Has Netflix Dug Its Own Grave?

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A few weeks ago Netflix announced that it was taking steps to move away from renting, shipping, growing and maintaining its DVD and Blu-ray library in favor of its rapidly expanding and hugely popular streaming efforts. A move that frankly didn't surprise many Hollywood industry folks or even Netflix users for it seems they were already streaming their favorite content, with 66 percent of its users having streamed either a television show or film in the third quarter in 2010, up from 41 percent a year earlier according to The Hollywood Reporter.

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While Netflix streaming may be on the rise, many within Hollywood privately feel that Netflix's success and 'cutting edge' status is not sustainable. In the beginning, when Netflix was negotiating with the studios for licensing rights to their content, streaming wasn't what it is today, nor was Netflix's reach within the streaming space, which meant that it was a commodity that was largely undervalued or perhaps simply misunderstood. Fast forward to today and it's clear that not only is streaming vital to Hollywood's success, it appears to be its only future. Knowing this, Hollywood is looking to protect their properties: treating them with far greater importance than ever before - especially when it comes to streaming; even if it means devaluing their own broadcast rights. For example - Epix, a pay TV channel between Paramount, MGM and Lionsgate, licensed 1,000 new titles to Netflix at the reported cost of 200 million dollars annually (for a five year term), whereas Starz originally sold its streaming rights to Netflix for an alleged $30 million a year back in 2008, a contract some analysts believe to be worth up to $300 million a year today.

While this increase in licensing fees appears to be a good thing for Hollywood, it is potentially crippling for Netflix, for in order to sustain itself, i.e. keep subscribers happy, it has to have the rights to the content that they crave, which is another factor Hollywood is all too aware of. Simply put, Netflix may not have the capital to "have everything" given the fees Hollywood is prepared to levy upon them, according to some industry analysts. Netflix has already had to back away from the negotiating table with regards to HBO content and has had to settle for optioning less than premium content from the likes of Disney and ABC due to their higher asking prices. It appears that the chickens are coming home to roost and for all its foresight, Netflix isn't immune to what every filmmaker, studio or otherwise, already has learned - you can't buck the system. Furthermore, with potential rivals such as Amazon and Google reportedly entering the fray, Netflix may find it faces stiff competition for the first time since its inception, not to mention nearly every network and/or studio now has or is working on an in-house streaming venue of their own from which they can profit.

Time will tell if Netflix will be able to weather the storm or if they too will become a victim of their own success. Personally I don't believe Netflix will die; however I don't feel it's beyond the realm of possibility that they will be acquired by some entity with deeper pockets than their own - ahem, Google. One thing remains the same: like Napster and iTunes before it, Netflix's sheer existence has permanently and quantifiably changed the landscape of Hollywood and subsequently how we as viewers ingest video content, forever.


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