Jeff Greenhouse

Experienced Marketing & Analytics Executive

Facebook's assault on Netflix shows a pipe is still just a pipe

Facebook's assault on Netflix shows a pipe is still just a pipe

High flying Netflix shares just got smacked down by about 5% due to Facebook's big announcement that it will begin distributing movies in partnership with Warner Brothers. Apart from the standard story of giant behemoth moving into another company's space to try to eat its lunch, there's another underlying concept that this story illustrates. It's that of the producer-middleman-consumer continuum. Companies like Netflix, Comcast, the U.S. Postal Service and even Facebook itself will always be at risk when they sit in the middle of that chain.

A while ago, I wrote about "The Future of TV: Why content is king and audiences have wings." In that piece, I explored the way that MTV has lost a big piece of its original market offering to Vevo. MTV's remaining strength and relevance comes from it's existence as a producer, creating new content and the cultural influence that comes from it. The other function of MTV is as a pipe for the content of the music industry, but they have Vevo and other pipes to choose from. Content, like water, will always flow through the path of least resistance to reach the consumer. If your entire business is built on being a pipe, and someone opens a better pipe, you're done.

This is what Netflix is facing. Up until today, they were the better pipe, offering a smorgasbord of view-anywhere-anytime content at a great price compared to other options, and taking a nice cut of the money along the way. Success attracts competition, so we've seen new entrants coming up recently. Comcast faces the same challenge of being a pipe, so it has offered a huge library of streaming content for its subscribers, trying to prevent them from migrating to the Netflix pipe. At the same time, a lot of its other activities, including the high-profile purchase of NBC Universal, speak to the fact that the company knows its pipe is vulnerable. Comcast is making the smart move to shift towards the producer end of the spectrum.

The threat Facebook poses is not technological innovation over Netflix, but simply market access and ease of use (since their users are already on the site). But even mighty Facebook is one big set of pipes. They don't produce. We produce. They don't consume. We consume. They simply provide the ductwork to get our own content to each other. As Friendster and MySpace have shown before, we are not afraid to move to a better pipe if one comes along.

And technology will continue to lead to better and better pipes. Goods, services and information will continue to flow more easily, quickly and cheaply between producers and consumers. Distributors, middlemen and other "pipes" will continue to get squeezed out and replaced. Any company in the middle that wants a long existence has to either innovate at the head of the pack (always have the best pipes) or invest in production and value-add, rather than simply servicing the flow.

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