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Is white collar piracy key to Netflix's domination?

By Rupert Burnham | April 29, 2019

In the battle for market dominance of the VOD landscape, is history repeating itself? Back in 1981, the nascent Microsoft purchased MS-Dos which went on to become the world’s dominant operating system, which in turn, made Microsoft the most valuable company in the world up until the beginning of 2019.

 

But how did this happen? How did Microsoft increase its market share to make its product more indispensable than anyone else's? Piracy. Let people pirate your product and yours is the one they’re using and getting familiar with, not anyone else’s. In this way, every new computer ended up using the MS-Dos operating system because people were already using it. Bill Gates was happy for piracy to prosper — but it was a smart move. When IBM wanted to package their personal computers with an operating system, the only that they could effectively use was MS-Dos as this was the one that everybody knew and was familiar with, despite IBM having its own operating system.

 

Fast forward to now, and are we seeing history repeat itself with Netflix’s policy on not clamping down on password piracy? At present, Netflix is happy for account passwords to be shared, despite the fact that that they lose substantial amounts of revenue through this. A recent study by Cordcutting.com estimated that this freeloading sets Netflix back a cool $2.3 billion or more in lost revenue every year. Netflix’s recently announced largest price hike in their history is only going to make this number bigger.

 

So what’s the score, even for Netflix, this is a lot of money. True, but what they lose in revenue, arguably they look set to gain in market influence and dominance. Especially if we consider Microsoft’s actions some 38 years ago. And this could be a crucial factor with recent developments in the VOD market.

 

After years of market dominance by Netflix, the sands are shifting with a raft of powerful contenders set to vie for control and market share namely Disney+ and Apple TV+. But despite the clout of both, particularly Disney+ in terms of market size, revenue, content, and licenses, there may be a fatal flaw in their plans. As we’ve discussed in a previous post, an increase in streaming services is going to lead to an increase in piracy levels — consumers will not subscribe to all services to watch content, a view backed up by Ampere's analysis of service saturation.

 

Bottom line is that the new contenders may have a difficult time dislodging Netflix from its market leading position. As with MS-Dos back in 1981, if people are sharing passwords, they’re also becoming familiar and used to Netflix. Eventually, when they have to pay, the money is on them choosing Netflix — a platform that has 12 years experience in creating and perfecting its VOD offering.

 

Shared passwords may cost Netflix billions on paper, but it’s a small price to pay for future market dominance. As the saying goes, content may be king, but distribution is queen.

 

Tags: bill gates microsoft netflix online piracy piracy svod tv