Saturday, March 31, 2012

Netflix, Redbox, Blockbuster, and Amazon

My last post inspired me to switching gears to be bit crazy.

That last post was about the Kindle Fire as a perfectly viable physical and distribution platform.

But I also like the potential disruptive models, and weird (but still possible) business scenarios that get me what I want as a consumer.

I've written before about Redbox buying Vudu and Blockbuster, Netflix buying Redbox, Amazon buying Netflix, and there being an explosion of content for Amazon (though not as much as people think; Amazon really does OK, and there's a high overlap in Hulu/Redbox/Prime Instant Videos), and an Amazon Netflix rental DVD distribution (which they might or might not keep), and "Amazon Redbox" stations everywhere.

Part of this has already happened, as Netflix bought those blue rental kiosks at Walmarts everywhere. Then (in case you missed it) Coinstar (the company who owns Redbox), bought NCR for $100MM. NCR operates things like ATM machines, point of sales and retail systems, airline check-in systems, and Blockbuster Express branded kiosks

Coinstar's purchase of NCR (to be finalized quarter 3 of this year, if it's not considered anti-regulatory) includes DVD kiosks, "certain retailer contracts", and DVD inventory -- Giving Netflix a bunch of additional distribution points and product. 

That's after the Verizon and Redbox announced a physical and streaming agreement, that's going to make things real challenging for Netflix (and maybe Amazon streaming).

That Verizon / Redbox streaming competition makes things harder for Netflix, but maybe it makes them more applicable for an Amazon partnership (who obviously has the bigger market cap).

One of my big frustrations with streaming media is having to go to multiple sources to get content, and/or a lack of compelling new content (Netflix), or content expiring sooner than I can watch it (Hulu). I actually think an explosion of streaming options could be a good thing, as licensors can charge less (say, 30% of what they do for "just Netflix", license out to multiple streaming sources (4 to n), and make a lot more money, and be on whatever streaming solution to which I want to subscribe as a consumer. 

Going back to Amazon, as a consumer, I'd be fine if that scenario worked out somewhere that way (consolidated acquisition or more of the same content across multiple streaming services. Add scenarios where Amazon has an Xbox 360 media app. And buys Gamefly. That would give me my movie / book / music / gaming fixes in the same purchase / rent / stream / physical or digital model that I want, all in the same consumer-oriented ecosystem, whether I get it from my PC, phone, tablet, or game console.

Like I said, crazy. And I'm intentionally ignoring a lot of stuff. But not myopically

(Quick aside about relative market caps and aggressive partnership: Netflix is about 6x the market cap of Coinstar, but I'd argue Coinstar is being more intelligently aggressive in their partnerships and acquisitions. Netflix does stuff like the failed Quickster fiasco, and buying the domain.)

The Kindle Fire, official Google tablets, and bad assessments from "experts"

I was reading an article, "Why Amazon Can't Win a Tablet Price War Against Google" (the title is basically the premise).

At first, I thought, "there are some good points here."

Moments later, that turned into, "WTF? This is ridiculous and invalid.

The article had some good points, but seems to be ignoring a lot, and overall, it's a poor article.

To be honest, I think the author was trying to center around the semi-clever analogy, "the Fire is just another box for Amazon", and intentionally or myopically left stuff out.

He ignored low-level things like Amazon is doing away with boxes (shipping items in their own packaging), and higher level things like their ridiculously successful digital distribution (their Prime subscribers, their hundreds per month $5 MP3 albums, Prime Instant Videos, etc.).

Then there's Amazon's cloud storage (consumer and enterprise S3), their negative inventory business model, the fact the business is built around making their money per transaction, etc.

And while this particular author says it's not sustainable to lose money on the manufacture of each device, it is when it's amortized across the business (think the Xbox and Xbox 360 business unit growth and P/L distribution across quarters and other business units under Microsoft's digital entertainment umbrella).

He claims the loss on manufacture of the Fire is between $10 to $70, which tells me he doesn't understand what the loss is, and is discounting reduction of manufacturing cost over time as components become far cheaper (economies of scale, efficiencies in manufacture, successive technologies, etc.) -- again, the Xbox / 360 growth is an example of that.

Also, Acer and Asus -- tablet providers he classifies as "Companies that are in the tablet hardware business only" "that sell tablets for profit" -- sell tablets for $199 (for a profit; they're not loss-leaders, which wouldn't work in this context). Amazon can easily do likewise.

And then there's just flat out odd stuff he says in the article -- like

"Any discount retailer, from Wal-Mart to Costco, has to make it up on volume. But Amazon can't."

Really? Amazon is an online discount retailer that's perfected the Dell negative-inventory distribution model. Of course they can make it up by volume.

As far as dogging the subsidy model (Amazon allegedly subsidizing manufacturing loss), think the handset carrier analogy (which is a perfectly sustainable model). The Fire is analogous to the handset, Prime to the phone service, and Amazon purchases are the way-higher-margin-than-microtransaction purchases.

This is not to discount Amazon having some serious competition from Google, and it's possible official tablets.

But Amazon's foremost advantage may be it genuinely has a product portfolio mindset, which is something -- to be frank -- Google struggles with. As a concrete example, I pitched an all-ecosystem offering to the stakeholders for each of the ecosystem pieces, and the people I talked to seemed genuinely confused and/or uninterested in its combinatorial value-add across the ecosystem (outside of their individual piece). Pitching the same concept to some other "ecosystem-type partners" blew their socks off, and there's a mad scramble from them to snag it and make it happen in some form or fashion.

Second, Amazon could open their Fire platform. Right now, the Fire is a semi-locked Android tablet, which turns a lot of people off (myself included, but not enough to keep me from buying one). Amazon could open the Fire up to a "legit" version of Android, and become a partner for Google's ecosystem, and make the device more appealing to more folks.

Amazon could make some content free or cheaper on the Fire, and charge more on other platforms. They could do the Microsoft Windows Phone model (Halo ATLUSKinectimals, Xbox Live app), and make the Kindle, Prime, and related apps free on the Fire, and charge for the other versions (or make them free on both, but feature-richer on the Fire).

So that's probably enough about the Fire and that myopic business assessment.