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The Economics of Netflix's $100 Million Show
- Strshps1MoreTim 14y agoYeah, a desperate attempt to break independent from the Hollywood/TV crooks.
- rayiner 14y ago> the Hollywood/TV crooks What a load of crap. Hollywood/TV doesn't have a lot of leverage because they're crooks. They have a lot of leverage because they sell a non-fungible product. People don't just want to watch a show about advertisers with a lot of sexist banter--they want to watch Mad Men. They don't to watch a movie with some random hot guy, they want a movie with Channing Tatum. It's the same market dynamic that makes Apple and Louis Vuitton what they are except even more extreme. LV sells purses and so does Kate Spade and so there is competition there. But only Warner Brothers sells Lord of the Rings, and other swords and sorcery movies aren't fungible with LOTR.
- stcredzero 14y ago> other swords and sorcery movies aren't fungible with LOTR. I'd pay for more Legend of the Seeker, or for someone to do a Mistborn series. I'd pay to see Game of Thrones.
- GFischer 14y agoSomeone is doing Mistborn. Let's hope they don't bungle it. http://www.brandonsanderson.com/blog/1074/Mistborn-Movie-Update-and-Hugo-Nomination http://www.brandonsanderson.com/blog/1074/Mistborn-Movie-Upd...
- tectonic 14y agoI'm actually quite excited about this. Netflix is in a position to a first example of a new type of higher-budget independent entertainment.
- stcredzero 14y agoI hope they start producing good sci-fi.
- hnriot 14y agoBring back firefly!
- TruthElixirX 14y agoIts been ten years. Let it go. Seriously.
- stcredzero 14y agoSummer's still got it. You could pick up the universe 10 years later, and nerd-dom would flock to it. Joss Whedon could make it work, if he wanted. Doesn't though. It would be a different show, with maybe a few actors from the old one, but it would still have the benefit of the franchise.
- amalag 14y agoDoes anyone know how the Amazon Studio's projects are coming along? Amazon was also looking to disrupt the Hollywood model and it has been a while since it started.
- cedricd 14y agoI'm really hoping this works. Partially because I'm a Netflix subscriber, but mostly because I want HBO, AMC, and Showtime to follow suit eventually. If Netflix shows that they can support a high-profile show with a subscription model, maybe non-cable subscribers can eventually get HBO. Or am I just dreaming?
- MatthewPhillips 14y agoYou want to pay $9 * N content providers per month? I don't.
- jlgreco 14y agoYou could get up to fairly reasonable values of 'N' there and it will still be cheaper than a decent cable subscription.
- apendleton 14y agoYou wouldn't? I totally would. Seems like a cable package that includes premium content (HBO, etc.) runs at least $100 per month. If I could ditch the cable and instead get 11 HBO-quality content providers (which is much better than I get from cable), that would be a no-brainer. More likely, I would get half as many, and end up with more solid content than I have time to watch, for much less money.
- dublinben 14y agoDish Network starts at $50/mo plus $18 for HBO. Once you start adding up streaming subscriptions and season passes to fill in the gaps, you're looking at a similar price.
- MatthewPhillips 14y agoI want to pay for content, not brands. This is just a different version of the problem we have with cable. You're forgetting that most of the content HBO, Showtime, etc. show is not original content, and it overlaps with each other (and Netflix, and Amazon Prime), so you'd be paying for the same content many times over.
- metalsahu 14y agoI don't think its just a matter of economics, Netflix doesn't have a choice if they have to survive long-term. Thanks to the internet, the power is shifting from content providers to content creators and they risk turning into a dumb pipe at the mercy of whimsical broadcasters who can choose to stream their show directly to their viewers. Reed Hastings has said that it is a race for how fast Netflix can become HBO before HBO becomes Netflix. They need to produce their own shows else soon they will only get access to B-grade content.
- stcredzero 14y agoI've been watching documentaries on Netflix. They're already stuck with B-grade content in some areas.
