In the future, video distribution won’t be in the hands of broadcasters, cable, satellite, or telecoms. According to Reed Hastings, CEO of Netflix, the future of video is Web television.
Netflix is now an online DVD rental service with 4 million subscribers. But its future will be far different, its chief executive told Red Herring. When homes are rigged with 50- to 100Mb/s of bandwidth, consumers will move away from DVDs, wanting immediate access to digital video in their homes.
Hastings predicted the companies that lay down pipes, such as telcos and cable operators, will fight it out with companies that sell service distribution service over the Internet.
Last year, Netflix announced a deal with TiVo to develop technology for a joint entertainment offering and pledged to work with Hollywood studios to secure content for digital distribution.
Hastings said Netflix will start offering direct Internet service this year, and will dedicate one to two percent of its annual revenue to the service over the next five years. With $506 million in annual revenue last year, that’s roughly $5 million to $10 million for the offering each year.
Hastings noted that the biggest barrier to the online distribution model is content. Movie studios are afraid of online distribution because piracy over the Internet is already cutting severely into their business model.
However, he thinks today’s pay television distributors are making a mistake in underestimating the power of the Internet. Hastings noted new mediums such as blogs and podcasts as emblematic of the rapidly changing media landscape that runs over the Internet. IPTV companies will create 200 or 300 channels, while the Web will have more around 5 million, he predicted.