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Netflix has set the price for large quantity of video content way too low. They have successfully exploited the media industries price discrimination to get a t

Netflix has set the price for large quantity of video content way too low. They have successfully exploited the media industries price discrimination to get a ton of content for absurdly low prices. But now netflix is killing off the media companies it free rode on. Normally I'd say that the price would move to account for it, but netflix has been pretty unable to move their prices without a huge amount of rage from consumers. I think it's similar to how the 99 cent app set the market psychology on mobile apps, Netflix's 8 dollars a month has sort of screwed the video on demand market. I also believe Netflix knows this. That is why they are getting into original programming. But that is so much more expensive than buying second run tv shows. Especially since they created the binge watch trend. Netflix spends a 150 million on a season of House of Cards and I watch it in a day and a half. Look at what HBO produces for 15 a month. It's high quality, but it's not a ton of a content. I'm guessing that in 10 years netflix will have tiers and packages. You'll be able to buy an AMC package and a comedy central package, etc. Re:30 a month Cable pays about 30-50 dollar a month to channels for content depending on area and whats in a package. A pretty big chunk of that is sports. I bet you could buy all non sports from the channels for like 25 bucks a customer a month. But typically channels get half their revenue from advertising. I'm guessing 30/month is way to low. 50/month maybe?

exelius 11y ago
It's not about what revenue level will sustain the existing players in the market; it's about what price consumers will be willing to accept. I don't think consumers will be willing to spend $30/mo on a single video service in 5 years. Maybe across multiple services, but the whole concept of channels is going away in favor of individual shows. The networks don't have the power anymore; the shows do. I also bet that rather than go through Netflix, AMC et al will sell subscriptions directly to consumers. The value add from Netflix isn't that big; you could set up a very similar service on AWS and Akamai with very little investment since they already own the content rights. Much of the appeal of Netflix is in the simplicity; and I don't see them throwing that away (or consumers accepting it).
- ghaff 11y ago
  I suspect we'll end up with a rather fragmented landscape of services. It will be potentially complicated for consumers to navigate. It's also probable that consumers will be able to cut their current video content bills but primarily if they're willing to give up access to content that consumers as a whole find valuable. (i.e. give up ESPN, not HGTV.)
- slyall 11y ago
  Where I am (New Zealand) the whole stream TV/movies business is just started to heat up with about 5 services launching in the last 18 months or so (in a market with just 4 million people). I saw a few recent talks at a Industry event from the providers and the feeling from them is that the content owners wanted very much to avoid a single provider being a monopoly. The impression I get was most people would end up with around 3 providers each charging $10 per month and each with exclusivity on some new shows (or sports I guess).
- dasil003 11y ago
  Having spent the last 8 years building a Netflix competitor, I think you overestimate the commoditization of VoD tech. You need a lot more than AWS + Akamai. The costs of those are too high for the types of margins a Netflix-like service has. Also, you need apps everywhere, and those apps have to be good. Even though it's getting a lot easier every day, it's still way outside the reach of any individual show, they're just not structurally set up to build and manage the tech side. HBO can do it because they are just barely big enough, but individual shows will never jump that canyon. What's going to happen is not that shows replaces channels, but that services become the new channels. Instead of having a few cable companies monopolizing the last mile, building and running all the distribution tech, and charging an arm and a leg for access, the new model is that there are no gatekeepers on distribution. But that is not to say distribution is a commodity or easy, in fact doing good distribution ala Netflix that cuts across devices, geography, and a long tail of content will become an essential value-add and it will be more competitive than it's ever been.
  - exelius 11y ago
