Comments on: Netflix and the economics of nonrival goods http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: dontpush http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32319 Tue, 25 Oct 2011 16:57:54 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32319 Felix-

I think there’s a key point that you’re missing here with exclusivity, and that’s Netflix’s rising competitors beyond HBO. Netflix wants exclusivity not because it wants to prevent HBO from airing, but because it wants to prevent Amazon Prime and other rising competitors in the streaming business from ALSO carrying that good. At a time when customers are less loyal to Netflix than they were before, being able to market themselves as unique from their competitors is important.

Each exclusive contract they get differentiates themselves from ANYONE who wants to enter into the market (and now many companies are), and helps them maintain their market share.

Now, I’m not saying it’s still a smart business deal at the price they paid, but it’s certainly defensible for many legitimate business reasons you don’t address.

]]>
By: REDruin http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32304 Tue, 25 Oct 2011 13:56:39 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32304 Felix, note the other end of exclusivity…the ability to give it up.
You make a key point that Netflix and HBO could both bid for and get a Movie, pay less then otherwise, and the studio would make more money. Win win?
Netflix could also pay 30 million for exclusive rights, turn around and sell share rights to HBO for 15 million, in effect transferring the profit from the studio to itself…if it’s allowed to do so.
Also a win-win, but profit to NEtflix instead of the Studio

==RED

]]>
By: fresnodan http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32294 Tue, 25 Oct 2011 09:13:08 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32294 I like y2kurtus’ analysis. You make a lot more money being Walmart than being Tiffany

http://ycharts.com/companies/WMT/market_ cap

http://ycharts.com/companies/TIF/market_ cap

But as so instances demonstrate, many CEO’s make decisions that have nothing to do with a pragmatic, realistic analysis of the market. Ken Lewis wanted to be biggest, so he bought an obvious pig in a poke (Countrywide).

What is “Cowboys versus Aliens” worth 8 months after it comes out? I might spend 50 cents to see it…

]]>
By: McMath http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32284 Tue, 25 Oct 2011 03:55:11 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32284 This is one of the worst posts I have ever seen on the internet. Do you not think there is a good BUSINESS REASON why HBO wants to have exclusive content? You think that TWC wants to preserve media monopolies “as a matter of principle” and that somehow HBO “prevented” Netflix from coming to a non exclusive deal w DreamWorks? That simply ridiculous.

This is seriously so stupid I almost think you are doing it for comedic effect. Do you not think that HBO, one of the most successful and profitable content companies in the world, might actually have a good reason for making exclusive deals? Do you not think that maybe, just maybe, Netflix might be thinking the same thing?

The arrogance of using uncommon terminology like “nonrival good” combined with the complete ignorance of economics or the topic at hand makes me want to puke.

]]>
By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32281 Tue, 25 Oct 2011 02:25:01 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32281 Comcast and Time Warner both charge more for the family cable package than they do for broad band internet access. The cheapest way to access a wealth of content is broadband cable + netflix. You lose a lot compared to the family cable package… mostly the live sports on ESPN and regional sports channels. You also cut the cost by almost half.

Netflix’s largest asset is not its freshest most expensive content it’s the long tail that makes NFLX so useful to most of its customers. They will not be able to keep spending as much as they have on content because they simply don’t have the revenue to do it. Industry anaylists and investment anylists alike will be shocked at how many customers NFLX retains just offering 2nd and 3rd tier programming.

What would a family with children pay for a service which offers over 1000 commercial free kids shows which you can start at the exact moment you want? The answer is more than NFLX charges for their entire streaming package currently.

Think of it another way… the #2 or #3 radio stations in every major market in the country play rock or oldies music. That’s people chosing to listen to content at least 20 years old that they have hurd dozens of times. Netflix’s value isn’t fresh A+ content… it it’s low cost long tail B+ content. The sooner Reed Hasting learns out the more NFLX shares will be worth.

