Blockbuster + Sonic does not = Netflix

After having competed throughout the infancy of the downloadable movie market, Movielink (now Blockbuster OnDemand) and CinemaNow (now part of Sonic Solutions) are finally joining forces, kinda sorta. The alliance announced today (and reported by my colleague Dawn Chmielewski yesterday) will let Blockbuster deliver downloadable movies to far more portable devices, set-top boxes and TV sets. That's because CinemaNow has been busily striking deals to embed its software in consumer electronics and mobile devices. The CinemaNow platform also takes a less straitjacketed approach to DRM, enabling customers to view movies on multiple devices.  Sonic, in return, gets the nontrivial benefit of the Blockbuster brand, plus some of the exclusive content Blockbuster has (e.g., movies from Independent Film Channel). The result should be a more able competitor to the online movie rental services offered by Amazon and Apple -- but not to Netflix, despite numerous news accounts to the contrary.

That's because Netflix's offering is a different breed of cat. Subscribers to Netflix's standard movies-by-mail service can, for no additional fee, watch an unlimited number of movies and TV shows that are streamed to them online. The no-incremental-cost approach is incredibly appealing, especially for avid movie watchers. IMHO, the Netflix business model (new movies by mail, older titles by stream, all for one monthly fee) will hold a significant advantage as long as the streaming or downloading option isn't the preferred route to watching a movie at home. And I think DVDs will remain the preferred route until streamed or downloaded flicks look as good and are as easy to use as movies on discs.

The main trade-off with the Netflix service is that the movies aren't new releases -- the studios make titles available for Netflix's streaming service in the same "window" used for cable TV's premium movie channels. That means they're weeks, and sometimes months, older than the ones newly available on DVD and in video-on-demand services (including Blockbuster OnDemand and CinemaNow). The subscription movie window is temporary, too, meaning that titles drop out as they get older. The result is that Netflix offers a much smaller library of streamable movies and TV shows than it makes available by mail. Another shortcoming for Netflix is the shortage of set-top boxes and TV sets that support its service, especially when compared to CinemaNow. But plenty of box and TV makers are looking to support for the Netflix streams to their devices, so that gap could soon start to close.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Comments

[Bruce Eisen]

Excellent article but the question is, how long can Netflix go on spending tens of millions of dollars per year on on the streaming service? They get no additional revenue so right now it's a customer acquisition/retention device. Will people pay for the service?

What the BB/CN deal also shows is how difficult it is to make money in the digital download biz. See http://digadvisors.com/cinemanow-to-power-blockbusters-digital-offerings/ for further analysis.

[Earnest]

I disagree with you for one key reason. Prior to putting Blockbuster Total Access on the backburner, Blockbuster had made significant inroads into what had been Netflix's playground, by focusing on giving the mainstream customers what they wanted: new releases whenever they wanted them. They could receive them by mail, and when they received videos in the mail, they could exchange them for new releases in the stores. This cost Blockbuster a lot of money, but it was what people wanted.

I think we'll eventually see the same thing with online video. Netflix will continue to appeal to cineastes, but Blockbuster will target the mainstream user who really only wants to see movies that have premiered in the last month.

It's important to remember that Blockbuster and Netflix are appealing to two separate demographics. Netflix freaks love the back catalog, and Blockbuster customers want every new release-- even if it stars Steven Segal.

(I got fired from Blockbuster for blogging about Total Access and how Blockbuster should continue to focus on it instead of neglecting it, but I still want them to do well because markets prosper with multiple competitors.)