Online Content's Got Game, While The Grim Reaper's Got Physical Media's Name

Continued from ‘Hulu and Blockbuster Versus Fate: A Content Distribution Update‘…

Take Blockbuster, for example. In spite of acquiring the Movielink online service in 2007, the company has seemingly struggled to reconcile the long-term likelihood of a physical-to-online delivery conversion against the short-term reality of its plethora of brick-and-mortar outlets. As such, in contrast to more forwards-thinking competitor Netflix, Blockbuster’s financial fortunes have withered in recent fiscal quarters. The poorly received set-top box it co-developed with 2Wire ironically supports a Movielink competitor, CinemaNow.

A digital delivery partnership between Blockbuster and TiVo is only…oh…almost two years late compared to Amazon’s similar offering. Rumored support within Nintendo’s Wii is as-yet unrealized, and aspirations of an Apple embrace are (IMHO) a pipe dream. In attempting to boost its short-term revenue-vs-cost position, Blockbuster is short-changing long-time customers. And not coincidentally, I’d posit, the company admitted ’substantial doubt’ about its ‘ability to continue as a going concern’ in a recent SEC 10-K filing. Meanwhile, CinemaNow’s new owner, Sonic Solutions, courts Blockbuster’s potential online distribution competitors.

On April Fool’s Day, ironically, Netflix announced that it’d recently shipped out its 2 billionth rental (and again ironically, that it was a Blu-ray disc). At first glance, that data point makes it sound like the physical disc business is still going great guns. But consider the longer-term trends. Netflix support on the Xbox 360 launched in mid-November of last year. 2.5 months later, check out the statistics:

1 million Xbox LIVE Gold members have downloaded and activated the groundbreaking Xbox LIVE application from Netflix since the alliance launched last November. In less than three months the Xbox LIVE community has watched instantly 1.5 billion minutes of movies and TV episodes.

Independent analysis suggests that Netflix-served streams are outpacing physical disc shipments this year. At an estimated six cents’ cost per stream with no worries about en route or in-customer-hands media damage, you gotta believe that the shift to online distribution is a trend which Netflix will encourage as much as its content provider partners will allow. Customer surveys and job postings suggest that Netflix is poised to expand online access beyond the Xbox 360 to other game consoles. Meanwhile the company has jacked up its monthly charges for Blu-ray subscribers for the second time in the past six months. Are streaming-only plans on the horizon? The company’s CEO and CFO both suggest ‘likely so’. And if they keep adding great (or as Cartman might say…"sweet") content like South Park, I’ll happily keep subscribing.

Rental royalties are only part of the means by which Hollywood reaches for financial stability; DVD and Blu-ray sales are equally critical. Yet here, I have to agree with recently-departed-from-VentureBeat MG Siegler, ‘Hollywood has a rental problem’. Admittedly, I’ve never been a big fan of owning movies; there are only a handful that I’m interested in watching more than a time or two. And as I’ve said before on this subject, I realize that I’m not, for example, representative of the family with small children who want to watch the same Disney classic over and over and over again. But for all but the videophile fringe, I believe that rentals (generally, and downloaded specifically) will become increasingly attractive (financially and otherwise) over time, especially as interoperability evolution allows for their playback on numerous devices. And band-aids like cutting out the extras on rental discs aren’t going to be enough to stem the resultant loss-of-revenue bleed. Analogies to the impact to record labels’ fiscal fortunes caused by consumers’ ability to buy single digital tracks instead of the entire album are apt.

More generally, music content rights owners are slowly but surely embracing the inevitability that their content is becoming a means to an alternative revenue end, no longer a reliable revenue source in its own right. Television and movie content rights owners will eventually have to face these same facts, and the sooner they do so, the higher the probability of their long-term viability. Ironically, I’m writing this piece on the same day that substantial fine and jail time sentences were decreed against four members of well known Bittorrent tracker site The Pirate Bay. Assuming the sentences survive appeal, you might think that this outcome would strike a heavy blow against piracy. Don’t be deluded; plenty of other, even harder to shut down P2P distribution alternatives are waiting in the wings.

As I’ve reiterated on many occasions, I’m no ally of those who feel that ‘all information must be free’, and I specifically feel strongly that artists (including writers like me) should receive fair financial compensation for their efforts…if for no other reason than to ensure that those efforts continue into the future. But where that compensation comes from in terms of revenue garnered is where media companies and I part company. Clinging to the same old ways of doing business in the face of the unfortunate but pragmatic reality that many consumers easily justify their piracy (and other means of accessing content beyond its originally intended boundary conditions) is a strategy that’s clearly not going to continue to work in the future. The faster rights owners figure that out and appropriately evolve (or if not, go extinct), the better for everyone.