]]>
By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32280 Tue, 25 Oct 2011 02:25:00 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32280 Comcast and Time Warner both charge more for the family cable package than they do for broad band internet access. The cheapest way to access a wealth of content is broadband cable + netflix. You lose a lot compared to the family cable package… mostly the live sports on ESPN and regional sports channels. You also cut the cost by almost half.

Netflix’s largest asset is not its freshest most expensive content it’s the long tail that makes NFLX so useful to most of its customers. They will not be able to keep spending as much as they have on content because they simply don’t have the revenue to do it. Industry anaylists and investment anylists alike will be shocked at how many customers NFLX retains just offering 2nd and 3rd tier programming.

What would a family with children pay for a service which offers over 1000 commercial free kids shows which you can start at the exact moment you want? The answer is more than NFLX charges for their entire streaming package currently.

Think of it another way… the #2 or #3 radio stations in every major market in the country play rock or oldies music. That’s people chosing to listen to content at least 20 years old that they have hurd dozens of times. Netflix’s value isn’t fresh A+ content… it it’s low cost long tail B+ content. The sooner Reed Hasting learns out the more NFLX shares will be worth.

]]>
By: dana.powers http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32277 Tue, 25 Oct 2011 01:51:19 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32277 Felix, aren’t you assuming that there is a market – beyond Netflix – for non-exclusive licensing? I actually don’t think that HBO et al. are interested in those rights, and so even if Netflix wanted to buy non-exclusively they probably wouldn’t get any discount from the content owners (here, Dreamworks) because they (DW) won’t have any additional buyers to add to their revenue pool. If this is the case then exclusive licensing is DW’s profit-maximizing choice.

also, jpstrikesback, the better measure would probably be (amortized) content costs versus revenue, not profit. wouldn’t a basic econ (perhaps naive) approach be to make marginal content spends until they equal marginal revenue generated, e.g., net sub adds?

]]>
By: jpstrikesback http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32276 Tue, 25 Oct 2011 01:29:31 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32276 @peterkafka – Gee why didn’t you just say that over on ATD?

3 dreamworks movies cost more than Q3’s profit…hahahahaha, there is something wrong there, perhaps NFLX has been seeking help from the children in the EFSF math class

]]>
By: peterkafka http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32271 Mon, 24 Oct 2011 23:54:50 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32271 This seems overcomplicated. Here’s an easier version: Hastings, no matter what he says, wants to position Netflix as a competitor to HBO (or at least Showtime). That means offering content those networks don’t have – just as their pitches are based around their exclusive content.

You can debate the amount Hastings and crew are paying (though I’d be wary of placing too much stock in most reports about Hollywood dollar figures, period) for a particular product. But the strategy is straightforward.

]]>
By: jbernar http://blogs.reuters.com/felix-salmon/2011/10/24/netflix-and-the-economics-of-nonrival-goods/comment-page-1/#comment-32268 Mon, 24 Oct 2011 23:15:17 +0000 http://blogs.reuters.com/felix-salmon/?p=10690#comment-32268 In light of the exorbitant price paid by Netflix to stream movies of a single studio, Dreamworks, it will be interesting to see how the market for internet movie streaming plays out. Netflix risks losing customers if it doesn’t continue to pay high prices in order to offer complete libraries.

A new technology depends for its success on the level of costs set at the time of its introduction; these set the size of its customer base. The extraordinary prices for streamed movies have been established at the height of a bubble in Netflix’s profits. In order to recoup them, Netflix will have to continue to raise its subscription prices.

In the short run, the studios most likely can’t (or won’t) help Netflix establish more realisitc initial costs that customers are willing to pay. They can wait to see whether Netflix goes bankrupt paying costs at the former standard. Studios could, after all, decide to stream their own movies (99 cents per?). The technology of streaming potentially restores oligopoly to movie distribution, coming full circle back to the days when studios were permitted to own theater chains, excluding middlemen.

]]>