Barry McCarthy, CFO of online movie rental company Netflix (ticker: NFLX), presented at the Morgan Stanley Small Cap Conference on June 15th. (That means that Morgan Stanley hosted small cap companies, not that Morgan Stanley is becoming a small cap stock...) Here's his argument why DVD rentals will not be displaced by movie downloading:
The studios make all of their money selling DVDs and
almost none of their money theatrically. And they make practically no
money at all on pay-per-view...
So, if you're a studio and you're trying to decide whether you're
going to license content for electronic downloading, the decision is
pretty simple. Two bucks electronic downloading, 18 bucks wholesale.
Before you're going to license content for electronic downloading, you
have believe that the market at two bucks of incremental revenue is so
elastic that it's going to overwhelm the revenues you already generate
from DVD and grow your business.
And no CEO is going to make that bet, which is why there's virtually
no content licensable, on a subscription basis, for downloading. And
that's the reason downloading is not the technology of the 21st
century. Technology can do it. There will be a box in your home, that
you can afford, that's going to drive that technology to the TV set.
And there will be consumer demand for it. But there will not be content
for it; not in abundance. And so that concept, I think, is DOA.
What is on the horizon is HDVD.
(Quotes are from the CCBN StreetEvents transcript.)