Movie Download Competition, Getting Even Tighter (NFLX, CSTR, GOOG, AAPL, AMZN, WMT, TWC, CMCSA, GE, NWS.A, DIS)

Netflix, Inc. (NASDAQ: NFLX) has almost certainly led to the downfall of the Blockbuster empire.  Then Netflix (and Blockbuster) had to face competition from Coinstar Inc. (NASDAQ: CSTR) over the Redbox video rentals at grocery stores and other locations.  Netflix has a streaming download service, but now the Google Inc. (NASDAQ: GOOG) team has decided that YouTube might be a good way of getting into the pay-per-view movie rental business.

The reports stem from a weekend report in the FT that YouTube is in talks with major Hollywood studios.  Frankly, it makes sense so long as Google understands that it is a “Me Too” business model.  Apple Inc. (NASDAQ: AAPL) via iTunes and Amazon.com Inc. (NASDAQ: AMZN) are in there.  Wal-Mart Stores Inc. (NYSE: WMT) bought Vudu, an online streaming video rental service, and you can’t count out Time Warner Cable Inc. (NYSE: TWC) nor Comcast Corporation (NASDAQ: CMCSA) for their pay-per-view offerings.  There is also Hulu.com for movies and TV shows, owned by General Electric Co. (NYSE: GE) via NBC Universal, News Corp. (NASDAQ: NWS.A), The Walt Disney Company (NYSE: DIS), Providence Equity Partners and the Hulu founding team.

YouTube has an easy new entrant advantage over other players going into pay-per-view and streaming video sales because it already has millions of users and Google can throw almost any money it wants at the market.  This will also be a very late-entrant into the game.  Would all the studios sign a deal with Google?  Most likely.  TV networks and movie studios seem more than happy to use the independent arms dealer business model where selling too all sides works well.  YouTube also already has every streaming movie preview in the world.  It also has millions of movie scenes from just about every movie ever made regardless of popularity or age.

Netflix shares are down 2% at $123.50 today, although this is likely more tied to the weaker stock market than it is solely to YouTube.  The question comes to this: How many players are needed here?  Google will have to resort to selling the movies outright.  The company’s model tends to revolve around giving services for free with the intent of using an advertising or sponsored business model down the road.  While this is opinion, it seems unlikely that Google could get the studios to go along with just an advertising-support business model.  That is called television.  There is also only so much advertising spending that can occur.

Google keeps looking for new models outside of core internet search and expanded search ownership of platforms.  There is the Android platform for smartphones and for these new generations of web devices.  It has gone into the Apps business, email, maps, positioning, and has dozens and dozens of side projects.  The issue at stake is if YouTube can even make a significant addition to the bottom line of Google AND whether it can unseat other rivals in the field.  Unseating rivals and adding massively to the bottom line are going to be harder than launching the service.  That holds true even for Google.

Even if it makes sense for Google to get into this, its success may be limited.  There are already many players in the field and many were not even listed here.  The platform makes perfect sense.  It just might not add more than a few more cents into Google’s coffers.

JON C. OGG