I guess it works out for Netflix if users place a really high value in being able to get all their content from one place. At least watching my friends, who subscribe to a bunch of streaming services, I don't know if that assumption is a really great one.
Also, as as user, I've stayed far away from video content hosted by the big studios. They can't seem to keep their own executives from crippling access to their product - it almost seems like they need a Netflix to prevent themselves from overreaching to the point that it's a big customer negative.
Netflix isn't in all that weak a position if a given content holder withholds rights. For me anyway, Netflix already offers programming in excess of my time to consume it. As long as other quality content is available, then other content providers will end up getting that revenue.
Again, Netflix has a lower marginal cost for distribution than the content producer because their fixed costs can be amortized over more than one content producer and the marketing expense of convincing customers to sign up for the service is a historical cost for Netflix but a future expense for the content producer. Simply put, Netflix is more efficient at converting content into money than the individual content producer.
> Or I can license my content to an upstart Netflix competitor that charges (small dollar value) less.
The upstart Netflix competitor has the same problems as the internal studio distribution endeavor. They would have to duplicate all the costs Netflix has already paid. Meanwhile they would have to outbid Netflix for content from the studios. So the new Netflix competitor would have to spread their distribution costs over less content while paying the studio more money and yet charge lower prices. Who is going to enter the market under those conditions?
> Netflix is in a much weaker position. It can't easily replace my content if I pull it.
Why not? If you won't sell them distribution rights for X-Men then they can use the money they didn't pay you to buy distribution rights for Batman from the other guy, or produce more original content like House of Cards.
In exchange for money?
> EBay's trick is that they connect (big number) buyers with (big number) sellers, and take advantage of network effects to stay ahead of the competition. In Netflix's line of business, the number of sellers is very small and well-known (a handful of large studios own almost all the valuable content).
> My wife and I have a few subscriptions (Hulu, Netflix, Amazon Prime), and if say Paramount started their own service, it wouldn't be a big deal to add another one to the list.
For Paramount to release their own service, they would have to pull their content from Hulu, Netflix and Amazon or no one would have any reason to use it. So they would have to spend big money on marketing only to regain the revenue lost by pulling their content from the existing distributors. Then they would have to build their own distribution infrastructure, code and maintain apps for different brands of smartphone and smart TV, etc. Why would they want to incur all that expense instead of just trading content for cash with the entities that have already done it?