8 September 2009 • 7:00 am

Newsflash: Netflix CEO Likes Watching Movies – In Theatres!

the ubiquitous (and soon obsolete) red envelopes
the ubiquitous (and soon obsolete) red envelopes

The Tortoise’s interest (obsession?) with DVD rental company Netflix was renewed recently with a brief but revealing interview with Netflix CEO Reed Hastings on National Public Radio’s Morning Edition program. 

In addition to his candid admission that he likes watching movies – especially comedies – in theatres, Hastings talks a bit about Netflix’s drive to improve its recommendation algorithms, and of course its strategy to reinvent itself (validating our earlier observation) by making obsolete it’s ubiquitous red mailing envelopes. Its future is very much tied to negotiating more deals with movie studies to stream content directly to TVs and computers. But another part of this strategy depends on increasing availability of Wi-Fi equipped televisions. Says Hastings, “I think that we’re on a trajectory over probably 10 years to have nearly everything on streaming. Not just Netflix, but other firms also — and also, to have Wi-Fi built into every television over 10 years.”

Today, there are few such Wi-Fi enabled TVs made, but Netflix is now co-marketing with a company named Roku a $100 set-top box that enables streaming movies to be played on a television. Early adopters need not wait for the Wi-Fi television.

We’ve already looked at how Netflix ate Blockbuster’s lunch by eliminating the need for bricks and mortar retail video rental outlets, and how the DVD-by-mail model is likely to become obsolete. Netflix is wisely looking at recasting its future, but what are its risks and opportunities? It seems likely that movie studios will enter the streaming business themselves. So how will Netflix evolve its value proposition? What will Netflix be able to offer to consumers that they will uniquely pay for? Why would a studio want to distribute through Netflix when it can distribute its product directly?

It seems to me that what Netflix has over all its potential future competitors is its treasure trove of subscriber information. Not just their rental histories, but their ratings, and response to recommendations. For a movie studio, targeted marketing of movies to audiences most likely to rave seems like a valuable adjunct or even alternative to mass-marketing of movies. For Netflix, information capital is its most valuable strategic asset.

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