The problem of recognizing a very big problem

In his book Collapse, Jared Diamond explains that cataclysmic failure happens in waves. The first wave is an inability to see the problem – as a problem. Here we TimeWarner CEO is found coming to the realization that he has one. A big one.

The second wave of failure comes from waiting too long to adapt. It will be interesting to see what Jeffrey Bewkes will do next, to maintain control over his empire, and keep consumers loyal to cable tv. Especially in the face of rising demand for internet services. 

Netflix has been a business partner to the movie and television studios through licensing deals, but increasingly it is seen as a partner with its hands far deeper in the pockets of the media companies than anyone thought. Through its success, the company has positioned itself at the center of the media universe — at the nexus of technology and content — and is now finding it a place increasingly under attack.

The relationship between Netflix and the media companies will most likely change drastically, beginning next year when a deal between the company and Starz, the pay-TV channel, to stream movies from Sony and Disney expires.

The original deal from 2008, in which Netflix paid an estimated $25 million annually — a paltry sum, executives say, compared with the hundreds of millions of dollars cable and satellite companies pay Starz for the same movies — is now seen as a major coup for Netflix, and a major mistake by Starz.

Michael Nathanson, a media analyst at Nomura, called it “probably one of the dumbest deals ever. Starz gave up valuable content for tens of millions of dollars.”

Mr. Bewkes said that deal, which gave Netflix significant momentum into the new world of online video, potentially undermined the business model of cable television, based on the subscription fees that have steadily flowed even as other media businesses have suffered in the digital age. “Why should anyone subscribe to Starz when they can basically get the whole thing for about nothing?” he said. “That doesn’t make much sense.”

via Time Warner Takes a Shot at Netflix – NYTimes.com.

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