Netflix Is Bluffing

I think they're right. There's nothing revolutionary Netflix is doing, and if Amazon can't compete on digital content delivery, what they hell are they doing giving Kindle Fires away at almost cost?

Let's keep in mind that in the first part of 2013, Netflix is going to be premiering both House of Cards and new episodes of Arrested Development. If they both do well, and Netflix can get more high-quality exclusives in the pipeline (admittedly both rather large 'ifs'), there's a real possibility that Netflix might find themselves in the very compelling and potentially lucrative position of being the first network of Showtime/HBO-caliber content that really understands digital distribution.

In annoying MBA language: cost of goods for cinematic content is falling rapidly due to technological and social progress, and this is reducing the negotiation power of large integrated production and marketing companies like the big studios.

The cost of script-writing and conceptual development is largely constant and independent of production cost. Nearly every feature of production cost is falling rapidly, from cameras to post production technologies. Even location shooting, which you might assume independent of technological factors, is being rapidly undercut by digital backdrops (which became the norm in cinema quality television shows with shocking speed).

The net effect of all this change is that negotiation power is moving from large integrated studio ventures to original content producers. Small production companies are less dependent on the capital advances, production infrastructure and marketing channels the big studios can offer.

Netflix definitely understands this, and also understands that the current Hollywood players fail to meet significant areas of demand. You see this in their choices of what productions they've funded directly like arrested development. It's a high risk venture, but it's not just a bluff or impossible. They are hiding in the blind spot of nearly all large market players: the unwillingness to abandon or cannibalize currently profitable activities because of changing market conditions.

Secondly, Kirwin (the author) is making the classic mistake of seeing all these big massive companies entering the market and thus declaring that Netflix is doomed. The problem is that for these companies, video is an afterthought compared to the main product. Netflix is completely focused on video. There have been countless cases of nimbler, smaller companies out-executing larger, broader companies. I can understand why the author makes this mistake - his background is primarily in film production and working at Paramount and Microsoft (the article says he has worked at some startups, but none that I could find on his site).

I find it ironic that Kirwin is calling out tech bloggers for being "wannabe Hollywood analysts," when it seems to me that he is a Hollywood blogger writing as a wannabe tech analyst.