As part of out Digital Media Report we spoke with Ralph Schackart of William Blair. With Netflix already entrenched in the $50 billion dollar DVD market it has begun to position itself into the digital content market;
Mr. Schackart: What is attractive about Netflix is that its digital content can go global. And let’s say DVD is a $50 billion plus market worldwide. Netflix does not have to go find a $50 billion market; it’s right there. It’s not going to be a transfer or a change overnight. But our position is that if 2% of the market is digital today, that number will likely go up to 10% or 15% in the next five years. Just too many people know what to do with a shiny disc today. There are 265 million DVD players in the US alone, not including PCs. Hollywood studios have traditionally moved at the speed of an iceberg. They have a lot of different models and you just cannot change consumer behavior that quickly. So as it relates to Netflix, they are going to have a nice core DVD rental business by mail and they are going to attract more consumers, both with their current product and the nice feature on the streaming end. And we will see how quickly the market transitions over time to digital.
The DVD is not going to disappear overnight but it will go away and Netflix is getting ready for that eventuality.