Peter Kafka

Recent Posts by Peter Kafka

Yes, Facebook Could Compete With Netflix. And Everyone Else, Too.

Dear mythical investor:

I’m confused.

Yesterday you owned Netflix shares. Today you sold them, prompted by the news that Hollywood had begun renting movies on Facebook, using the social network’s payment platform.

That can’t possibly be true, right? Because if you were a Netflix investor, surely you knew that the company competes with every big player in tech, right? From Apple on down? Including companies that haven’t announced they’re competing with Netflix just quite yet?

Okay, then. At least we’re clear about this now.

And here’s the thing: Facebook, with its 600 million users and its own currency system, can compete with all kinds of companies–not just the ones selling Web video. So if Netflix investors are skittish today, they might have a lot of company down the road.

For the record: Warner Bros. says today’s Dark Knight rental is simply a test. And Facebook won’t say anything specific about rentals at all, just that it’s “looking forward to seeing the new and interesting ways that developers and partners use credits to offer virtual and digital goods in the future.”

And to be fair, if either party were really gung-ho about this, they’d make a bigger splash. Instead, Time Warner’s film studio is starting out by offering a three-year-old movie that its target audience has already watched over and over again.*

I can make other Facebook-won’t-kill-Netflix arguments for you, too, if that makes you feel better:

  • The current set-up really competes with retailers who sell or rent movies, not the Netflix subscription model. Hard to imagine someone giving up an $8 a month Netflix all-you-can-eat account because they can rent a single movie for $3. But it is easy to imagine someone renting a movie on Facebook instead of iTunes or Amazon.
  • The current set-up–individual studios distributing movies via individual fan pages–won’t compete with Netflix, for now, either. If Facebook and the studios are going to be serious about this, they’ll need a centralized storefront.
  • Did we mention that this is a single movie from a single studio? The Netflix digital catalog has some 20,000 titles. And subscribers who pay for the DVD option get more than 100,000 titles.

But Warner Bros. will certainly be trying more of these, says digital distribution head Thomas Gewecke. “We think it’s a very powerful proposition to make our movies commercially available where our fans are,” he said this afternoon.

Hard to imagine other studios not reaching the same conclusion. And–this is where things get really interesting–hard to imagine other content-makers not trying the same thing.

Facebook won’t let people buy physical items with Facebook Credits–just digital goods. And if I understand the company correctly, it won’t even let you download the goods you buy. You’ve got to consume them on the site itself.

I don’t know how that restriction syncs with Warner’s announced plan to sell downloads, but I don’t see that being a long-term issue, either.  I can’t think of a reason why Facebook wouldn’t let a select group of vendors sell downloads if they wanted to. (And we’re supposedly moving to a cloud-based, rental/subscription consumption model anyway, where ownership is supposed to be less important.)

So think about everything else you could sell via Facebook Credits, if you wanted to: TV shows, of course. But also e-books, e-magazines and e-newspapers. And music. And software and games. Does this sound familiar?

It should to Steve Jobs, who moved $1.1 billion worth of virtual goods through Apple’s iTunes store last quarter.

Good thing his investors aren’t as skittish as Netflix CEO Reed Hastings’s. At least not today.