Like the VHS that preceded it, the DVD rental model was based on the "first-sale doctrine." The first-sale doctrine is a legal principle governing the rights that govern the distribution of intellectual property.

After the initial transfer of ownership of a legal copy of a copyrighted work, the first-sale doctrine exhausts copyright holder's right to control how ownership of that copy can be disposed of. For this reason, this doctrine is also referred to as the "exhaustion rule."

The first-sale doctrine applies to physical media. To things. Once Netflix (or your local library) purchases a DVD like Bohemian Rhapsody, it can rent it to whomever it wants and thereafter doesn't owe 20th Century Fox a dime (other than respecting a general restriction for personal use).

But the bits and bytes of streaming media are licensed, not sold, with conditions eternally attached. Like prices, windowing, and exclusives.

Right now, the only way to rent Bohemian Rhapsody on Amazon is to bundle it with HBO. Those terms are dictated by 20th Century Fox. The double-edged sword of digital delivery means publishers can use all that real-time rental data to dynamically price content and pick and choose the distributors.

The ability to extract value from the entire distribution chain is why everybody in the media and software space is jumping on the subscription-based licensing bandwagon. At the right point on the cost/content curve, it makes sense. But what that point is depends on the personal tastes of the viewer.

For me, Crunchyroll, HIDIVE, and Netflix are the best ways to get the most programming for the least amount of money. I've got years of content at my fingertips for a nominal monthly fee.

But subscriptions can also turn into something of a subtle con, with the low recurring fees hiding the long-term cumulative costs. And then the sunk cost fallacy kicks in, leading us to attribute more value to a service we feel compelled to use (having already paid for it).

The old cable model is poorly structured to adapt to individual choices. Much better if, having paid for a service, it continues to offer a surplus of content you want to watch at a price you are happy to pay. In many specialized video-on-demand niches, that is exactly what streaming provides.

And so that is where the long tail lives today.

Related posts

Netflix switch
The Netflix fox
Navigating Netflix
Netflix in Japanese
The streaming chronicles

Labels: business, law, netflix, streaming