3 ms·

There's some good observations here, but I would stop short of the claim that "for viewers, this can only be good." It's not good that some great movie librarie

There's some good observations here, but I would stop short of the claim that "for viewers, this can only be good." It's not good that some great movie libraries have already been stripped from Netflix because the contract renewal was going to be too expensive. It's not good if Netflix goes all-in on original programming and fails, potentially taking the rest of the company down as well. It's not good if Hollywood feels little pressure to make it easier for consumers to access their content because they're getting great contracts with traditional distributors. It's also interesting that this article makes no mention of Netflix's 3 other original series that are not as popular as House of Cards and Arrested Development - Netflix is probably making as many flops as hits at the moment, and that adds an important qualification on the risk/reward calculation of its strategic investment in original series - the headliner shows have to not only justify themselves (as the article describes), but carry the duds as they come along as well.

roc 13y ago
If the libraries removed from Netflix are licensed to competitors, it is indeed Good for consumers, provided the barriers between services aren't too steep. [1] It incentivizes providers like Netflix to continue increasing their value proposition and ensures profits are flowing back to creators/library owners commensurate with their value. If Netflix fails, at this point, I don't think it'd be too big a blow. There are plenty of services in the same space and the feeding frenzy for Netflix library contracts would ensure the survivors are offering the same library to the same market. And I'm not sure why you think Hollywood feels no pressure to get their content in front of viewers. Their proper interest is to maximize the return on their libraries, and they can hardly do that if they enable the creation of an 800 lb gorilla in the streaming market that can dictate terms. Should Netflix be the undisputed one-true-service for digital delivery, that would almost certainly become bad for viewers. What incentive would they have to work with MS/Google on enabling federated/integrated search/navigation? What incentive would they have to work with new device makers as they have? Netflix fantastic value proposition is a product of how intensely competitive that space is, due its future up-side. Things that preserve that competition are Good, even if they are bad for Netflix specifically, up until the point they are bad for the entire streaming market. [1] The current division between Hulu, Netflix, ABC, HBO Go, et al. is about as high a wall as you'd want. Different services, same box, same-ish interface/behavior. If you couldn't get multiple services on the same hardware, it'd be too high. And, of course, if you could get XB1/GoogleTV-style federated search/navigation across services, the status quo would be just fine.
dasil003 13y ago
> There's some good observations here, but I would stop short of the claim that "for viewers, this can only be good." It's not good that some great movie libraries have already been stripped from Netflix because the contract renewal was going to be too expensive. That's a non-sequitur. That content was going to be stripped regardless of what production Netflix was engaged in. In fact, it doesn't matter if Netflix can magically realize 10x revenue per subscriber overnight, because there is game theory at play here. Big content is happy to make nice marginal payouts from Netflix on the side, but they will do anything to prevent Netflix from consolidating a comprehensive library of A-list content because they already have by far the broadest device reach, and if they get all the content, cable cutting will ramp up overnight and destroy any leverage for rights holders because there will be nowhere else they can go for distribution. > It's not good if Netflix goes all-in on original programming and fails, potentially taking the rest of the company down as well. They have no choice. Big content will never let them win. With their own content at least they have a chance to control their own destiny. > It's not good if Hollywood feels little pressure to make it easier for consumers to access their content because they're getting great contracts with traditional distributors. As long as customers balk at paying $10/month for Netflix while happily shelling out $150/month for cable, Netflix has no leverage. On balance I have to agree with the OA's assertion. Netflix putting some of its money directly to production can only benefit viewers overall. Putting that money to more contracts is not going to move the needle in terms of production from the major studios, to them it's just gravy at this point.
- jeffasinger 13y ago
  I think cable cutting will only continue. I know plenty of people who only care about cable for live sports. Everything else is either on Netflix or pirated. Surely the content producers would rather get a cut from Netflix than nothing from pirated content.
  - dasil003 13y ago
    Sure. Everyone including big content know that streaming is the future. But the thing is, if you look at the numbers (and believe me Big Content scrutinizes these very carefully) cable cutting hasn't made a dent yet, and neither has piracy. Content owners are going to milk the cow as long as they can, they aren't going to hasten the inevitable future because it is not one of more revenue for them. Barriers to both production and distribution are falling on a yearly basis, and this can only mean less money for them in the long run. That is why they drag their feet.
jonnathanson 13y ago
The big problem Netflix faces in the long run is its production cost model. It's well known within Hollywood that Netflix basically went to market and announced that it would pay 1.5x (or whatever) the going Hollywood rate for original material. Hence, it's actually absorbing all the cost inefficiencies of Hollywood and magnifying them. It's driving up prices and adding more inefficiency to the system. (FYI, Amazon is currently in town and doing the same). Their ostensible gameplan is to do this in the short run, in order to get a hit or two on their hands -- at which point they can start dictating terms, rather than being dictated to. This is similar to HBO's playbook, from back when it first entered the scripted development market. It's a very big gamble. It paid off for HBO, and in recent years it's been paying off for basic cable channels like AMC. But Netflix has a very different revenue model that is challenged by heavy, loss leading production costs. It's also starting to face a lot of competition for essentially the same service rendered to consumers. The question of whether this "can only be good" for consumers is a much thornier one. Economics suggests that more players in the distribution ecosystem will lower costs for consumers. And Netflix has already done a pretty great job lowering marginal costs of consumption. But Netflix isn't really disrupting anyone on the content side, at least not yet; that's largely because the studio system is really savvy about protecting itself from disruption.

