How Much Will Downloading Cost Netflix?

Early Wednesday I was on CNBC’s Squawk Box, as I often am on Wednesdays at a ridiculously early 5:40 a.m. PT, and the subject was Netflix (NFLX). Becky Quick and I went ‘round on several items I’ve already covered, but I drilled down more into the issue of spending for digital downloading, which the company says next year will be quadruple the $10 million spent this year. No further details will be given until the next-quarter conference call, in January, the company says.

But this much is clear: Downloading, a fancy euphemism for pay-per-view or video-on-demand, isn’t cheap and it isn’t simple to figure out, thanks to Windows and licensing agreements with the studios. (I actually wrote on this when Netflix was rumored to be doing some kind of deal with Tivo.)

If Netflix ever really goes that downloading route, the question every investor should ask is: How much will it cost – not the technology, but the content? And how will Netflix pay for it? Consider that HBO spends $1 billion a year on licensing. That’s a lot more than $40 million.

Meanwhile, I also said that on the rental front, don't count out Blockbuster (BBI) just yet, especially if it can execute on its plan to mesh its stores and online service. Execution, something Netflix knows a thing or two about, is critical. Ain't over till it is, and it isn't.

Related: Netflix Q3 2006 Earnings Call Transcript

Comments

[borisb:]

i think that netflix has the largest audience and therefore has a good chance to be highest bidder and still make a profit. also the audience is highly fragemented, and thus i suspect that netflix will find a market for well made art house films. i see netflix bidding highest on lower priced hollywood product and then making money due to NFLX's ability to find lots of customers. i envision netflix still sending 5-10 movies to each customer per month in the mail, while offerring 1-2 art house movies of customized tayored interest at low prices of $1-$2 per download. ie. they arent trying to VOD the 200 top Hollywood products just yet, but focus on low end of food chain. Boris B.

2006 Dec 10 02:07 PM