- bobjane 14y ago"...they risk turning into a dumb pipe". That's their problem, they don't own the pipes either. They don't own the pipes and they don't own the content (before House of Cards). Up to now they provided...well...a useful cute little UI, but it's hard to make a lot of profit for a prolonged period of time on that. So they either go into pipe building or content building. Content building has the better leverage to the large customer base they've got, and in that context producing House of Cards makes perfect sense. I hopes it works out for them.
- sp332 14y agoTheir infrastructure is valuable, especially the code they have which determines what quality of video they can send you without stuttering or buffering which was better than anything else at the time. That was what got them my money.
- GFischer 14y agoThe service Netflix provides is licensing and aggregation, plus the UI and convenience. I'd say the first two are the ones most closely worth U$ 7.99 to me. IMO, licensing and aggregation are the "hard" problems, not UI or streaming or whatever.
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- edouard1234567 14y ago"it could turn around and sell syndication rights to networks and overseas." Very unlikely since Netflix is planning to further expand abroad and the key in their business is exclusivity... The math in this post is bogus since it's only based on incremental revenue brought by new subscribers. Getting more exclusive content does not only bring new subscribers, it also increases retention. I think the real news is not that netflix is producing its own content but that it's using state of the art analytics to design this new content predicting/modeling the type of scenario/actors/director that would best work for it's 30M+ subscribers. That's where the true disruption is. If somehow they are better at predicting what people like or don't like, they can design the right show for a given audience and maybe one day change the scenario in realtime depending on your mood a this very specific time...
- amalag 14y agoWhat about barter deals? Could Netflix 'trade' the show to AMC for the next season of The Walking Dead?
- edouard1234567 14y agoNot only this would be a distraction but I don't think it makes business sense for them. In my opinion exclusivity is key to their long term strategy in a streaming world. They already have the best distribution channel you can think of why would they need to licence their content?
- amalag 14y agoYes I think you are right about exclusivity. I think what they paid for House of Cards is significantly more than what they pay for other shows. That is really my questioning about the model. But yes, they paid the premium to not only show it, but for exclusivity. If you are right they could license it outside the US.
- edouard1234567 14y ago
- geuis 14y agoI'm not a fan of political shows. That said, I decided to watch House of Cards last night. It's not bad. Having Kevin Spacey as the lead is good. There's a good cast of supporting actors too. The writing is a bit mundane, but not terrible. I know the show is somewhat of a remake of a BBC show from a while back, but I never watched it so my take is purely on this experience. I plan on watching the rest of it. It was interesting enough to have keep me up till 5am doing the "just one more" thing. The format of no commercials and having all the episodes available at launch is a really good thing. I was pleasantly surprised when the 2nd episode started playing as I finished the first one. I was fully expecting to have to wait a week to see the next one. No episode felt rushed, like things had to be crammed into a specific time slot. The things that work for this format: 1) Release at once 2) Natural variable time lengths 3) Good production values 4) Good cast 5) Decent writing If they use this as a framework for other types of genres, I think it will be good. I'd personally like to see the next show be sci-fi. Something with a unique premise that has never really been done by networks, because they screw it up. No time travel, or future detective, or alien invaders thing. Something gritty but uplifting, along the veins of Babylon 5, TNG, or BSG. I'd like to see a near-future show about solar system colonization. Could have an entire system-wide, multi cultural backdrop like Firefly. Hell, try getting Josh Whedon to do it. Visits to Luna, Mars, asteroid mining colonies, deep space science labs, political intrigue from Earth, the companies that own colonies, immigration rights, etc. The solar system as a backdrop is big enough to have an infinite number of stories, but keeps everything so close together that it feels real. Star Trek provided a big galactic tapestry, but many times still felt distant and isolated. Anyway, check out HoC if you have Netflix. Hopefully we'll see more shows from them.
- hnriot 14y agoI agree that house of cards is a great show and casting Spacey was an excellent choice. The American Beauty Kate Mana really works well too. If you're thinking of the bbc's Yes Minister, then this is nothing like that show. Maybe you had something else in mind.
- gyardley 14y agoHe had in mind the BBC's House of Cards.