    Having also spent the last decade or so building a similar service, the tech side is commoditized by at least a half dozen companies. The ingest workflow is still somewhat manual, and there's a lot of QA that has to go in to your metadata, but the tech side (transcoding, CDN delivery, etc) are commoditized -- especially if you're a network that already owns the rights to your content. This is all headed towards a world where the big ISPs run CDN nodes and all the channels buy delivery from them not because they force them to, but because the big ISPs can run their CDNs with a lower cost base (they already have the interconnects and disk space is cheap). The gatekeepers will still exist because they own a market control point -- you didn't think it was going to be that easy, did you? Apps are an issue, but they're not that cumbersome to create, even cross-platform. I was able to hack together a prototype iOS app that played back video from a CMS attached to a CDN reasonably well in about 4 hours -- and I'm not even a professional developer. For the long tail, there are always services like YouTube and Vimeo -- they're a better fit than a custom app anyway because you get access to a larger audience.
sheepmullet 11y ago
"I'm guessing that in 10 years netflix will have tiers and packages. You'll be able to buy an AMC package and a comedy central package, etc." Possibly. I don't think it is the way they should go though. IMO, people don't want to pay for specific kinds of shows especially not based on the content provider. I decide on a day to day basis based on my mood which type of show I want to watch and I want it all provided through the same interface. I think instead they should have a couple of tiers based upon show release dates and content format. Want all the new tv content produced in the last year? Pay an extra $10/month. Want everything in 4k? Pay an extra $3/month. Etc. That way plenty of people will just be happy with the base package of $10/month. But people who want to talk about the latest episode etc of a show can pay $20/month. Those with 4k tvs and who want to watch the latest shows can pay $23/month. Honestly, I tend to watch good but older tv shows. Like this year I have watched Friends and Scrubs. $10/month to be able to watch these older shows is a good deal. $20/month isn't really worth it.
sheepmullet 11y ago
"Netflix has set the price for large quantity of video content way too low." What makes you think $8-10/month is way too low? Let's do a few back of the envelope calculations: Globally there is an easy 500 million user market for high quality US TV content. If we take off a 30% cut for Netflix then that is $2.8-$3.5 billion per month for the content providers. A high quality show like house of cards, or the wire, or daredevil, or game of thrones costs around $150 million. Let's say studios want $300 million to make a decent profit. So there's enough money through this kind of service for 10 high quality seasons of content per month. This would very quickly build up a large high quality backlog for most people. Of course content providers would rather pump out lots of low quality crap, and spend big money on advertising average shows rather than spending that money on the content.
Brakenshire 11y ago
The answer is just to sell video content play on demand. You can get access to a substandard catalogue with Netflix (it's really poor in the UK, at least) or you can just pay for access on a show by show basis. The key is that they have to make it very easy for people to use, and allow people to use the media files as they wish. It's iTunes over again, only this time with a different set of established interests.
- kjksf 11y ago
  It's at best a complement to Netflix, not a competition. I routinely buy access to TV Shows that are not on Netflix yet on Amazon Instant Video. That and iTunes existed long enough that if it was a competition to Netflix, it would have actually competed. Given that Netflix still grows like crazy, there's no evidence for that. And I pay for Netflix anyway, because it does have lots of stuff. A monthly netflix subscriptions costs ~3 TV episodes on Amazon Instant Video (and less than even 1 decent movie).
kjksf 11y ago
My theory is that Netflix's low price is their strategy, not a mistake they wish they could reverse. Jeff Bezos said "your margin is my opportunity". Netflix doesn't leave a margin for competition to undercut. No-one can compete with Netflix by offering a lower price. And since Netflix has such a huge lead in number of subscribers, they have much more money to spend on quality of service (more content, better technology). Low price works great for Netflix. I don't see any new entrants competing with them (other than more content owners like ABC, CBS etc. trying to do what HBO did, but it's really not the same thing as Netflix).

