Comments on: Davis Freeberg on Today’s Netflix Analyst Call http://thomashawk.com/2005/04/davis-freeberg-on-todays-netflix.html Fri, 10 Feb 2012 02:09:43 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Thomas Hawk http://thomashawk.com/2005/04/davis-freeberg-on-todays-netflix.html/comment-page-1#comment-19919 Thomas Hawk Wed, 27 Apr 2005 21:40:00 +0000 http://clients.emmense.com/thomashawk/?p=3987#comment-19919 Really great points Bill. Thank you for sharing them. Really great points Bill. Thank you for sharing them.

]]> By: billfischer http://thomashawk.com/2005/04/davis-freeberg-on-todays-netflix.html/comment-page-1#comment-19920 billfischer Fri, 22 Apr 2005 11:54:00 +0000 http://clients.emmense.com/thomashawk/?p=3987#comment-19920 Take this with a grain of salt since I admittedly work for a company called DVD Station www.dvdstation.com which is in nomenclature and operating model not a VOD play but is a strong believer in packaged media.<br /><br />Although, we agree the value proposition of VOD and especially HDVOD is undeniably compelling (in the long run it seems that is must win), here are some quick thoughts on why we're still bullish on packaged media:<br /><br />A typical Blockbuster distributes 16 terabytes of data a week via DVD. Granted the standard DVD format is based upon an old codec and can be compressed nearly 6-fold with nominal degradation in quality, but the HDDVD formats will be built with better codecs and will carry 3 to 9 times the data. With 8,000 locations, Blockbuster will be moving many petabytes of data weekly. Consumers may trade viewing quality and viewing selection for convenience but bandwidth costs alone (even with P2P)shouldn't be overlooked, Reed Hastings could probably provide a perspective on the bandwidth costs for them to replicate their service via VOD vs. their sneakernet. Simple server storage for the data contained on 30,000 films would cost millions annually whereas one could store 30,000 DVDs in a small unrefrigerated closet.<br /><br />Veronis Suhler, Adams Media Research, and ABN Amro seem to concur that over $300BB will be spent on packaged digital entertainment between now and 2010 and that the estimates for VOD are closer to $10BB (a rounding error) over the same time horizon. They could be horribly wrong but they'd have to be to ignore continued double digit growth in the multi-billion dollar market for packaged media.<br /><br />The studios and electronics companies are making multi-billion dollar bets on building the next-generation platform for packaged media, they could be horribly wrong but since the studios also hold the IP, their views and bets shouldn't be entirely dismissed. <br /><br />VOD is no doubt sexier and will create new distribution channels, new publishers, and some very valuable tech company enablers but placing 17 gigabytes on a piece of plastic that costs $.20, that has strong DRM protections, easy portability (share with friends, play in car, get from a laptop to TV in seconds), near flawless data transfers,etc. etc. is no small feat. Perhaps it only has a 10-year life but, our belief is that it will take Starbucks 50 years to equal the dollars spent on packaged media over that time period and it will accomplish this with much, much lower margins.<br /><br />Compression algorithms will get better, bandwidith and storage costs will make exponential leaps, technologies currently undreamed of will emerge but for the next decade we're placing a big bet on little plastic disks and several small bets on alternative platforms (personal media player downloads, flash-based storage downloads, and others). Take this with a grain of salt since I admittedly work for a company called DVD Station http://www.dvdstation.com which is in nomenclature and operating model not a VOD play but is a strong believer in packaged media.

Although, we agree the value proposition of VOD and especially HDVOD is undeniably compelling (in the long run it seems that is must win), here are some quick thoughts on why we’re still bullish on packaged media:

A typical Blockbuster distributes 16 terabytes of data a week via DVD. Granted the standard DVD format is based upon an old codec and can be compressed nearly 6-fold with nominal degradation in quality, but the HDDVD formats will be built with better codecs and will carry 3 to 9 times the data. With 8,000 locations, Blockbuster will be moving many petabytes of data weekly. Consumers may trade viewing quality and viewing selection for convenience but bandwidth costs alone (even with P2P)shouldn’t be overlooked, Reed Hastings could probably provide a perspective on the bandwidth costs for them to replicate their service via VOD vs. their sneakernet. Simple server storage for the data contained on 30,000 films would cost millions annually whereas one could store 30,000 DVDs in a small unrefrigerated closet.

Veronis Suhler, Adams Media Research, and ABN Amro seem to concur that over $300BB will be spent on packaged digital entertainment between now and 2010 and that the estimates for VOD are closer to $10BB (a rounding error) over the same time horizon. They could be horribly wrong but they’d have to be to ignore continued double digit growth in the multi-billion dollar market for packaged media.

The studios and electronics companies are making multi-billion dollar bets on building the next-generation platform for packaged media, they could be horribly wrong but since the studios also hold the IP, their views and bets shouldn’t be entirely dismissed.

VOD is no doubt sexier and will create new distribution channels, new publishers, and some very valuable tech company enablers but placing 17 gigabytes on a piece of plastic that costs $.20, that has strong DRM protections, easy portability (share with friends, play in car, get from a laptop to TV in seconds), near flawless data transfers,etc. etc. is no small feat. Perhaps it only has a 10-year life but, our belief is that it will take Starbucks 50 years to equal the dollars spent on packaged media over that time period and it will accomplish this with much, much lower margins.

Compression algorithms will get better, bandwidith and storage costs will make exponential leaps, technologies currently undreamed of will emerge but for the next decade we’re placing a big bet on little plastic disks and several small bets on alternative platforms (personal media player downloads, flash-based storage downloads, and others).

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