Netflix a Fast-Growing Rival to Hollywood and Cable - NYTimes.com

In a matter of months, the movie delivery company Netflix has gone from being the fastest-growing first-class mail customer of the United States Postal Service to the biggest source of streaming Web traffic in North America during peak evening hours.

All of that has to raise fears in the content business that a powerful new entity is arising in the movie distribution business as Apple's iTunes earlier grabbed a powerful role in distributing music.

At least in part, that explains why Hollywood studios hope to create a new distribution channel to replace lost DVD revenues.

A new "premium" form of video on demand, which would make new releases available in streaming format just 45 days or so after they start showing in theaters. In the past, newly-released movies have appeared on VOD services about 120 days after theatrical release.

Video-on-demand services often price such movies at a price of about $4.99. But studios think the new earlier release window could allow them to price movies at perhaps $25 a view. Whether consumers will have the same value perception is not so clear.

Some believe DVD sales have stagnated because consumers no longer view $20 to $30 DVD purchases a reasonable balance of value and price. Whether consumers will think earlier streaming access is worth that much is debatable.

Studios also like the better profit margins. Generally, studios get as much as 80 percent of that early VOD revenue, and much less for a DVD copy. DVD rentals might net a studio about 30 percent margins, for example.

But an equally-important issue is maintaining more control over the distribution process, and avoiding ceding power to Netflix in the same way Apple now influences music distribution.

Netflix a Fast-Growing Rival to Hollywood and Cable