exelius 11y ago

It's not about what revenue level will sustain the existing players in the market; it's about what price consumers will be willing to accept. I don't think consumers will be willing to spend $30/mo on a single video service in 5 years. Maybe across multiple services, but the whole concept of channels is going away in favor of individual shows. The networks don't have the power anymore; the shows do. I also bet that rather than go through Netflix, AMC et al will sell subscriptions directly to consumers. The value add from Netflix isn't that big; you could set up a very similar service on AWS and Akamai with very little investment since they already own the content rights. Much of the appeal of Netflix is in the simplicity; and I don't see them throwing that away (or consumers accepting it).

ghaff 11y ago
I suspect we'll end up with a rather fragmented landscape of services. It will be potentially complicated for consumers to navigate. It's also probable that consumers will be able to cut their current video content bills but primarily if they're willing to give up access to content that consumers as a whole find valuable. (i.e. give up ESPN, not HGTV.)
slyall 11y ago
Where I am (New Zealand) the whole stream TV/movies business is just started to heat up with about 5 services launching in the last 18 months or so (in a market with just 4 million people). I saw a few recent talks at a Industry event from the providers and the feeling from them is that the content owners wanted very much to avoid a single provider being a monopoly. The impression I get was most people would end up with around 3 providers each charging $10 per month and each with exclusivity on some new shows (or sports I guess).
dasil003 11y ago
Having spent the last 8 years building a Netflix competitor, I think you overestimate the commoditization of VoD tech. You need a lot more than AWS + Akamai. The costs of those are too high for the types of margins a Netflix-like service has. Also, you need apps everywhere, and those apps have to be good. Even though it's getting a lot easier every day, it's still way outside the reach of any individual show, they're just not structurally set up to build and manage the tech side. HBO can do it because they are just barely big enough, but individual shows will never jump that canyon. What's going to happen is not that shows replaces channels, but that services become the new channels. Instead of having a few cable companies monopolizing the last mile, building and running all the distribution tech, and charging an arm and a leg for access, the new model is that there are no gatekeepers on distribution. But that is not to say distribution is a commodity or easy, in fact doing good distribution ala Netflix that cuts across devices, geography, and a long tail of content will become an essential value-add and it will be more competitive than it's ever been.
- exelius 11y ago
  Having also spent the last decade or so building a similar service, the tech side is commoditized by at least a half dozen companies. The ingest workflow is still somewhat manual, and there's a lot of QA that has to go in to your metadata, but the tech side (transcoding, CDN delivery, etc) are commoditized -- especially if you're a network that already owns the rights to your content. This is all headed towards a world where the big ISPs run CDN nodes and all the channels buy delivery from them not because they force them to, but because the big ISPs can run their CDNs with a lower cost base (they already have the interconnects and disk space is cheap). The gatekeepers will still exist because they own a market control point -- you didn't think it was going to be that easy, did you? Apps are an issue, but they're not that cumbersome to create, even cross-platform. I was able to hack together a prototype iOS app that played back video from a CMS attached to a CDN reasonably well in about 4 hours -- and I'm not even a professional developer. For the long tail, there are always services like YouTube and Vimeo -- they're a better fit than a custom app anyway because you get access to a larger audience.

sheepmullet 11y ago

"I'm guessing that in 10 years netflix will have tiers and packages. You'll be able to buy an AMC package and a comedy central package, etc." Possibly. I don't think it is the way they should go though. IMO, people don't want to pay for specific kinds of shows especially not based on the content provider. I decide on a day to day basis based on my mood which type of show I want to watch and I want it all provided through the same interface. I think instead they should have a couple of tiers based upon show release dates and content format. Want all the new tv content produced in the last year? Pay an extra $10/month. Want everything in 4k? Pay an extra $3/month. Etc. That way plenty of people will just be happy with the base package of $10/month. But people who want to talk about the latest episode etc of a show can pay $20/month. Those with 4k tvs and who want to watch the latest shows can pay $23/month. Honestly, I tend to watch good but older tv shows. Like this year I have watched Friends and Scrubs. $10/month to be able to watch these older shows is a good deal. $20/month isn't really worth it.

sheepmullet 11y ago

"Netflix has set the price for large quantity of video content way too low." What makes you think $8-10/month is way too low? Let's do a few back of the envelope calculations: Globally there is an easy 500 million user market for high quality US TV content. If we take off a 30% cut for Netflix then that is $2.8-$3.5 billion per month for the content providers. A high quality show like house of cards, or the wire, or daredevil, or game of thrones costs around $150 million. Let's say studios want $300 million to make a decent profit. So there's enough money through this kind of service for 10 high quality seasons of content per month. This would very quickly build up a large high quality backlog for most people. Of course content providers would rather pump out lots of low quality crap, and spend big money on advertising average shows rather than spending that money on the content.

Brakenshire 11y ago

The answer is just to sell video content play on demand. You can get access to a substandard catalogue with Netflix (it's really poor in the UK, at least) or you can just pay for access on a show by show basis. The key is that they have to make it very easy for people to use, and allow people to use the media files as they wish. It's iTunes over again, only this time with a different set of established interests.

kjksf 11y ago
It's at best a complement to Netflix, not a competition. I routinely buy access to TV Shows that are not on Netflix yet on Amazon Instant Video. That and iTunes existed long enough that if it was a competition to Netflix, it would have actually competed. Given that Netflix still grows like crazy, there's no evidence for that. And I pay for Netflix anyway, because it does have lots of stuff. A monthly netflix subscriptions costs ~3 TV episodes on Amazon Instant Video (and less than even 1 decent movie).

kjksf 11y ago

My theory is that Netflix's low price is their strategy, not a mistake they wish they could reverse. Jeff Bezos said "your margin is my opportunity". Netflix doesn't leave a margin for competition to undercut. No-one can compete with Netflix by offering a lower price. And since Netflix has such a huge lead in number of subscribers, they have much more money to spend on quality of service (more content, better technology). Low price works great for Netflix. I don't see any new entrants competing with them (other than more content owners like ABC, CBS etc. trying to do what HBO did, but it's really not the same thing as Netflix).