Telecom Student Papers: Tullis - California Western
Fall 2004 Telecom Student Papers: Tullis

Netflix and TiVo’s on Demand Movies

By David Tullis

            Netflix and TiVo, pioneers in their respective technologies, have joined together to provide a high tech method for using broadband to download movies into your own home.  Netflix has developed a large consumer following by allowing subscribers to use the internet to select movies they would like to have mailed to their homes.  Likewise, TiVo developed the first generation digital video recorders that have popularized the ability for subscribers to easily record, playback, and pause live Television.  Together, Netflix and TiVo should soon unveil their technology that will allow mutual subscribers to download DVD quality videos directly onto their TiVo recorders.

How Does It Work?

            In January 2004, TiVo acquired a company called StrangeBerry.   It is the StrangeBerry technology that allows users to plug a DSL or Cable modem into the back of their TiVo machines and download music and movies off the internet. StrangeBerry has developed a collection of protocols and tools that will enable broadband based content delivery services for the TiVo platform. Downloading a movie should take about an hour.  However, this is much faster than the 1 to 3 days it currently takes to receive a Netflix movie by way of mail. 

How Will It Make Money

            At $21.99 per month for Netflix, and $12.95 per month for TiVo, success in their new technology could provide a windfall for both companies.  Netflix currently pays for the shipping and receiving of movies from their customers.  They have to purchase enough copies of each movie to keep up with the demand of their subscribers.  A digital version of the movie available for customers to download will no doubt be a cost effective change.  Instead of purchasing disks, they could pay royalties on per copy downloaded and save the up front expense of the disk and shipping.  The movie download convenience will likely compel consumers to subscribe to both services.

            While this technology is starting with Netflix and TiVo, it has the potential to revolutionize the way movies are watched.  Cable companies, and on demand movie providers are likely to follow the lead of the pioneering efforts of Netflix-TiVo.

Pros and Cons

            This new technology is advantageous because it is convenient for a customer  to see movies.  No more trips to Blockbuster hoping that the new releases are still available, or to return an unwatched movie to avoid a late fee.  A movie rental will merely require a selection from a T.V. menu, and then a short one hour wait.

            The StrangeBerry technology will allow downloaded movies to be watched on other televisions in the house.  It is suspected that the TiVo box can be networked to allow Televisions in other rooms to view downloaded movies  TiVo-Netflix also separates itself from the movie download competition by allowing the movie to be saved on a TiVo.  This provides for the convenience of pausing, fast forwarding, and watching the movie at your own convenience.  TiVo-Netflix will host a much larger selection of movies available for download than do the current movie download companies.

            The TiVo-Netflix partnership will face several logistical hurdles in the implementation of their movie technology.  Hollywood and Media companies will want assurance that their copyright protections will not be hacked.   TiVo-Netflix may also see potential discrimination from cable companies providing modem services.  Unlike the phone companies, cable firms are not required to accommodate their competitor’s traffic on their networks.  In this case, subscribers of this technology will be forced to use DSL, a phone line based modem, if they want to continue to download movies.

Profile of Market

            Companies such as Movielink, CinemaNow, and Starz currently offer movie download services.   However, they must be downloaded and played by a computer, and the movies are limited to 24 hours of viewing.  According to the Associated Press, Netflix has 2.1 million customers, and 1.9 million people subscribe to TiVo.  Their new partnership would purportedly increase their subscriber base.  Netflix’s success is evidence that more and more people prefer to rent and receive movies in the convenience of their own homes.  If technology trends continue, it is likely that there will be an increased demand for downloadable movie services.

            While Netflix has historically been just ahead of their competition, copycat business models may end up putting pressure on keeping customers.  Nonetheless, both Netflix and TiVo are leaders in their industry and have the highest market shares in their respective technologies.  The joint venture of Netflix and TiVo will likely be a viable model and continue to lead the industry.

BIBLIOGRAPHY

Brad Stone, I Want a Movie! Now!, Newsweek  (Sept. 13, 2004)

Ernest Miller, TiVo plus Netflix =! Broadcasting, Corante Tech News (September 9, 2004), at http://www.corante.com/importance/archives/006096.php.

How Movielink Works, at http://www.movielink.com/commerce/help/ELanding.jhtml.

How Netflix Works, at http://www.netflix.com/howitworks.

Newflix and TiVo To Announce Partnership Offer To Download Movies, Matt Haughey, PVRblog

Netflix / Tivo Hopes To Offer Online Movie-On-Demand Services, Michael Liedtke, Associated Press (September 7, 2004)

TiVo Acquires Strangeberry, Palo Alto Based Company and Innovator in Broadband Television Technologies, TiVo Press Release  (Jan. 27, 2004) 

TiVo Consumes StrangeBerry, Digital-Lifestyles.info (Jan. 29, 2004)