If you’re talking about Amazon in physical books, that’s more akin to Netflix’s DVD business because of the benefits of scale in physical warehousing and shipping operations.

BTW, also take a look at Amazon’s margins. It is a high revenue, low margin business (less than 2% operating margin). Netflix might be able to survive in some form as a streaming service, but if it does I (and Felix)doubt that it will make much money.

It should also be noted the extraordinary advantage that Netflix has in the industry: it is, in fact, the leader and has consistently displayed a better grasp of the market and where that market is going than any of its competitors. Moreover, from the producers’ point of view, the subscription model minimizes losses to piracy. The producers will always need a middleman, and Netflix may well be able to perform that function for a smaller commission than the others.

It is unfortunate that Netflix set the market price for purchasing rights to streamed video at a time when its stock price was at an all-time high. Now that the stock price has fallen, one wonders whether paying hundreds of millions of dollars for content from a single studio bears any relationship to the ability to recoup that that on a reasonable cost-per-subscriber basis. It would have been far better to work out a per-view deal with large studios.

There’s nothing more difficult for a farsighted company to do than walk back a premature price structure that it has set when it underestimated the time necessary to arrive at the future. But I wonder if that isn’t the best strategy. Pick up all the cheap streaming video they can (probably not from the major studios), and depend on their original strength: the efficient distribution of dvds. Rushing to become the next HBO, even if they correctly perceive the long-term trend toward streaming content, may be a recipe for an early exit.

There is one thing that Netflix does own: an excellent proprietary algorithm for telling its customers what movies they will like, based on their own ratings of previous movies. As the catalogue of visual content expands infinitely over the next century, viewers will need a lot more information in order to sort through what is available — not merely how they can get the latest movies most conveniently in their homes.

I think that Netflix should focus on its core dvd distribution, pick the cheap, low-hanging streaming fruit, and play itself as an innovative guide to new media, individually tailored to its customers. And hope that after others have made unsuccessful efforts to make streaming pay — including perhaps the studios — they can re-emerge as the major media aggregator/distributor of all producers of streamed content.

It’s different in the streaming music space, where customers are a lot more disappointed if a service doesn’t offer a particular song. Streaming music companies’ contracts are written to guarantee that they will never be profitable. With Netflix, it’s only very likely that they won’t be profitable.

Content companies have a long history of screwing themselves over in such cases (see Napster and Bit Torrent).

Basically, they value control over sensible business decisions, because they want to rent seek the next big thing.

I know quite a lot of people who have Netflix but the choice isn’t between subscribing to Sky (UK) for a show or streaming it on Netflix. It’s download the show for free to watch at your convenience on your pc/tablet/phone or stream it on Netflix. As it is most new shows are not on Netflix here so it is being used because of the large back catalogue, range of movies, and good recommendation system. If the content providers pull it from Netflix we would just watch a different show there (or if desperate, download. If I started watching Breaking Bad today the odds of me finding a tv channel showing it from episode 1 are pretty much nil. It is Netflix or download).

So anyone who charges Netflix too much won’t get people watch it on their channel/online subscription, they will generally just lose viewers.

I want the best content/value proposition.
I don’t care about the distribution method.

As NFLX steals more and more share from the cable guys they are simply going to have to pay more and more for the content rights.
No content = no subs.
The value in NFLX is as an AGGREGATOR.
They have to have a critical mass of content otherwise viewers simply won’t cut the cord.

The genius of providing your own content is that if you find yourself with a hit on your hands, that alone can justify the subscription fee for many people.
Back in the day, it would be fair to say that plenty of customers were paying $15 a month or whatever to HBO in order to watch 1 episode per week of the Sopranos.
Sure they were offered other content but the Sopranos was the killer-app.

I think that streaming services will suffer the same fate as the independent DVR makers like Tivo and ReplayTV, who could never make much money once cable (and telecom, in areas where it sells video) decided to bundle DVR functionality as an incremental service.

On the face of it, it’s rather quite stupid. The proposition is, that cable will retain its customers if they provide the means for customers to stream movies to all sorts of devices, whether their phone, tablet, computer or screen.

That’s not why people are cutting the cord.

People – like myself – cut the cord because cable is a bad value proposition. In many cases, you have to pay for HD signal, which would otherwise be free, over the air. That’s pretty dumb. Then you have to pay for a bunch of lousy channels that you really don’t care for, followed by dealing with the nonsensical remote control for their HDR boxes.

Have you ever wondered, for instance, why the volume up button moves the volume up, but the channel up button moves the channel down? Yeah, I’m talking about you, Comcast.

FWIW, Hulu+ is a far better value proposition than anything the cable companies and NimbleTV could offer.

I share Felix’s pessimism about Netflix’s prospects, however, even while I quibble with some of the logic. I look at streaming this way – content that belongs to a studio/production company is being delivered to a consumer over a wire (or spectrum) that belongs to a telco or cable operator, with a 3rd-party (Netflix or a competitor) coordinating this service, paying for content, and billing the consumer for it. Who has the least leverage? Who is most easily replaced in this equation? The logical end-game is for one or the other side of the equation to cut out Netflix. I think that the cable/telcos will do so if streaming takes off. They already have billing relationships with consumers as well as business relationships with most content producers due to overlapping ownership between content producers and TV networks.