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Cable Technology Feature Article

September 06, 2011

Netflix Faces New Challenges

By Gary Kim, Contributing Editor

 “All through the past decade, observers in industry and on Wall Street have had a handful of reasons to discount Netflix’s efforts,” said James L. McQuivey, Forrester Research (News - Alert) analyst. First they claimed that Netflix could not beat Blockbuster’s entrenched retail presence, wouldn’t get traction for its digital video offerings and most recently, that Netflix would not make a transition from DVD rental to digital video subscription provider. 

Some still are relatively bearish, for structural reasons. Others just worry about growing competition, from Dish Network, Amazon.com (News - Alert) and others. 

And it would be reasonable to note that Netflix will have to ensure access to more original and exclusive programming, not just quantity of items in its library. Netflix has proven that people will pay for convenient access to digital video across multiple platforms. But Netflix also will have to adapt to both subscription and on-demand consumption and charging models, over time. Amazon, for example, offers both modes. 

McQuivey also notes that Netflix will probably have to shift the subscriber base from “households” to “people.” As the multi-channel video business has started to feel the competition from personal consumption on PCs, mobile phones, tablets and game players, so in the future it is likely more customers will be wanting personal access to their services. 

A shift to personal delivery is one of the ways Netflix can grow its revenue, which now is limited to $8 to $15 a month, per household. The revenue opportunity is similar to the shift from voice service to a household (fixed line) to service to a person (mobile phones). Obviously, there are more potential consumer units when selling to “people” rather than “homes.”

That could start to become more obvious when Amazon makes its expected entry into the tablet market. Though online video and tablet ownership are not necessarily related, in Amazon's case there likely will be an explicit linkage. 

Amazon is likely to try creating such linkage by offering consumers inducements to "buy in" to Amazon content services. Some think Amazon will offer lower tablet prices for consumers who agree to allow Amazon marketing messages, or join an Amazon loyalty program.

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO West 2011, taking place Sept. 13-15, 2011, in Austin, Texas. ITEXPO (News - Alert) offers an educational program to help corporate decision makers select the right IP-based voice, video, fax and unified communications solutions to improve their operations. It's also where service providers learn how to profitably roll out the services their subscribers are clamoring for – and where resellers can learn about new growth opportunities. To register, click here.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Juliana Kenny