Joel Kwan is a corporate lawyer based in Los Angeles, California. Currently acting as financial/legal associate for Westwood Group, a specialty finance company, Joel focuses on general regulatory compliance, creditor rights and structured finance. Visit his website to learn more.

Thursday, September 23, 2010


I am quite interested in the movie industry and particularly its evolution with respects to technological changes. Yesterday, Netflix was officially launched in Canada. I thought it would be interesting to post something on the subject of online streaming.
Netflix is a pioneer in alternative movie rental schemes, starting off with an innovating no-late fees model, where customers can choose movies online and receive them by mail and keep them for an unlimited period for a monthly fee. Netflix also is making important inroads in the online streaming model, which is also offered in Canada as of yesterday.
The widespread use of DVDs and the increasing popularity of video clubs sparked off a rapid transformation of moviegoers. The watching of films became more about the small screen than the big screen. This was the first Hollywood revolution. In the words of Theodore Levitt, Hollywood had been suffering marketing myopia at the time since the sector of activity was too narrowly defined to “movies” as opposed to entertainment as movie moguls denied the inroads TV had been making.
Today, a new revolution is happening and the battling ground is not in your living room but in the virtual world. Hollywood has still not adequately answered to the increasing popularity of streaming videos online. Many models are out there, some legitimate and others that may be categorized as piracy. In order to have a better view of this revolution, let me lay out what is at stake and who are the players.


In the recent news, the following five players have been involved in the movie streaming service or have indicated that they had plans to move into the field:

• Apple
Using its already much appreciated ITunes platform, it is possible to rent movies online and watch them from a computer. The movie is streamed and made available for 24h. Prices range from 3$ - 5$ depending on the age of the movies. Apple is also rumored to be developing an interface to tap in the ITunes application with the already existing set-top box, Apple TV, which would let viewers download movies and watch them on a television screen.
• Best Buy
Since this past May, Best Buy owns the right to run Cinema Now, an on-demand service that can be used through Blu-Rays and other home cinema systems. Best Buy plans to leverage their Blue Shirt and Geek Squad services with this new offering.
• Time Warner
With 9.2 m broadband subscribers, Time Warner has a massive customer base for online streaming. The cable company and Disney have been negotiating in the past month to establish an online channel with content provided by Disney. A deal has yet to be reached.
• Sony
Apparently the Japanese company is vying to get a share of the online streaming market by developing a streaming service that could be used with the PlayStation game consoles and other electronics with connectivity such as the Bravia TV set.
• Netflix
Netflix is the champion and pioneer of online streaming movies and is making important inroads by getting some of the big movie companies to hop in the online streaming boat. Nintendo and Netflix struck a deal to let Wii users watch movies using the device.


Set-top or with devices
This model gives more control to the service provider because proprietary hardware is used to deliver the service, however it incurs upfront costs for customers who have to buy a machine. Apple TV, Sony and Nintendo use a box to deliver content, however in the case of Sony and Nintendo, game consoles also have other uses therefore the delivery of movies become an complementary offer. One important advantage here is that these devices can be hooked to a TV directly which allows a better viewing experience.

Through software
ITunes is the software that Apple uses to deliver the content, though similar to directly online streaming, software that manages many types of media also becomes a powerful option.

Directly over the internet
The most simple option technology wise is to stream content directly on a website, although this is limited to browser compatibility and hardware compatibility issues.


• Substantial upfront investment – the hardware and infrastructure required to set-up a high-performance online streaming platform definitely represents a barrier to entry for potential entrants.
• Partnerships with content producers – without partnering with movie producers, there is no product to deliver. Only with the agreement of the producers will the company delivering the media be able to use the content. The same is true for the traditional brick-and-mortar video stores that rent out movies.
• Technology – the bandwidth available is essential to the success of the online streaming platform since low bandwidth will impede customers from enjoying a smooth viewing experience. A technology that is also secure and that can limit threats to privacy and fraud will also be a sine qua none condition for the online streaming platform to succeed.
• IP laws - strong intellectual property laws that are enforced, coupled with a social awareness of piracy and a social stigma attached to illegally downloading and copying movies are also necessary to convince businesses that online streaming is a profit-making opportunity.
• Social trends – the adoption rate of the internet and the relative trust that people have in purchasing over the net are important factors for the online streaming platform.
• Customer base – at this stage, I would also add a strong customer base as a prerequisite to succeed in the field.

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