ways it is), you have to make the interface "hub-like" in its usability.

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