Netflix and Apple Lead Disruption of Entertainment Industry

The entertainment industry doesn't always handle disruption well.

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When digital storage and distribution hit the music industry, labels ferociously resisted the move, suffering tremendous losses as a result.

Now, the film, television and videogame industries are all facing seismic shifts in their fields — and are trying to find ways to avoid the same fate while using very similar tactics.

For Hollywood studios, there is no more disruptive force these days than Netflix . What started as an online movie rental service has completely changed the way people view home entertainment.

Blockbuster basically ignored the company when it launched and began to grow. As a result, it is now a shadow of its former self. (Once 4,000 locations strong, the chain was sold recently in a bankruptcy auction to Dish Network for a mere $320 million.)

Wired Business Conference 2011
Wired Business Conference 2011

Netflix, of course, has shifted focus away from movies-by-mail to a streaming model, and it's growing fast. The NPD Group reports that 61 percent of all movies distributed over the Internet are viewed via Netflix. That's nearly eight times the number boasted by Comcast , the number two provider and majority owner of NBCUniversal, publisher of this website.

The service is available through more than 250 separate devices, ranging from game consoles to Blu-Ray players and will soon be integrated directly into the remote controls for television sets from major manufacturers, including Sharp , Sony and Toshiba .

That growth reminds movie and television studios of the early days of Apple's iTunes store, so they're fighting for higher royalty rates and beginning to withhold content.

Undeterred, Netflix has begun taking tentative steps into the original content business, winning a bidding war for the David Fincher-produced political thriller "House of Cards," with Kevin Spacey in the starring role.

"Our goal remains to constantly expand our selection of previous seasons of popular TV shows and we may bring more exclusive series to Netflix in the future, if an opportunity arises that has the key elements a show needs to be successful: great storytelling and great storytellers," wrote Ted Sarandos, Netflix's chief content officer, on the company blog.

Netflix isn't the only thing on studios' radars these days. As box office numbers dwindle, filmmakers have begun experimenting with making big releases available to DirecTV video-on-demand users just two months after their theatrical debut for a premium price.

The idea itself is a disruptive one — and studios, ironically, are facing some of the same opposition they've voiced about streaming models.

Directors and producers including James Cameron, Michael Bay and Peter Jackson have come out firmly against the plan, saying (in a joint letter with the National Association of Theater Owners) that "the problem of declining revenue in home video will not be solved by importing into the theatrical window a distribution model that cannibalizes theatrical ticket sales."

Meanwhile, in the videogame world, disruption has come from two sides. As Sony and Microsoft fought to build the most powerful game system, Nintendo opted to forego the graphics battle and focus on interface. The result of those efforts — the Wii — has not only become this generation's biggest seller, it has forced both of its competitors to come up with their own motion-sensing controllers.

Both have succeeded: The PlayStation Move has sold over eight million units worldwide, while Kinect for Xbox 360 has sold over 10 million units. It's a common assumption in the gaming world that motion control will play a much bigger role for both when they roll out their next generation systems in 2013 or 2014.

Ultimately, it's the Apple iDevices that have shaken gaming to its core. Most publishers don't know what to do about it. Rather than charging $35-60 for a game, iPhone players can pay a buck, which has traditional game makers scrambling to figure out ways to maintain revenue.

In the last year alone, iOS and, to a lesser extent, Android phones have increased their share of the portable gaming market from 19 percent to 34 percent. Nintendo, which has owned this market for as long as it has existed, is the most flummoxed on how to react.

"Game development is drowning," said the company's global president, Satoru Iwata. "Until now, there has always been the ability to make a living [making games]. Will that still be the case moving forward?"

Look for special coverage of the Wired Business Conference, Tuesday, May 3, on "Power Lunch" at 1pm ET on CNBC. Michelle Caruso-Cabrera will report from the event and will speak with key participants, including some of the tech world's most-watched leaders.