Tuesday, January 14, 2014

An optimistic take on Netflix

Megan McArdle:
That’s both good and bad for Netflix. On the one hand, all those warehouses are expensive to maintain and staff, compared with a website. On the other hand, they have a phenomenally high barrier to entry. You can imagine an upstart coming in and beating Netflix at streaming. But it’s hard to imagine another movie rental company building a parallel network of massive distribution centers on the off chance that it might be able to knock out the incumbent.
This is basically the "copyright issues are so bad they might strangle an emerging new industry that would otherwise greatly enhance consumer surplus making the outdated warehouses suddenly look valuable".  It seems implausible, but it is true that if streaming video falls apart then those DVD warehouses are going to look awful clever. 

It would also be a case where the success business strategy was the one that the owners completely ignored until success happened by mistake.  I wonder how often that has actually happened?

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