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I have been musing a lot about Netflix lately, both before and after this week’s fodder for the digital water cooler. Rather than drop one big awesome thought, I think I’ll just wander aimlessly in print through the various thoughts I am having about Netflix.

Basically, I used to think Netflix was the future; then more recently I thought it was doomed; now I am less sure about my pronouncement of doom. This question is of course more complicated by whether I am referring to Netflix the new company or Netflix the old one.

Everyone seems to agree that the current cable TV model is doomed; Felix Salmon doesn’t think that means that Netflix necessarily wins. I think that’s correct.

I think Netflix can and should be bought by a competitor, and I think now is the moment. Netflix’s stock price has tumbled even though it has lost relatively few subscribers. Yet the new company “Netflix” seems to be a lot healthier than the old company Netflix; streaming movies is cheaper by an order of magnitude than mailing them, so the current business has vastly lower costs with tons of subscribers. So I think what this means is that Qwikster is definitely doomed. I think it is a legacy company that will slowly wither away as people who are less comfortable with streaming slowly age out of the market (and indeed existence). In this sense although it’s not a scam it is still kind of like AOL.

So let’s say this week’s surgery was designed to let discs-by-mail die a slow, peaceful death and cement streaming as the new powerhouse. This point about licensing seems largely correct but also misses the way this works in the other direction; Netflix has nothing to leverage against anyone else. Essentially, Netflix is extremely vulnerable to implicit collusion; if Starz is sending a signal to the rest of the market not to cooperate with Netflix then Netflix will die. Netflix has only carrots, not sticks; the people who license content to Netflix have nothing to lose by not doing business with Netflix than the revenue it can offer, and it is entirely reasonable in the short term to assume that Netflix might be crowding out their other sources of revenue.

But let’s say that now that Netflix’s stock has plummeted even though it has a sullied-but-still-powerful brand and, more importantly, the infrastructure to stream content reliably and at high quality to millions of households. If I were Google, Apple, or Amazon I would be chomping at the bit to get Netflix while it’s cheap and save the work of building a whole new infrastructure. More importantly by being under the umbrella of one of these other companies Netflix would suddenly gain new leverage in negotiating with content licensers. Imagine an alternate world Netflix wants content from Starz and Starz says no, but then Jeff Bezos says “well then Amazon won’t sell your Blu-Ray discs” and you can imagine a much more equal negotiation where Netflix can’t be strangled through collusion nearly as easily. I’m not sure this is likely but I think if the people who sell content to consumers gang up on the people who sell content to them the outcome for consumers would probably be better.
This could, of course, all be wrong.

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