Correction to This Article
An earlier version of this article incorrectly said that Netflix chief executive, Reed Hastings, is an engineering graduate of the Massachusetts Institute of Technology. Hastings received a bachelor's degree in mathematics from Bowdoin College and a master's in computer science from Stanford University. This version has been corrected.
Page 2 of 3   <       >

As telecom industry evolves, success of Netflix is its biggest threat

'Just a middleman'

Jan. 24 (Bloomberg) -- Porter Bibb, managing partner at Mediatech Capital Partners LLC, talks about the outlook for Netflix Inc.'s fourth-quarter results and the possibility that it may be acquired by a larger media company. Bibb speaks with Carol Massar on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Netflix has shifted more of its business to streaming movies straight to your home and mobile gadgets. A lot of other powerful corporate interests, though, are converging on this spot - a fundamental change in the way people consume entertainment.

If you think it through to its logical conclusion, you wind up with TV and Internet merging. Much of the telecom industry thinks that in a few years, people will watch TV and movies and surf the Web all with the same gear.

So who brings you that service? It could be cable companies. Comcast just bought NBC Universal, which makes it a one-stop shop for cable TV, Internet service and movies.

Or it could be phone companies. Verizon has a huge mobile Internet operation, plus fiberoptic cables into more and more homes.

Or it could be Netflix, which has the advantage of its relationship with an enormous subscriber base and a total stock-market value - known as market cap - of $11 billion.

"There is every reason to believe that between their market cap and public access to funds, Netflix is a buyer of content with big dollars," John Calkins, executive vice president of Sony Pictures Home Entertainment, said in a phone interview.

Some in the industry think that is ridiculous. Time Warner Cable's chief, Glenn Britt, said in an interview that Netflix is just a middleman - that it will soon go the way of Blockbuster when people realize they can get all they want directly from the big telecoms.

Others in the industry fear Netflix. They worry that it will dominate the marketplace and make content less valuable by imposing a low-cost Internet business model (how's the music business doing these days?). Investors in cable companies fear that TV subscribers will flee, leaving them with Internet access businesses that simply manage traffic created by Netflix customers.

"There are many incentives to create hurdles for online video firms like Netflix," said Parul Desai, policy counsel for Consumers Union, parent of Consumer Reports magazine. "They are going up against powerful media and Internet service providers who are trying to come up with their own Internet video strategies and could limit access to content and access to their consumers."

So far, Netflix is last on Hollywood's schedule. Movies first hit theaters and then DVD services such as Redbox. Last to receive "Inception" and other blockbusters are on-demand cable services and Netflix.

That's partly because Netflix doesn't pay as much, and partly because the big studios don't want to undercut their DVD and cable licensing deals.

"What Netflix and other broadband distributors mean for us is another avenue of distribution for our content and brand," Philippe Dauman, president of Viacom, said in a phone interview.

<       2        >

© 2011 The Washington Post Company