Are the media conglomerates practicing bad business
One of the golden rules of business, is don’t build something your customers don’t want. This came to mind Sunday evening as I read a NY Times article: Times Warner views Netflix as fading star.
The article describes how major media companies, who don’t like the position of influence Netflix has managed to attain in a just a couple of years after expanding their business model to include streaming content via the Internet are considering how they want to tame this new influencer. They feel Netflix is capturing too much revenue and gaining too much influence at their expense, in part because of early licensing deals that gave Netflix access to content at ridiculously low rates and subsequently helped propel them past Blockbuster as the leading online movie rental provider.
So what is their answer? Increase the cost for Netflix to acquire their content and create their own online subscription channels to deliver content. According to the article, Time Warner’s HBO is already in the process of launching a new online offering called HBO GO. As other media providers begin to follow suit, the end result for you and I will be even more fragmentation of content beyond centralized media content channels like Netflix, cable and satellite providers.
One of the great things about the growth of digital media distribution via the Internet is the democratization of media. Big media outlets no longer have the control they once wielded, there is more choice, individuals have more ability to express themselves and these are all good things. There is also downside with the democratization of media certainly, but for the most part it’s a good thing. Yet with premium content like movies and television programming having fewer distribution sources just might be better from a consumer perspective, and this is the perspective I don’t think the media giants are considering. Instead of designing offerings based upon market demand, media giants are designing offerings (and effectively exerting more control over content) purely as a function of increasing profit share.
Consumers of premium online video are extremely selective because they’re being asked to pay for it. They demand comprehensive quality content and convenience. If they don’t get it, they’ll suffer through commercials, or if they’re already cable or satellite subscribers they’ll forgo the added convenience of online viewing and pay per view for movies and watch pre-recorded content on their TiVo or DVR’s. This backlash has already started to play itself out as recently as Nov, when Hulu Plus was forced to announce a subscription cut of $2 in order to compete. This isn’t a good indicator that customers will be willing to pay multiple subscriptions in order to consume premium video content online. And increasing the cost for centralized providers like Netflix to acquire content will certainly mean either less choice, higher subscription rates or both for users. In turn, this will likely mean fewer people will be willing to subscribe for online content.
So, I ask the question, “Are media conglomerates practicing bad business?”
