June 11, 2006
Netflix: The World's Best Idea with the World's Worst Distribution System?

There's a thought-provoking piece about Netflix in Wednesday's The New York Times about DVD distribution company Netflix, written by David Leonhardt.

The piece doesn't really say anything that most of us don't already realize to some degree: that Netflix has the right idea and the worst distribution system. For those of you who have dealt with our illustrious postal system that much, you know that it's not the most reliable way to transfer information in the world--the Internet provides a much better way to send data reliably (that is, unless network neutrality is out the window).

Since I'm always bringing personal anecdotes to the blog, here's another: I moved out of my Boston apartment and forwarded my mail to Kentucky on May 1. Now, it's June 8, and I've only gotten about three pieces of forwarded mail, and the postal system isn't entirely sure where that other mail ended up.

So, while Netflix has the right idea with making every DVD out there available for rental in its system, the distribution system is far from the best. Leonhardt chastises Hollywood, who have an online downloadable option available to them that could rival or eventually overturn Netflix but which is currently blocked due to the outmoded thinking of current deals with television distributors, which would allow DVD distribution but not online downloads of movies that cable and broadcast networks have exclusive rights to.

I was still shocked, though, that of the 60,000 titles available on DVD in NetFlix's inventory, 35,000 to 40,000 of them are rented every day. As Netflix's Chief Executive Reed Hastings said, "Americans' tastes are really broad." But it's still a shame that today's most forward-thinking distributor, that is helping to instill this Long Tail effect in the media industry and to create what Leonhardt calls a "meritocracy" for content, is doing so using one of the most disorganized distribution systems around (the postal service being a great example of how terrible a government-owned business becomes when it is allowed a monopoly on most mail delivery services).

Netflix already realizes that, if digital streaming of movies becomes prevalent, its current DVD-through-mail system could become obsolete, and the company is already considering ways to shift its distribution to stay on top of the market. In the meantime, though, Netflix is the best we've got, considering that Hollywood exclusivity rights only allows about 1,500 of the 60,000 DVD releases available through Netflix to be distributed digitally through the studios' Movielink. Oh, and I can't look at Movielink, anyway, because they don't support Macs.

Yet another reminder of how old thought patterns restrict the ways in which the industry can respond to new technologies and new viewer demands.