M+E Daily

By Paul Sweeting

Netflix shares took (another) hit Tuesday after Amazon announced a deal with Epix to bring Paramount, Lionsgate and MGM films to Amazon’s Prime Instant Video service, robbing Netflix of exclusive it previously had on Epix titles (Epix says it is talking with other potential distributors as well). That brought out the Netflix bears in force. like Seeking Alpha contributor Colin Lokey, who called “game over” for the House of Hastings.

Slate economics blogger Matt Yglesias declared Netflix “doomed,” now that streaming movies and TV shows has become a commodity business.

“Cable companies have monopoly pricing power. Content owners have exclusive rights to copyrighted content. Hardware vendors have products that need cross-subsidy. Netflix has nothing,” Yglesias wrote. “At best, Netflix has appealing underlying technology that some other firm in a better position to make money in streaming video might want to buy.”

Reuters economics columnist Felix Salmon, however, had a very different take on the news. “Think about it this way: up until now, when Netflix has signed exclusive deals for TV shows and movies, the enormous sums involved can be broken down into two parts: one part for the right to show the material, and another part for exclusivity,”  Salmon argued. “If Netflix gives up on exclusivity, that means that it’s paying less for the material, and that all the money it’s spending appears on the screens of subscribers, rather than showing up also in the absence of that material on the screens of non-subscribers.”

BTIG Research analyst Rich Greenfield had a similar view (free registration required), calling the potential cost savings from no longer needing to pay for exclusives “a silver lining” for Netflix to the Amazon-Epix deal.

My take is that Netflix is probably right to stop chasing (and paying for) exclusivity even if it means more competition. If there’s a long-term problem for Netflix to worry about its a lack of leverage from a proprietary hardware play. Ever since Apple launched the iTunes Music Store to support the iPod, digital content services and devices have been growing ever-more closely entwined, strategically. Amazon has the Kindle Fire. Apple has the iPad.

In the U.K., Netflix competitor Now TV is owned by BSkyB, which in July led a $45 million “strategic” investment in Roku. Presumably, Now TV service will now come bundled with Roku boxes in England. While Netflix put Roku on the map, and also comes bundled with the set-top boxes, Roku in the past has not been shy about dropping content suppliers from its platform when they conflict with its strategic investors. Just ask the 25 foreign language channels that disappeared from Roku boxes once Dish put money into Roku and the Dish World network became the exclusive foreign-language program provider for the set-tops.

If I were Netflix, I’d worry about getting boxed out before I worried about losing exclusives.