roc 13y ago

If the libraries removed from Netflix are licensed to competitors, it is indeed Good for consumers, provided the barriers between services aren't too steep. [1] It incentivizes providers like Netflix to continue increasing their value proposition and ensures profits are flowing back to creators/library owners commensurate with their value. If Netflix fails, at this point, I don't think it'd be too big a blow. There are plenty of services in the same space and the feeding frenzy for Netflix library contracts would ensure the survivors are offering the same library to the same market. And I'm not sure why you think Hollywood feels no pressure to get their content in front of viewers. Their proper interest is to maximize the return on their libraries, and they can hardly do that if they enable the creation of an 800 lb gorilla in the streaming market that can dictate terms. Should Netflix be the undisputed one-true-service for digital delivery, that would almost certainly become bad for viewers. What incentive would they have to work with MS/Google on enabling federated/integrated search/navigation? What incentive would they have to work with new device makers as they have? Netflix fantastic value proposition is a product of how intensely competitive that space is, due its future up-side. Things that preserve that competition are Good, even if they are bad for Netflix specifically, up until the point they are bad for the entire streaming market. [1] The current division between Hulu, Netflix, ABC, HBO Go, et al. is about as high a wall as you'd want. Different services, same box, same-ish interface/behavior. If you couldn't get multiple services on the same hardware, it'd be too high. And, of course, if you could get XB1/GoogleTV-style federated search/navigation across services, the status quo would be just fine.

dasil003 13y ago

> There's some good observations here, but I would stop short of the claim that "for viewers, this can only be good." It's not good that some great movie libraries have already been stripped from Netflix because the contract renewal was going to be too expensive. That's a non-sequitur. That content was going to be stripped regardless of what production Netflix was engaged in. In fact, it doesn't matter if Netflix can magically realize 10x revenue per subscriber overnight, because there is game theory at play here. Big content is happy to make nice marginal payouts from Netflix on the side, but they will do anything to prevent Netflix from consolidating a comprehensive library of A-list content because they already have by far the broadest device reach, and if they get all the content, cable cutting will ramp up overnight and destroy any leverage for rights holders because there will be nowhere else they can go for distribution. > It's not good if Netflix goes all-in on original programming and fails, potentially taking the rest of the company down as well. They have no choice. Big content will never let them win. With their own content at least they have a chance to control their own destiny. > It's not good if Hollywood feels little pressure to make it easier for consumers to access their content because they're getting great contracts with traditional distributors. As long as customers balk at paying $10/month for Netflix while happily shelling out $150/month for cable, Netflix has no leverage. On balance I have to agree with the OA's assertion. Netflix putting some of its money directly to production can only benefit viewers overall. Putting that money to more contracts is not going to move the needle in terms of production from the major studios, to them it's just gravy at this point.

jeffasinger 13y ago
I think cable cutting will only continue. I know plenty of people who only care about cable for live sports. Everything else is either on Netflix or pirated. Surely the content producers would rather get a cut from Netflix than nothing from pirated content.
- dasil003 13y ago
  Sure. Everyone including big content know that streaming is the future. But the thing is, if you look at the numbers (and believe me Big Content scrutinizes these very carefully) cable cutting hasn't made a dent yet, and neither has piracy. Content owners are going to milk the cow as long as they can, they aren't going to hasten the inevitable future because it is not one of more revenue for them. Barriers to both production and distribution are falling on a yearly basis, and this can only mean less money for them in the long run. That is why they drag their feet.

jonnathanson 13y ago

The big problem Netflix faces in the long run is its production cost model. It's well known within Hollywood that Netflix basically went to market and announced that it would pay 1.5x (or whatever) the going Hollywood rate for original material. Hence, it's actually absorbing all the cost inefficiencies of Hollywood and magnifying them. It's driving up prices and adding more inefficiency to the system. (FYI, Amazon is currently in town and doing the same). Their ostensible gameplan is to do this in the short run, in order to get a hit or two on their hands -- at which point they can start dictating terms, rather than being dictated to. This is similar to HBO's playbook, from back when it first entered the scripted development market. It's a very big gamble. It paid off for HBO, and in recent years it's been paying off for basic cable channels like AMC. But Netflix has a very different revenue model that is challenged by heavy, loss leading production costs. It's also starting to face a lot of competition for essentially the same service rendered to consumers. The question of whether this "can only be good" for consumers is a much thornier one. Economics suggests that more players in the distribution ecosystem will lower costs for consumers. And Netflix has already done a pretty great job lowering marginal costs of consumption. But Netflix isn't really disrupting anyone on the content side, at least not yet; that's largely because the studio system is really savvy about protecting itself from disruption.