Netflix, Redbox, and the Future of Hollywood

Over the last year I watched an interesting mini-social experiment play out: my sixty-something parents trying out Netflix.

The company’s now-famous little red envelopes first gained fame around the time the dot-com boom went bust in early 2000. Video rental behemoth Blockbuster, reeling from a catastrophic bleeding of market share to this wily challenger, entered the rent-by-mail fray in 2004, but it soon became apparent that they were going to get their hats handed to them. An even younger upstart, Redbox, began as a subsidiary of McDonald’s, and by 2007 its kiosks has spread across the fruited plains of America like wildfire, in the process putting the final nails in Blockbuster’s coffin.

My folks watch a lot of flicks, either at the theater or at home, so there’s always opportunities for improving the experience — the Great TiVo Immersion Program of 2005, masterminded and forced upon them by moi in the face of strenuous objections, turned out to be life changing. So after years of watching them drive out in the early evening to various video stores, I bought them a year-long Netflix subscription in Christmas 2009, and waited to see how it played out.

To my surprise, they hated it. For a year they bemoaned that Netflix never seemed to have the newest titles already available at the local rental shops. Even when using the service to queue older titles, they never got used to having to wait a day or two for DVDs that they could have in fifteen minutes by driving down the street. Eventually they settled in to using Netflix only for older or obscure films, things they otherwise wouldn’t have rented at all, and of course taking chances on such films was more of a hit-or-miss proposition than using Redbox to rent new movies they were jazzed to see. Meanwhile Netflix’s newest innovation, streaming to computers and TV, went entirely unused.

Now that their subscription is expired and they are once again happily back to using Redbox and video stores exclusively, I found myself wondering whether Redbox had some sort of edge over Netflix I hadn’t adequately factored in — some combination of convenience, selection, and the satisfaction that comes from immediate impulse renting that would soon allow them to supplant Netflix the way Netflix once supplanted Blockbuster.

It wasn’t long before I came to the conclusion that Redbox, for all of its merits, would ultimately flame out before it reached the pinnacle of the video renting mountain. Sure, their business model currently works well for those people who want a new movie and want it tonight. But what of the people whose pop culture horizons go back further than the week’s new releases? Redbox makes a token effort at sprinkling their kiosks with a smattering of older and classic selections, but they don’t even begin to compete with Netflix’s monster backlist.

Furthermore, what of the people who catch some long-running show on TV, and then want to plow through an archive of previous seasons? What of the many people who live in rural areas far from the nearest kiosk? Or the many people who are older and can’t leave the house, or don’t drive due to some disability, or can’t jump in the car and find a Redbox because they are too busy watching young kids? There are many situations where by-mail and streaming models are superior to the selection down the street.

Add to that the chilling precedent of the decline of music CDs — how quickly they went the way of vinyl records and 8-tracks. These days, everyone is increasingly dumping their bookshelves full of CDs in favor of carrying around a single iPod that connects to MP3-enabled speakers in the house, in cars, on the computer, and anywhere else there’s a USB plug. I think it’s beyond any doubt that physical DVDs are soon going to vanish in the exact same way. Even massive blu-rays are now effortlessly copied by pirates and shared over the Net, and legal video distributors like Netflix will all soon be streaming in 1080p resolution to living room TVs.

Netflix jumped onto the unlimited streaming bandwagon years before it became commercially viable, and that foresight will redound to its benefit for many years to come. Streaming is going to be huge, and Redbox, like Blockbuster before it, is being forced to try to compete in that arena. But by doing so they are competing on Netflix’s home turf, facing a company famed for its easy-to-use website, its fantastic movie-recommending algorithms, and its astounding selection of titles.

Once physical DVDs become a non-issue, studios will buckle one by one and offer their new releases to the major streaming companies, just as the record companies all eventually conceded to Apple’s 99 cents per individual song plan. The day new movies are able to be streamed directly to your TV via Netflix on the same day they are available at Redbox kiosks, that’s the end of that brick-and-mortar (metal-and-plastic?) business model.

So I think that when the dust clears, we’ll see Netflix standing tall as the preferred video rental company in the land, streaming its content long after Blockbuster, Redbox, and even many cable companies have declared bankruptcy. Not that they’ll have long to crow about it, given the looming Armageddon hanging over the industry as a whole.

What is that, you ask?

I remember in 1996 buying a 4 gig hard drive and thinking it was the bee’s knees, a virtual Great Plains of unused digital space that would take years to fill. A scant fifteen years later, a single writable DVD in larger than that, and a flash drive is many times bigger while costing many times less. And this trend of exponentially increasing data storage, file compression, and internet bandwidth will eventually hit a seismic pivot point. For me personally, that point will be the day a single torrent appears from some movie-loving college kid called “All movies, 1888-Present,” an archive that has every single title available at Netflix, in a format that will sit comfortably on the latest hard drives or flash drives. Five minutes after clicking on that file, it will be sitting next to the “All music” and “All books” files on the user’s media drive, with the contents capable of being streamed to any number of devices in their electronic world.

That’s when all bets are off, and Netflix (and Hollywood itself) will be left to come up with a whole new business model.

All of Hollywood, in one file, copied down to your computer in five minutes. It will happen, and sooner than anyone thinks possible.