Jeff Bewkes at Time Warner spouted some silly “threats” at Netflix this week, the latest sign that some content owners in the digital age forget who butters their bread. We saw this same thing happen in the music industry multiple times. Any time a distribution channel emerged that provided significant volume, the labels would start to sour on the power that channel exerted over them, largely on pricing, and try their best to cut their legs off. (Walmart, Amazon and Apple come to mind…) Now we are seeing it happen in the movie/TV industry. As I have discussed before, Netflix deftly navigated the treacherous pitfalls of digital video content licensing, building huge customer traction with their DVD business. This enabled them to be able to write big checks to studios to license their content. Now, it seems, as soon as the studios see Netflix’s consumers actually watching the shows, some are “threatening” to force Netflix to pay more for the content when the deals next come up for renegotiation.
These threats are likely pretty empty. Sure, Netflix expects to pay more for hit content over time. But they also expect to pay a lot less for non-hit content, and Netflix is great at surfacing the movies and TV shows we weren’t sure we wanted to see. In addition, Bewkes fails to anticipate that by the time his Netflix deals come up again for renewal, his core DVD business will be massively eroded and Netflix will be dominating on-demand viewing. This means that the cable companies who pay rates for on-demand viewing will offer less volume and economic potential than Netflix will. And who will need Netflix more than ever? Time Warner. I believe Netflix will hold the balance of power at the next negotiation, with more subscribers than the largest cable companies.
Let’s not forget that this animosity underserves Bewkes. Netflix represents the most customer-friendly way of watching movies today, period. Their 16M subs absolutely adore the service, and they aren’t going anywhere. Bewkes still views the world the old way, where studios could create movies and assume we’d watch them. We have more choice than ever and Bewkes needs customer-friendly distribution channels that keep sending money to him, even if the unit costs are lower.