Forrester Research (NASDAQ:FORR) recently released a new study about the future of compact discs and DVDs, and the outlook wasn't pretty.
Forrester predicts a dramatic slide in the usage of both media, with music and movie downloading supplanting the purchase of CDs and DVDs. According to the study's main author, Josh Bernoff, "On-demand services are the future of entertainment delivery. CDs, DVDs, and any other forms of physical media will become obsolete."
For a company likeNetflix (NASDAQ:NFLX) whose whole business model is seemingly built around the future popularity of DVDs, Forrester's findings initially appear deadly. After all, how can Netflix prosper -- indeed, survive -- in a world where DVDs no longer have consumer preference? As if the threat of Wal-Mart (NYSE:WMT) creeping into its territory weren't enough, now DVDs themselves are being called into question.
In fact, however, Netflix is prepared for this possibility, and is unfazed by it. One thing that should be remembered here is that Netflix isn't producing DVDs itself -- it's merely a conduit between movie watchers and the flicks they crave. And as that conduit, it will deliver movies however customers want them.
In an interview several months ago for The Motley Fool Radio Show, Netflix CEO Reed Hastings addressed concerns about customers one day choosing to download movies instead of renting DVDs:
TMF: What about the development of new technologies that are allowing people to download movies at home? A casual observer might wonder if that isn't a replacement technology for your business.
Reed Hastings: It's an alternate delivery technology. Right now, we deliver by the U.S. mail. The way it would work is that our movie pages right now have a "Mail it to Me" button and we would add to it a "Download it to Me" button. But for us, we're agnostic about the delivery method. For some people, like those without broadband, mail will be better for them. Other people who have broadband that connects to their TV will want to get it downloaded. We're delivery-mechanism independent.
Netflix shareholders should be proud that their company is actively planning ahead and scouting out potential hazards. It's just another quality among many that makes Netflix a solid business. David Gardner, who recommended Netflix for the June issue of Motley Fool Stock Advisor, undoubtedly agrees that Netflix has lots of future growth and potential.
