Consider what happened in online music distribution. The music companies were very resistant in making their content available online, until Napster and others began chipping away at their revenue. Then the music companies aligned with Apple and iTunes. At first, iTunes looked like the answer to the industry's problems, providing a regulated online distribution channel for music (DRM and all). But over time, as iTunes gained market share, Apple gained extraordinary industry power. Now Apple captures much of the value in the music industry, not in the form of music sales but with hardware sales (iPod, iPhone, etc). And even though the music companies have tried to boost the market share of competing distributers (e.g., Amazon) to reduce Apple's industry power, Apple's strength is still largely intact.
I think Hollywood can learn something here. Despite resistance, we know that video content distribution is moving online. It's just a matter of time. If Hollywood is dragged kicking and screaming into online distribution by Netflix, then so be it. But Hollywood must know that if they enter online distribution hesitantly and with just a single partner, then overtime Netflix will gain significant market power and the tables in any negotiations will be turned. It won't be Netflix paying high prices to obtain any licensed content. It will be the content producers begging to get onto Netflix to distribute (and showcase) their content to viewers.
I think the best thing that Hollywood can do at this stage is to embrace online distribution and create a competitive marketplace. This will not only enable Hollywood to retain its industry power, but also increase the availability of content for viewers. Will it increase Hollywood's revenues and profits relative to their historic highs? I doubt it. But at least it won't lead to a dramatic decline in revenues and profits, as what we've seen in music sales. Your thoughts?