Best Buy's Streaming Video Service Stands No Chance Against Netflix, Vudu, and Hulu
In an effort to stay competitive with streaming video services like Walmart's (WMT) Vudu (pictured right), Netflix (NFLX) Watch Instantly and Hulu, top electronics retailer Best Buy (BBY) has finally completed its acquisition of CinemaNow, a streaming movie rental service. And while CinemaNow was certainly a pioneer in this space, its present offerings are anemic and badly positioned. Can BestBuy actually turn this thing around?
It doesn't look good. Right now, you can stream CinemaNow offerings on Xbox, LG DVD players, and a smattering of other home entertainment boxes. But where the service really struggles is in the mobile media positioning -- it has essentially none -- and its backend technology, which will have trouble playing nice with most of the devices, home or mobile, that most of us use today.
BestBuy isn't going to get any traction by sticking with set-top boxes, either. Big competitors (namely, Wal-Mart and Target (TGT)) are in the process of revamping their entire electronics departments around "smart TVs," big flat-screens with computer software by Google (GOOG) and brains by Intel (INTC). Those TVs will entirely obviate the need for a separate box (like the Prodea or the Quartics, two obscure devices that CinemaNow supports) and may even eventually eat away at the utility of the now-common DVR or Slingbox.
But BestBuy has bigger problems. CinemaNow's content delivery system (which dates from 2001 and is called PatchBay) is based on the Microsoft (MSFT) Windows Media platform, meaning its movies are packed in Windows DRM software and deliverable only in Windows Media Player. As Microsoft says in a case study of its CinemaNow solution:
With Windows Media at its core, PatchBay addressed many of the security and management hurdles in online film distribution.That may very well be, but it has also severely limited how BestBuy's streaming movies will be delivered. Which is why the only mobile devices it supports are ones you haven't heard of (see the entire selection -- all eight -- below). Worse yet, the company's mobile site doesn't actually let you watch mobile videos; it just lets you choose movies you can have delivered to your PC or CinemaNow device for later.
In BestBuy's defense, the rest of the streaming video market does not exactly have its affairs in order, either. Everyone from Walt Disney Company (DIS) to CBS (CBS) to Netflix is trying to figure out which technologies to bet on -- HTML5? Silverlight? Adobe (ADBE) Flash? -- and how users should pay -- ad support? subscription? -- as well how to actually deliver the video. But the commonality is that they're all embracing Web browser delivery or native apps, two things that CinemaNow is neither prepared nor even technologically capable of doing right now. BestBuy's competition is at least aware of the most viable options. CinemaNow doesn't seem to be.
For this service to become competitive, it'll have to somehow learn to play nice with other codecs; perhaps Microsoft Silverlight will be the closest jump from Windows Media format, but even Silverlight isn't supported on Android or iPhone devices. Re-encoding CinemaNow's entire library in another format won't be easy, and building the brand's identity among customers will be even harder. Netflix already has 14 million customers as of this quarter, with 35% growth year-over-year, and over half its users have tried Watch Instantly. As NewTeeVee said in April, Netflix is at a point now where it's merely oiling its very finely-tuned machine:
Increased subscriber additions and better-than-expected earnings are in part being driven by increased interest and take-up of the company's Watch Instantly streaming service. Netflix reported that for the first time more than half of its subscribers -- 55 percent -- used the streaming service for more than 15 minutes during the quarter. That's up from 36 percent during the first quarter of 2009 and 48 percent for the fourth quarter.Netflix's performance also apparently comes with cost savings, meaning that CinemaNow will not only face branding and technological challenges, but also price pressure. (Playing a movie via CinemaNow usually costs about $5 a pop, though playback on Macintosh isn't supported; Netflix bundles unlimited streaming movies with all but its bottom-tier monthly plan, and works on Mac and PC alike.)As a result, Netflix posted record low subscriber acquisition cost in the quarter, at just $21.54 per subscriber, versus $25.79 a year prior and $25.23 in the previous quarter. Netflix subscribers also became more loyal, with churn dropping to 3.8 percent, versus 4.2 percent in the first quarter 2009 and 3.9 percent in the fourth quarter.
Luckily for Best Buy, the risk is relatively small; the company reportedly paid only $3 million for the service. It may well be $3 million the retailer never gets back.