NETFLIX WAL-MART DEAL: TALE OF TWO TAILS
In just about two weeks on June 16, Wal-Mart plans to discontinue its two-year-old DVD Rentals subscription service and encourage members to switch to Netflix.
VOD,IPTV & TV2GO OFFER NEW COMPETITION:
It's a stunning deal that comes at a time when Netflix and other online DVD rental firms such as Blockbuster are facing increasing competition from a burgeoning market for VOD (video-on-demand) from cable and satellite, the rise of IPTV (Internet Protocol Television) online and even television via mobile media players that could affect DVD sales and rentals in the future.
"This agreement bolsters both Netflix's leadership in DVD movie rentals and Wal-Mart's strong movie sales business,'' Netflix CEO Reed Hastings said in a statement
Legal VS Bootleg Download, Another Factor?
Not mentioned in most press coverage of the Netflix/Walmart deal is the impact that the fledgling legal digital content download systems like MovieLink and CInema Now would have/could have on the online DVD rental market. But that's another story in itself along with the ongoing fight against illegal P2P content sharing and download systems and sites. First more about the Long Tail Versus Short Tail theory that seems pervasive in this deal:
ONLINE RENTAL STATS: (courtesy of comScore.com):
Netflix: 3 million subscribers
Blockbuster: 3/4 million subscribers (note other sources say 1 million).
Wal-Mart: between 100,000 and 200,000 subscribers
(No figures available for the new Amazon.com rental service or other onlne rental services.)
NETFLIX: LONG TAIL, WALMART: SHORT TAIL
What's really fascinating is tht the deal is a great example of the 'new new' thing in the New Hollywood: The Long Tail theory Chris Anderson, WIRED MAGAZINE unleashed in his November, 2004 article and the basis for his upcoming book. Some say the "LONG TAIL" is just fancy wording for the ever-present marketing guideline that 20 percent of products account for 80 percent of sales. The "SHORT TAIL" then reflects that the rest (80 percent of product) accounts for only 20 percent of sales but that 20 percent can be a profitable sector or niche especially in an online world offering infinite diversity to a world-wide audience.
According to a great story on TECH CENTRAL STATION LINK the deal is not just about driving eyeballs to the Netflix site or tying clicks with bricks. It's a reflection of the "THE LONG TAIL" being popularized by Chris Anderson of Wired Magazine . By minimizing inventory,Netflix is able to stock narrow-interest titles that customers want, unleashing the Long Tail, fact 20% of their rentals are outside of the top 3,000 titles. Moreover, of the company's top 10,000 titles, 99% are rented at least one time a month.
Click on the movie tab on Walmart.com, and you see a prominent phrase that says "Movie Rentals, we recommmend Netflix". click again and go to referral page for the new Netfllix.com plan..
Wal-Mart, on the other hand, is the opposite of a Long Tail business -- a Short Tail model prevails where 80% of its sales result from 20% of its products. The goal at Walmart::crank out best-sellers in best-selling categories in best-selling geographic locations. According to Tech Central Station's reports, Wal-Mart must sell 100,000 copies of a CD to cover its retail overhead costs and make a reasonable profit (no figures are given for DVD sales).
DVD SALES NOT GOING AWAY
But don't fear, DVD store sales are not going away, at this time, Walmart is said to account for 35-40 percent of all DVD sales nationwide. Other business models for renting DVD's include Micro-merchandising programs by such companies as San Francisco based DVD Station and its coompetitors. Watch Hollywood2020 for more on micro-merchandising and their new venture into digital downloads .