Will movie rentals see the death of the disc?

Forget Facebook. For my money Netflix is the most sure-fire service for turning technophobes onto the potential of web-based content. In the last four years, Netflix has tripled its subscriber base to 12.3 million despite the availability of movies on iTunes and abundance of free content online.

Count among those new users the respective mothers of my girlfriend and I. Neither has ever embraced using the web for much of anything, but both enthusiastically renewed the gift subscriptions we recently gave them. The appeal for them, as for many in their demographic, is the seemingly endless list of obscure titles unavailable at nearby stores. It’s no wonder the company is held up by bestselling technology author Chris Anderson as a shining example of  the Long Tail, a business model in which companies profit not by just offering the biggest hits, but rather the vast quantity of niche titles that can now be stored and distributed at a relatively miniscule cost.

Yet there’s a gaping inaccuracy in the profile of Netflix as a web-based business, perhaps the same “flaw” that makes it instantly appealing to the boomers reluctant to migrate online. The Netflix model of subscribers sorting, selecting and ordering their titles online is purely digital. But the primary method of delivery — The United States Postal Service — is something out of the 20th century. Or even the 19th.

That’s a problem, given that the postal service is losing billions annually. Any of the fixes being considered by Congress, from postal rate hikes to eliminating Saturday deliveries, would have a severe impact on Netflix’s bottom line.

The solution for Neflix is simple. Instead of mailing out discs, get consumers to stream movies instantly via the web, a process that has virtually zero distribution costs. The company has already tried to do this by offering a number of major titles for instant streaming and selling a special device for around $100 that plays these titles on your TV.

Now the company is making some new moves in this direction. It has recently signed deals with major studios agreeing not to distribute DVDs that have just been released in exchange for getting the rights to instantly stream more titles. Netflix has also put out programs that allow video game console owners to stream movies via their Xbox, Playstation, and as of this past weekend, Wii. I tried out the new Wii program last night — with the excellent dark comedy Big Fan as my choice — and was pleased with the results.

But forget about my tastes. What about my Mom’s? Will the boomer demographic raised on physical products really embrace digital delivery? Or will they flee back to the old days via companies like RedBox and the still-kicking Blockbuster? The result could say a lot about the value of producing information and entertainment in a physical form. Maybe we’re not ready to go all digital all the time just yet.

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    • melee4
    • April 27th, 2010

    You make a lot of great points, and I also wonder what will happen to the older demographic if all of their content moves to online streaming.

    One thing I found that was interesting while reading more about Netflix, was an article by USA Today that discusses how RedBox might pick up the crowd that is left behind by companies like Netflix and others that are thinking of switching to online streaming or TV options only.

    Even though it doesn’t have as wide a selection of movies as Netflix, it appeals to those who don’t want to pay a monthly fee, all age ranges (including the technophobes), as well as impulse buyers.

    Interesting huh?!

  1. There’s definitely still a niche for RedBox or a similar company that offers physical distribution, the question is for how long. The older generation won’t all embrace digital delivery. Will everyone in our generation embrace it or not?

    Thanks for commenting!

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