Behold Netflix. This really is a special company, one that was long adored by its customers for its DVD rental service by mail. Success made the company one of the largest if not the largest US Postal Service customer.
Then — and this is where the “really special” part comes in — Netflix managed to “pivot”, as Valley argot now demands we say. Netflix turned to the Internet and became the VOD (Video On Demand) leader, delivering movies directly to our homes through our laptops. Such a change of medium sounds obvious — retroactively. But ask Blockbuster. Once the retail king of VHS tapes and DVD rentals, it never managed to move its business to the Internet and went bankrupt, only to be picked up by Dish Network, another giant in trouble.
Netflix decided to change everything: business model, infrastructure, people. Such sweeping moves are risky, they often fail. As Netflix successfully managed the transition, Wall Street took notice of the Netflix exception:
As a result, Netflix is now the biggest consumer of Internet bandwidth:
Silicon Insider comes up with an even more interesting chart:
Netflix now has slightly more subscribers than Comcast (which now calls itself Xfinity) and keeps growing while the “cable guy” is bleeding.
I’m happy for Netflix, a well-run, customer-oriented company. And I’m happy Comcast is losing: They’re expensive, their customer service is terrible, they make you feel like you work for them and not the other way around. And their tricky channel bundle pricing ought to be illegal. Forget triple-play (TV + Internet Access + phone service) for a moment. Just for cable TV service, can a normal consumer easily figure out how much the Comcast bill will be?
Netflix, on the other hand, is easy on the mind and the wallet: $7.99/month, all you can watch, on all your devices (TV, PC, smartphone, tablet), cancel anytime. Furthermore, Netflix is making us honest consumers of Internet video. We all remember the lament of content owners: BitTorrent is killing us! Why bother with time-consuming downloads (and the malware they bring with them) when you can stream instantly for a mere eight bucks a month?
Of course, ISPs, Comcast among them, claim that Netflix makes money on their backs, that VOD “abuses” their infrastructure. This leads to bandwidth caps, a normal consequence of the Tragedy of the Commons: If a commodity is free, it’ll be overused and, in some cases, it might disappear. Metered Internet bandwidth isn’t evil in itself, but in the hands of a Comcast… Let’s remember this is the company that managed to convince Congress to let it buy NBC, the equivalent of movie studios buying theater chains. A lovely way to level the landscape.
The ascent of Netflix signals a broader shift in the way we consume television. For example, “news” programs aren’t really news in that they aren’t fresh, they’re already reheated when we watch them at 6 or 11. Many TV programs, from John Stewarts’s Daily Show to PBS Nightly News, can be watched on a PC when we — not they — are available. Tomorrow, we’ll get all of them (minus NBC, perhaps) on Netflix or one of its competitors.
But what about “really live” events: NBA finals, Wimbledon, the Superbowl, Indy 500 (or Formula 1 races for us degenerate Europeans)? Today, we have choices, we can use the DVR to time-shift and get rid of annoying ads, or we get the show in real time, with ads. This is changing rapidly: NBA (basketball) and MLB (baseball) games are available live on Apple TV through the Internet, not cable TV. For the time being, Netflix doesn’t offer such events, just movies and TV series.
This is Internet TV, but is it IPTV?
What we have today is a digitized video stream chopped up and stuffed into dumb IP packets. Here, dumb means little or no metadata, little or no upstream information or interactivity. IPTV means TV endowed with roughly the intelligence of a PC browser. More specifically, IPTV provides targeted ads, multiple windows, interactive commerce, games, Facebook and Twitter engagement, instant messaging to friends: ‘Quick, get on Channel 36!’
This will lead to unforeseen but retroactively obvious usage modes, giving us a truly new medium, not just a shovelware version of an old one.
So what about Apple TV and Google TV? It’s not clear yet when and how they’ll replace the set-top box. Today, the set-top box occupies the privileged “Input 1,” it’s an unavoidable gateway, all TV content flows through it. Apple TV and Google TV are accessories, they’re not the main device. And as long as they’re accessories, they won’t really soar because the set-top box, meaning the cable operator, remains in control.
That’s why Netflix’ ascendance is so encouraging: It bypasses and eliminates the set-top box. It isn’t difficult to see where this is heading. Just as wireless carriers are destined to become wireless ISPs, cable operators such as Comcast are bound to ISP land.
Once this shift happens, the move from TV on dumb IP packets to real IPTV can begin.