- alaskamiller 14y agoNetflix accomplished two things: 1. They muscled into the "prestige television" club for $100MM. It may be overpriced, or it may be underpriced, either way it's very good for consumers. 2. They validated television is the new book. You gorge on 13 hours of good television the same way you gorge on 13 chapters of a good book. This is very good for show creators. A triple win aligning interests while getting to say f-you to existing preconceptions. This is what "disruption" looks like. Now I'm just sad I didn't buy NFLX after people freaked out over Qwikster.
- geuis 14y agoHmm, television as a book. I get the analogy. It's kind of like applying book serialization to video. You quickly read a book and as many sequels exist when you first pick it up. Then you have to wait for the next season, i.e. book, to come out.
- alaskamiller 14y agoNew normal are streams of everything.
- jseliger 14y agoI get the analogy and see the value in it, but I'll point out where the TV isn't like a book: 1. Books are obviously composed of text, and, when you read, you're also imbibing the rhythms of the language you're reading (see http://www.newyorker.com/arts/critics/atlarge/2007/12/24/071224crat_atlarge_crain http://www.newyorker.com/arts/critics/atlarge/2007/12/24/071... for more on this). 2. Related to number one, many more of us need to write than need to shoot and edit videos. Reading skill is related to writing skill. 3. You'll read far more words in a given block of time than you'll hear in video. Reading is much more information dense in this sense (whether a minute of video is worth a thousand words can be debated elsewhere). 4. It's easier to quote and store text than it is video. Notice the word "easier:" I'm aware that it's possible to quote and store video. Related to this, I use the scheme Steven Berlin Johnson describes here: http://www.stevenberlinjohnson.com/movabletype/archives/000230.html http://www.stevenberlinjohnson.com/movabletype/archives/0002... .
- reustle 14y ago> With Netflix spending a reported $100 million to produce two 13-episode seasons of House of Cards, they need 520,834 people to sign up for a $7.99 subscription for two years to break even. Isn't that ignoring profit vs income?
- DavidSJ 14y agoWhen Netflix owns the content, their marginal costs per subscriber are near zero -- essentially just bandwidth and compute fees.
- sksksk 14y agoBut out of those new subscribers, you need to filter out people who would have subscribed even if Netflix didn't have House of Cards
- JackpotDen 14y agosurely they have the tech to query up the number of new users that watched house of cards?
- mrposty 14y agoAs an Australian who can't get Netflix without breaking the Netflix Terms of Service I suspect there's going to be an awful lot of downloading going on here, even moreso than the game of thrones situation we had where we were only just behind. Now it's just 'off limits' entirely. legally, anyway.
- tnuc 14y agoAccording a "friend"; Game of thrones gets downloaded by many tens of thousands in the first 24 hours. Episodes appear about 15 minutes after screening. House of cards didn't make it to the torrents until 2 days after release and the numbers are nothing like game of thrones. Only half the episodes are available at this time. As an Australian you could wait for it to be on TV, then it might be shown out of order, at all different (non-scheduled)times and episodes missed and cut.
- halo 14y agoAccording to their annual report, Netflix spent almost $500m on marketing last year. I don't understand why people find it so inexplicable that they're spending $100m/yr on creating exclusive content as an extension to that.
- stcredzero 14y agoKevin Spacey should play Jeff Bezos in the Amazon biopic. (Jeff Bezos always reminded me of K-Pax.)
- brianbreslin 14y agoWill be fun to watch NFLX at the end of this upcoming quarter. http://www.google.com/finance?q=NASDAQ%3ANFLX&ei=Oz0PUaCeKqaIlgOhHQ http://www.google.com/finance?q=NASDAQ%3ANFLX&ei=Oz0PUaC... They are going to have to promote the show heavily offline I'm guessing. I am a fan so far after only 1 episode.
- mcot2 14y agoIf this model works than it is great for Apple and Google. TV "channels" move to becoming apps and it blows open the door for more than just a "hobby" project in the living room.
