In Netflix vs Lovefilm, the winner (probably) takes nowt

Video war kicks off. ZZzzz

Analysis It isn't exactly your cliche of two bald men fighting over a comb, but victory in the battle royale between Netflix and Amazon's Lovefilm might not mean much to the eventual 'winner'.

Both of these video-on-demand offerings have their roots in the DVD-by-post business; in fact, that's the service that Netflix pioneered in the US, and which LoveFilm copied in the UK. Both will stream to your laptop, fondleslab or games console. Both are also members of DECE, the consortium behind UltraViolet, and hope to piggyback onto the aforementioned anti-piracy system in the long-term. Their prices are similar, too. LoveFilm has cut its fee to £5 a month, while Netflix launches at £5.99 with the first month free.

In the US, Netflix has enjoyed considerable success. Where almost every household already pays for cable TV, and where downloading torrents remains risk free, it persuaded millions to pay for movies and TV. Netflix even had the last laugh over its critics after hiking its prices by 60 per cent this summer, sparking a Twitter storm and a great deal of Facebook froth. Netflix ended up losing a million subscribers.

The end of the world? Not really: it still has 24m subscribers, and those who remain, of course, pay much more than they did before. Revenues have increased. Since business is about profits, not counting unicorns, this was a brilliant business move.

So why am I not bullish about either of their prospects?

Well, the content really isn't all that compelling and certainly isn't unique. Each offers a 'long tail' of repeat TV and films that you can see already if you're on TV. There's Poirot, and er, … Lewis and Prime Suspect all over again. And that's in the 'cerebral' part of the catalog!

So, if you're paying for Virgin or Sky, you're probably going to stick with them. This kind of ancient material fills the repeats channels. Sky's own offering is now so sophisticated and flexible (both in terms of pricing options, and what the technology offers), it's hard to see existing Sky subscribers jumping ship. Virgin has more to worry about, but like its satellite rival, it has inertia working in its favour. They also have the HD factor; while I found Netflix streaming to be excellent quality, it's no match for real HD.

So that leaves singles, students or young professionals in shared accommodation. But this is the demographic that knows how to get what it wants even more cheaply - for free, on the internet. They've been torrenting for years, and until letters start arriving on doormats, using peer-to-peer file sharing remains fast, easy and risk free. And as Netflix's price hike experience shows - some customers you can well afford to lose.

So really it's a battle for the middle-income family household - and being Sky or Virgin is a nice place to be. Neither looks likely to be budged. This leaves video-on-demand looking like a feature of someone else's business.

Which brings us to the wild card here: Tesco. The supermarket giant has already very publicly committed to UltraViolet as its way into the video-on-demand market. Which makes a lot of sense. Tesco and the other supermarkets can make all kinds of pricing offers, and they can also via the main householder reach incremental income (the teenagers) who aren't likely to sign up to Netflix or Lovefilm. Add movies for £3 this month and get 100 extra points? That's got to be an easier sell than either of these two punts. ®

Bootnote

Hurrah! The media-savvy Open Rights Group acknowledged that Netflix gone live, marking it with a tweet. Two months ago, and just days after Netflix's big announcement, the ORG was telling MPs in Parliament that Netflix wouldn't come to the UK because of its copyright laws.