Will the DECE Kill the Netflix Star?

If you caught last week’s post on Netflix’s dipping customer satisfaction, you may have missed a comment left by our Chief Strategy Officer, Cliff Conneighton:

There is one other factor to consider that is not widely known or discussed: A big issue in customer sat is that Netflix and other streaming providers don’t have current releases. And they can’t get them because of the studios’ clinging to their “theatrical release window” model (new releases always appear in theaters way before availability via other media) and Netflix clinging to the one-price all-you-can-eat model. The Netflix and Amazon Prime model requires low low license fees to studios, and studios want much much higher fees to give up theatrical window exclusivity. I think this will be the biggest factor driving studios to go direct to consumer or start some other consortium site to compete on their terms.

Interestingly, the day after the post and comment was published, two developments broke that are bad news for Netflix’ value proposition. In a nutshell:

1. HBO will no longer sell DVDs and Blue Ray to Netflix. The parties were unable to reach an agreement on pricing and release windows, so Netflix must either drop the content or buy physical copies at market prices, dramatically raising its cost.
2. Warner Brothers is doubling its release window for all rental and subscription DVDs from 28 days to 56 days. This means consumers must wait 56 days from theatrical release before rental or subscription DVDs are available, or buy them from retailers to view them sooner.

As Cliff comments, there is opportunity for content producers to stream direct-to-consumer. The DVD rental business is slowly dying – streaming will grow in the next several years. But for now, there’s no efficient, organized way to do so.

Enter the DECE.

Could a service like UltraViolet serve as the “consortium site” that could once again change the game for consumers, content producers and channel partners? A project of the Digital Entertainment Content Ecosystem or “DECE,” a consortium of major Hollywood studios, device manufacturers, hardware vendors, retailers and digital rights management vendors, UltraViolet is a cloud-based “digital rights locker” (as opposed to cloud storage of the media itself). The technology enables consumers to buy media once and play anywhere on any device, for up to 5 users on a single account.

While today UltraViolet is a totally different service than Netflix (you have to own the content to enjoy the benefits), there’s power in the DECE. Every major Hollywood studio is a member of the Ultraviolet Alliance, with the exception of Disney. Should the consortium build out a streaming marketplace, Netflix, Blockbuster, RedBox will be at a serious disadvantage. They will lose on price, selection and speed-to-release.

Disruption, baby.

And why wouldn’t Disney want a piece of this? Because it’s developing its own competing service, Keychest. But without content (i.e. other studios jumping on board), its offering will be lackluster. This may not matter if membership is free (rather than subscription-based), and Disney will not have to split the bounty with another organization. However, the overhead of running such a service for a (relatively) small catalog may not make it as profitable. Disney may just consider joining the DECE after all.

Certainly, the future of home entertainment is streaming. If DECE members band together and share the costs of developing a mega-service, is there a need for intermediaries anymore?

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