“Because of the first-sale doctrine, any DVD reseller, including Netflix, can basically buy a DVD at WalMart, and turn around and rent it to someone else the very same day. The content owners have absolutely no control over whether the copy can be resold or rented. Period. As such, Netflix has the ability to rent (via DVD) any movie which has ever been sold on DVD, and its costs are relatively fixed as a result of the retail price of the actual DVD. In some ways, it is a perfect storm.
Fast forward to digital streaming and all bets are off. More specifically, the first-sale doctrine does not apply. That’s right. For DVDs, Netflix’s rights are unlimited and its costs are constrained. For digital, its rights are constrained and its costs are unlimited. In the absence of the first-sale doctrine, Netflix must negotiate each and every title, and the price of the right to stream that digital title is up to the whim of the content owner. For many titiles, you cannot even obtain digital rights, because they can’t find all the people they need to release the rights to do so.”
Bill Gurley, Understanding Why Netflix Changed Pricing
It’s always extremely instructive to know the forces at play in a marketplace. Bill Gurley, a partner at Benchmark Capital, often does a phenomenal job of writing about market forces that show a little of his past as a former financial research analyst.
