July 11, 2005

SHOULD HAVE WAIVED THE FEE:

Movies to go: Can Netflix's Reed Hastings succeed in the battle to deliver movies online? (Jul 7th 2005, The Economist)

LATER this year, Netflix will launch a new service for downloading movies from the internet. “It will be underwhelming,” promises Reed Hastings, chief executive of America's leading online DVD-rental company. Despite a recent ruling by America's Supreme Court that gives entertainment companies more ammunition to fight against illegal file-sharing, movie studios are likely to remain extremely cautious about what films they make available for a fee on the web.

For now, that suits Netflix. Mr Hastings believes that the humble DVD—and, eventually, high-definition versions of it—will remain popular for some time, not least because that is what the movie industry wants: sales of DVDs and fees from rentals are an essential source of the studios' profits from new releases. But Mr Hastings is also betting that by the time movie-download technology becomes more mature and online titles more widely available, his subscriber base for DVD rentals will be big enough to put Netflix in a strong position to prosper in the online marketplace—where he is likely to face new competitors such as Yahoo!, Microsoft, the studios themselves and, no doubt, many start-up firms offering rival download services.

Changes in technology encourage start-ups with innovative ideas to enter markets, just as Netflix did in 1999 when—having been stung with a $40 late-payment from a Blockbuster video-rental store—Mr Hastings launched its subscription service.

Posted by Orrin Judd at July 11, 2005 6:01 AM
Comments

netflix is toast, once amazon enters the market.

Posted by: cjm at July 11, 2005 9:59 PM
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