Netflix Global, Amazon and Semiconductors, New Android Dynamics

Yesterday at CES, Netflix “flipped the switch” on making the service available around the globe (except for China). Obviously, this is a good move. Netflix now can reach more customers and add new consumers in many markets. What intrigued me most was this statement from Netflix CEO Reed Hastings:

“Today you are witnessing the birth of a new global Internet TV network,” said Hastings. “With this launch, consumers around the world — from Singapore to St. Petersburg, from San Francisco to Sao Paulo — will be able to enjoy TV shows and movies simultaneously — no more waiting. With the help of the Internet, we are putting power in consumers’ hands to watch whenever, wherever and on whatever device.”

The birth of a new global internet TV network. Let’s not miss the significance of this statement. When you think about how regional the idea of entertainment content has been, this statement stands out as a fascinating window into the future of content. There were certainly some cultural reasons why most content remained regional, but the idea a true global distribution network of content can exist is a huge step in the right direction. In the same way the internet made the world flat for communications, perhaps it will also make it flat for the future of TV shows and other episodic content.

This move also made me think more on a thesis I’ve been developing around the future of bundled content. I am not convinced the future of content is a la carte subscription to network providers. I tend to believe a bundle will still exist in the future only we will choose to get it, and variations of it, from more providers than we have today. I’ll share more analysis on this idea as I flesh it out.

Finalizing this point, what makes Netflix truly valuable is their investment in original programming. This is particularly true if we are to think of them as a global internet TV network. What gets lost in the underlying framework of Netflix is the access they have to legacy TV shows and movies as a library anyone can own. This is why the On-Demand streaming TV show and movie episodes are nearly identical between Amazon and Netflix. They both simply pay for the same package the studio and networks are selling. Apple could easily have this exact same catalog if they wanted. It is one reason I never believed Apple should or needs to buy Netflix. However, now that we have to consider Netflix a looming powerhouse in original content, their inherent value has increased dramatically.

Lastly, I’m rooting for Netflix. One of my earlier startups was in the entertainment industry and I learned quite a bit about its inner workings. For example, many of the contracts governing Hollywood are relics from the 70s. These contracts and rights agreements are archaic and outdated but still dictate what can and can’t be done. Netflix was started, and ultimately grew with their DVD mail rental business because of a loophole in Hollywood rights law about the sale of a DVD after it has already been purchased. For this reason, I find it hard to not root for Netflix to disrupt the whole thing.

Amazon and Semiconductors

Bloomberg had an interesting article that Amazon intends to sell its own brand of chips/semiconductors. Here is the key excerpt:

Annapurna Labs, a subsidiary of the Web retailer, announced Wednesday that it has developed a line of chips called Alpine to sell to manufacturers and data-center operators. The semiconductors are based on designs from ARM Holdings Plc and can be used to create products that handle Wi-Fi, stream video, run data centers, or be embedded in small, low-cost Internet of Things devices, the company said.

I can and will at some point speculate and elaborate on this move specifically, but I want to make a different point for now. What does this say about Intel and Qualcomm? Specifically, why is Amazon’s first move not to work with someone or go to someone who already makes these chips for a living? Instead, they are choosing to follow the path so many other companies are heading, or exploring, and putting investment in their own chips or chipset designs.

I find it hard to not view this, and other moves like it, as quite telling about the fate of companies like Qualcomm and Intel.

New Android Dynamics

Even though most of the new smartphones for 2016 will be launched at Mobile World Congress in a few months, I’ve spoken with some them on the matter here at CES. Those who have launched are setting the trend we will see in 2016. Something I’ve written about extensively is that we will see the new premium Android smartphones drop to $400 or below. Many extremely good Android phones will come to market at that price in the US market and others. This will continue to impact Samsung and LG, who both are trying to duke it out in the high-end, and both are having their share taken from an array of competitors.

These are the new dynamics for Android. Extremely good devices selling for below $400 and then eventually below $300 in the West. There are many more examples in emerging markets, but concerning Android market dynamics, the US has bucked the trend due to Samsung’s favor with carriers but even that is changing. The US market has been a duopoly between Samsung and Apple for the last few years. While I don’t anticipate this new Android dynamic to impact Apple, I do see it further hurting Samsung as they lose share to other Android vendors making these quality devices at lower prices.

This is also the area to keep an eye on Chinese players like Huawei, TCL-Alcatel, Xiaomi and some point, and even potentially benefit new entrants like the Robin from Nextbit.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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