- Osiris 14y agoEven if $100mm seems a bit much for the show, Netflix's first entry into the exclusive content business had to be a hit. Once they've established themselves with quality content, they can later add some less expensive content without harming their reputation. I'm interested to see how well House of Cards does and if it becomes popular enough for them to afford more exclusive content as well as negotiating lower content costs from other publishers.
- nannasin28 14y agoas well as negotiating lower content costs from other publishers. http://www.hqew.net http://www.hqew.net
- startupfounder 14y agoI just finished watching the 13 episodes of House of Cards season one this weekend and my very good friend is in acquisitions for a major network. House of Cards is phenomenal, period. "We believe that February 1st will be a defining moment in the development of Internet TV...The constraints of the linear TV grid will fall, one by one." - Page 5-6 Letter to shareholders http://goo.gl/VBGv6 http://goo.gl/VBGv6 Look beyond the short term $100M price tag for this one show, this is a shift in power. Netflix is building an old stone house... “Money is the McMansion in Sarasota that starts falling apart after 10 years. Power is the old stone house that stands for centuries. I cannot respect someone who doesn’t see the difference.” - Francis Underwood on House of Cards Netflix is becoming truly vertically integrated.
- jv22222 14y agoThey should have done this with Stargate Universe. Easily would have got 500k subscribers.
- robryan 14y agoAs much as I love stargate universe I don't think it would be the best place to start. The audience is a bit narrow and fragmented, they created a lot of disillusioned fans when they cancelled Atlantis and changed the format so much. Would be great to see a new Star Trek series with SGU like production (visually the show looked great).
- siong1987 14y ago"The goal is to become HBO faster than HBO can become us." - Ted Sarandos, Netflix’s chief content officer. This is the kind of disruption that we actually need for traditional media companies.
- hilko 14y agoI love the directness and honesty in that statement.
- shmerl 14y agoNetflix is one of the pushers to standardize DRM in HTML: http://lists.w3.org/Archives/Public/public-html/2013Jan/0172.html http://lists.w3.org/Archives/Public/public-html/2013Jan/0172... So I don't see their growth as a good thing.
- Encosia 14y agoWould you rather they use Silverlight forever instead? Without some form of DRM on playback, there is no Netflix (or Hulu or any other legit web-based streaming for premium content).
- shmerl 14y agoI'd rather them not use DRM at all. I don't use them precisely because of their DRM proliferation. But it's not the point - the point is that DRM is a dying trend altogether, and making it a Web standard is nonsensical. It's not different from proposing to make Flash or Silverlight a Web standard, when the whole Web is shifting to move to pure HTML. That's besides the mere fact that DRM is unethical and goes against the whole notion of the open Web.
- Me1000 14y agoDRM isn't dead, and its not going away any time soon. Although iTunes dropped it for music, they still use it for all video contents and of course apps. Spotify uses DRM for their content as well. I'll be honest, I used to be a DRM hater, like you, but for subscription services DRM doesn't even get in the way... The experience is just that much better, and I don't mind at all... I don't even think about it. So, it seems our options are limited here. There isn't going to be online content without DRM, especially in emerging and very competitive markets. It's a necessary evil, I fear.
