Squilliam on 27 October 2012
| Dodece said: @squilliam You are assuming that those deals would be disadvantageous. The opposite could hold true, and that is probably the case given the markets expansion, and the greatly increased demand we have seen over the past few years. There is a reason we see new providers popping up like weeds. The business model works, and it generates a lot of revenue. Netflix was early to the market so it is very likely that they got a lot of content at what in the current market would be considered dirt cheap prices. Further more they probably locked in those rates for a number of years. I have a good real life example to illustrate my point. My mother used propane to heat our house, and she was given a chance to sign a locked in rate contract from our supplier. It was a little bit more expensive, but it was for five years, and my mother thought it was a good deal to have a rate she could budget for. I am sure at the time the supplier thought they were making a killing, or they thought the price would go down. Within a couple years the price of propane skyrocketed, and there was my mom sitting back pretty self satisfied about the whole situation. As she was paying less then half of what many of our neighbors were paying. What some people might have thought was a fools bargain ended up looking damned insightful, and that supplier was none too thrilled. They tried all kinds of things to get out of that contract, and they found out my mom wasn't a fool. She had them where she wanted them, and not the other way around. My point being that for all you know Netflix might have a lot of providers by the short hairs, and they can't get out of the fixed rates they agreed to. Before they found out that those rights were going to increase in value many times over in just a couple years. I can tell you this a lot of our neighbors would have killed to have my mothers rates back then, because it could have saved them hundreds of dollars each year. Not saying it is the case, but it is entirely possible. |
What happens when your mothers contract runs out? Is she better off finding a different source of heating? Probably, and the same applies to the contracts with movie studios. Netflix only has $900M revenue and the contracts have a finite duration. Microsoft already has a fairly captive audience with Windows 8 and Xbox so they don't really need to push for more subscribers. This only leaves the number of subscribers and Microsoft would effectively be paying $192 per subscriber which doesn't make much financial sense and Netflix is certainly no Skype from the perspective of total market share or penetration.
Tease.
