Netflix vs. HollywoodA rectangular envelope sits in the mailbox with a round imprint of a DVD inside it. This iconic package silently signals to Americans across the country that their latest movie has arrived. Netflix dominated the movie-renting market when it first stepped its innovative foot through Hollywood’s door. Driving to the rental store became a thing of the past. Now, movies ranging from fifty-year-old classics to the recently released thrillers were ordered over the internet and delivered directly to your home.

Netflix isn’t the only such business in town. Redbox offers the latest releases for around (over)  a dollar a night. However, the appeal of their instant delivery of new movies is also major negative for the company. If a movie-renter wanted something that wasn’t considered a “new release,” they couldn’t find it in a Redbox machine. Thus the appeal for Netflix grew.

As technology spread in the renting industry, former Goliaths like Blockbuster and Hollywood Entertainment fell. Yet Reed Hastings, founder and chairman of Netflix, found a mortality issue with the mailing of DVDs. As cloud storage and other technologies became available, the DVD started to seem an archaic artifact as the possibilities of streaming movies were realized. In 2008 Netflix offered the streaming of a few select movies and TV shows in addition to mail-order DVDs. Copyright laws made the streaming of movies difficult as they couldn’t stream movies they had purchased. To offset this, Hastings signed a four-year contract with Starz for $25 million per year to bring new releases into streaming capabilities.

By 2011, it wasn’t only Netflix who saw the value in streaming; other companies (including Starz) realized the popularity of this approach. With streaming no longer fruitful for Starz, they broke off negotiations with Netflix and decided not to renew the contract. Meanwhile, Netflix was counting on becoming a stream only site (called Qwikster) as it would eliminate the overhead of stamps, envelopes, DVD cleaning services, and receiving and shipping centers. However, when the contract with Starz ends, Netflix will not be allowed to stream new releases from Warner Bros., Disney, Fox, Sony, and Universal until the movies have been released in video renting capacities for over eight years. This, combined with consumer outrage at the switch Netflix had tried to implement, forced Hastings to abandon his stream only site.

As DVD suppliers raise their prices, Netflix will pay a lot money to stay in business. Estimates say Netflix’s licensing costs will increase by at least a half a billion dollars. Netflix already pays $1.2 billion in licensing fees. This would mean another 5 million new users will be necessary to foot the additional bill. Netflix isn’t the only streaming service around, either. Amazon, iTunes, and YouTube offer streaming options, as well. Even Facebook has jumped on board when Warner Bros. streamed The Dark Knight on the site. All the major studios plan to offer cloudstorage to users so they can access their purchases on any device. In other words, Netflix no longer has the upper hand. It is Hollywood who is the clear winner in this fight.