The growing popularity of the movie streaming service of Netflix brings about new dilemmas for Hollywood. On the one hand, the entertainment industry welcomes the fact that consumers finally seem to be willing to pay for footage that is legally distributed online. More and more new business models for distributing video content prove to be viable. It is certainly good news that artists and film producers are no longer facing an arena where their products are perceived as being available for free automatically.

However, Netflix is now so popular that the service is said to hinder the sale of physical products and, of course, Hollywood faces a strong new competitor in the distribution department. The concern is furthermore, that intensified competition on the market for paid downloading and streaming services will cause lower prices again, in a market where products are allready notoriously underpriced. (…)

Although the entertainment industry is regarding the development of additional online video services with caution, as they may come at the expense of the long-term health of their business, they will not throw in the towel with competing Netflix. Despite the popularity of VOD services, such as Spotify and Netflix, filmstudios will continue to distribute films and TV shows online. With a new technology called UltraViolet, Hollywood will make their content available for a range of different devices, like iPads, game consoles and smartphones. According to the film studios, the Internet is not the only distribution channel of the future, so they will keep investing in other lucrative revenue streams, such as pay TV or traditional broadcast services. 

Netflix currently has over 20 million subscribers. That represents growth of 66% compared to the 12 million users listed in 2009. Consumers want to be able to watch what they want, when they want and they prefer it all cheap. Web services like Netflix provide that. The competitive edge of Netflix also surfaces strongly in the business of in-flight Internet access of airlines, a Netflix account means fewer people may be tempted to purchase movies offered by the carrier. Also, streaming services discourage users from purchasing (newly released) DVDs. Films offered on Netflix lose value rapidly, as they become so very available once posted online.

The prevailing feeling among the filmstudios is that Netflix's streaming service will be a good outlet for the least-valuable material. Of course Netflix is still depending on the permission of movie studios to be able to legally offer a copyright protected title online.

However, once market shares of services like Netflix continue to grow at the expense of the traditional entertainment sector, these new players may change their attitudes towards dictating the terms of such negotiations.

Source: CNET