Movies as Commodities
We already posted here about how complicated the movie delivery experience has become. Well, recently an interesting and extremely relevant argument (in the classic sense) started around this topic. More specifically, the discussion was about Netflix and what the commoditization of content will do to the company. It began on Reuters when Felix Salmon opined that the recent influx of new content on Amazon Prime and the erosion of content exclusivity contracts for Netflix turns content into a type of commodity. That means since any provider is able to deliver you Weird Science or Groundhog Day, they have to compete on other fronts. Netflix could then theoretically benefit from paying less for its library and funneling more money into innovation. In Salmon’s words,
The big underlying problem with the Netflix business model is that it never had much of an opportunity to make profits: if it was buying up exclusive rights, then the studios would always just jack up the price of those rights to Netflix’s pain point…but under a non-exclusive model, all that changes. Video content becomes a commodity, with the studios happily renting it out to anybody who wants to stream it — Netflix, Amazon, whomever — probably at a standard price-per-stream with a certain guaranteed minimum. That puts the various competitors on a level playing field, and forces them to compete on customer service, user interfaces, reliability of evening-time bandwidth, and so on and so forth. And that’s where Netflix shines.
Certainly, there’s a lot of truth to that. Netflix has a history of innovation from its very inception. And currently it still beats every digital content provider with its user preference algorithms and the ability to search its library. However, in response to the article, Matt Iglesias of Slate took the same premise, the commoditization of content, and explained why he thought that was bad for Netflix:
In a commodity video world, the companies that win will be the companies that can embed streaming video in a larger business proposition. Apple, for example, could offer a streaming video subscription plan at cost as a loss-leader for selling iPads. That’s not Amazon’s current business model with the Kindle Fire or Google’s with the Nexus 7 but it could be. Even under its current model, Amazon wants to sell Prime subscriptions to help entrench its position as the Wal-Mart of the Internet—Netflix needs to actually make a profit, but selling commodities in a competitive market isn’t profitable.
That idea jives with what we’ve been seeing in the telecom field (see our post on joyn and what service providers must do now that the network is becoming a commodity). Content and communication has always been about the experience, but that “experience” was always defined by its quality and usability. Today, more and more experience is defined by how harmonized all our content and communication channels are. I mean, high-quality is awesome, but if I’m so overwhelmed by all the channels, the quality becomes a moot point.
Of course, Salmon’s and Iglesias’s ideas aren’t mutually exclusive. Certainly Netflix could use the extra cash from lower licensing fees to position itself in a new or already developed ecosystem that would make it even more prominent and desirable to movie watchers.
Whatever the case, if all things are equal, you have to you to innovate fast to make them unequal.