- shmerl 14y ago>for subscription services DRM doesn't even get in the way You are saying that some DRM doesn't get in the way, how is it exactly? DRM prevents users from using their system of choice, since DRM is practically never cross platform, and DRM stands in the way of copying (that's what it's created for) i.e. in a way of copying for legitimate purpose such as format and time shifting, backups, accessibility and various other applications of fair use. To put it practically - can you use Netflix on Linux let's say? Not without jumping through some weird hoops. Can you make backups from Netflix content? No. So I'd challenge that it's transparent and doesn't get in the way. > It's a necessary evil, I fear. No, it's an unnecessary evil. And there will be online content without DRM - content creators just need to come to grips with reality and do the right thing. DRM doesn't add any value - it only degrades it for legitimate users. Content creators have two ways forward. First is dropping all DRM, which makes experience better for end users, and respects paying customers. It doesn't stop piracy, but it provides incentive to buy from those who treat customers with respect. Second way is pushing DRM, degrading the experience of paying customers and treating them as potential criminals by default. This way doesn't stop piracy as well, but such disrespect towards legitimate paying users doesn't create any incentive to deal with content creators and distributors who treat people this way, and artificial limitations which degrade the experience and flexibility of such content reduce the incentive even more (guess what incentive they increase? Exactly - for piracy). Music industry realized that DRM doesn't offer them any benefits (and only offers disadvantages) so they dropped pushing it. Other industries are still catching up with the idea, but they'll come to it. DRM as a trend is dying, though in many areas DRM free distribution channels are still a minority. You can get more and more DRM free e-books, DRM free distributors like GOG and Desura show that it's not needed at all for gaming. What's really dragging behind is video distribution. Besides DVDs where DRM is trivially removable, there are virtually no DRM free channels especially for streaming. But I don't see any conceptual difference between music, books, games or videos and etc. In any of these cases DRM offers nothing positive to end users (totally on the contrary) as well as doesn't prevent piracy. So as a trend - it's dying but it will take time for it to be gone forever. My whole point was - it doesn't make sense to make a Web standard out of a dying trend which on top is unethical and user hostile. Therefore Netflix is doing a really bad thing with pushing DRM into HTML standard.
- louthy 14y agoI signed up because of House of Cards, so I guess that's one account closer to their target ;) I really enjoyed the series, I expected to be disappointed because most US remakes of UK shows are abysmal - and the original is a stone cold classic, but I thought it was stunning and really enjoyed Spacey's FU 2.0.
- brownbat 14y agoI would have preferred they spent a few hundred million per year on lobbying and amicus briefs to urge Congress and the Courts to adopt compulsory licensing. Then Netflix would be able to stream HBO shows without HBO's permission for a reasonable fixed fee. So could Amazon, and Hulu, and Google Play. All of them could compete on service, rather than in backroom negotiations. Instead, consumers should look forward to a war of content exclusivity deals, which should be a boon to content owners, and ultimately lead to increasing prices or decreasing convenience for consumers.
- guelo 14y agoLobbying against the MPAA would not be cheap and would take many years to be successful, years that Netflix doesn't have.
- brownbat 14y agoBuilding a content brand isn't going to be cheap or short term either. And the MPAA isn't so formidable an enemy. They lose on issues like SOPA that receive any sort of public attention, because they don't have a populist message. Both sides of the aisle* have basically abandoned them looking for the next grassroots internet issue. And this isn't that high of a hurdle. We already secured similar compulsory distribution rights for radio and cable without any concerted lobbying effort, because it's a really common sense solution that benefits consumers and producers. There's not as much legislative or judicial inertia on these issues as it might seem. As to cost, Netflix is spending $100 M per show and doing 5 shows a year (maybe the others are significantly less?). But for just 0.3% of one show per year, you get a top lobbying firm. I'd be willing to bet other distributors would pitch in to defray the cost. That's more pressure than this issue has ever seen, and it's an issue that's already been won in other domains. Given that history, I don't think it'd take more than two years of effort. Maybe five? While Netflix is seeing revenues of just under a billion dollars a quarter, they'll be fine for a while. Pricing: http://lobbying101.wordpress.com/about-lobbyists/how-much-do-they-charge/ http://lobbying101.wordpress.com/about-lobbyists/how-much-do... *UPDATE: I should have said "some individuals from both sides of the aisle," I didn't mean to claim the MPAA has lost all support, just that cracks are starting to show.
- nextparadigms 14y agoThis is what Spotify and others like them need to do, too - try to take away artists from the labels. But I think Spotify already signed a non-competing contract with the labels.
- Zarathust 14y agoThe article assumes that half a million customer will pay for 2 years. I don't get how allowing a customer to watch all episodes in 1 month will help recurring revenues. Sure, people might get hooked on Netflix after that but I fear that past the initial "wow, Netflix can produce stuff too!" excitement, it will end up being just another show available.
- huslage 14y agoThis article is skeptical, but in a strange way. The basic argument amounts to "the existing models work so why would netflix do anything else". Useless.