Will Hollywood Kill The Golden Goose By Squeezing Netflix Dry?
from the watch-those-numbers... dept
Back in December, we did a little back-of-the-envelope calculating to show how much more expensive it is for Netflix to license movies for streaming, as compared to just buying DVDs and shipping them out. The differences are staggering. And apparently it’s only getting more expensive. The Hollywood Reporter has an in-depth article highlighting the love-hate affair that Hollywood has with Netflix, including details on the sorts of prices that the various players are demanding (and often getting) from Netflix. What’s not surprising is that they keep asking for more and more (and some are still complaining that Netflix doesn’t pay enough). But the numbers being thrown about are simply staggering. And at the rate they’re going up, it will make it increasingly difficult for Netflix to actually afford all of those deals. Once again, it seems like a situation where the content providers are overvaluing their content, and undervaluing the services that make that content more valuable. That is, they look at how Netflix is succeeding (especially as they’re failing to adapt themselves online), and they start to get jealous, and assume that Netflix really should be paying them more money. Basically, they don’t think Netflix deserves to profit at all, since it’s really all “their content.” What they ignore, of course, is that (despite multiple weak attempts) they were the ones who failed to provide a compelling streaming service themselves. Either way, if Hollywood keeps pushing those numbers up, they may discover that they end up killing the golden goose.
Filed Under: content, licensing, movies, streaming, value
Companies: netflix
Comments on “Will Hollywood Kill The Golden Goose By Squeezing Netflix Dry?”
And the rest!
Colour me completely unsurprised by this.
Frustrated
We live in a age where it is technically possible for any content to be available anytime, anywhere to anyone. But why don’t we have it?????? Because of stupid stuff like this.
The likes of Netflix and Google Books are trying to bring attention to back catalog content. Content (sometime literally) rotting on the shelf. Content that is make no one no money currently, and they are demonized for it.
Grrrr.
Re: Frustrated
> We live in a age where it is technically possible for any
> content to be available anytime, anywhere to anyone.
You are so right. I haven’t touched a physical disc or a book for over a year. Physical mediums for information are dead, they just don’t know it yet.
In the end, the question isn’t what netflix will pay, but what the public will pay. The demand for this content is strong, and the basics of supply and demand make it valuable for Netflix.
Netflix is also in the process of shedding it’s DVD distribution business, and pushing more and more users to direct downloads. The cost savings here are enormous, as well as the ability for Netflix to stream effectively an unlimited number of copies at the same time, better satisfying their customers.
With profits of over 200 million for the last 12 months, and margins growing as costs drop, Netflix is very much in a position to pay more for the content it wants.
If they aren’t willing to pay, don’t be shocked if another player enters the fray and makes a major dent in the streaming market. It’s the product, not the company that matters here.
Re: Re:
You don’t need another player with high prices when you have steadily improving sources for piracy with ever expanding available content.
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Except piracy isn’t on the increase.
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If that is in fact true as of now, fine, I dont’ have numbers on that. That doesn’t change the fact that piracy gets easier and easier with every passing day, with more available content than netflix OR redbox. They have to wait 30 days for a new release. Pirates get a new release 30 days BEFORE the retail release date.
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That is because Netflix like services help keep it in check, sure i could dl a movie I want, convert it for streaming on my network, then watch it;
or i could just browse through stream instantly.
Much easier, course if Netflix keeps raising its prices i will drop them and go back to ripping my movies to my Linux box and streaming them.
Re: Re:
Your reply, like the movie studio’s reaction, defies logic. Streaming is bringing the price down because the costs come down. There is no minting of plastic discs, not manufacturing of jewel cases, no distributors, not shipping costs, few employees, no brick & mortar stores, etc. So the market has become more efficient and the price should come down. After all, expenses are way down.
So the market is setting the price but the studios just don’t like the price the market is setting.
Re: Re:
Did you look at the numbers?
It went from buying 10,000 copies of a title for $150,000 to $16 million to license it for streaming. So, at $10 per month for a subscription, they previously needed 1250 people subscribed for a year to pay for the content. Now, they need 133,333 people subscribed for a year to pay for a SINGLE TITLE of content. That’s what Hollywood is valuing it’s content at – 133k subscribers per major movie. With their current subscriber base (estimated at 12 million people), they can afford to have 90 major titles available?
If they only had 90 titles, their subscriber base would plummet. The content is simply not worth what Hollywood is looking for. All they are going to do is kill off Netflix and send 12 million people onto file sharing sites that pay them nothing for the content.
Re: Re:
In the end, the question isn’t what netflix will pay, but what the public will pay.
This is very true. The mistake is in thinking anyone will pay more than $20/month for it. (Even that might be high.)
If they aren’t willing to pay, don’t be shocked if another player enters the fray and makes a major dent in the streaming market.
Except if this other player is willing to pay more, their prices will be higher. Do you honestly think that people are going to switch from a $20/month Netflix account to a $50/month BrandX account, just so they can stream a couple extra blockbuster movies? I seriously doubt it.
It’s the product, not the company that matters here.
It’s not the product, it’s how the companies deliver the product that matters. Netflix succeeded, not because they offered different product than e.g. Blockbuster, but because they offered it better.
I will mourn the loss of Netflix
When they finally do kill of Netflix, I will mourn the loss. I will then switch exclusively to Redbox. Once they kill that off, I guess I will quit renting movies altogether. I will never again pay $4 and up for movie rentals. This is the part that the movie studios don’t understand. They can no longer price fix. The market has set the price of a rental to $1 and there it will stay or go lower.
Re: I will mourn the loss of Netflix
The price is actually Zero $. You just need to learn how to take advantage of that price. It’s not very difficult to do, and it’s not very difficult to not get caught doing it either.
Re: Re: I will mourn the loss of Netflix
Yes, I know I could get the content for free but I am one who will actually pay for content. Like most things when it comes to business or government, it is the honest consumer/citizen who pays the price.
Re: Re: Re: I will mourn the loss of Netflix
“Yes, I know I could get the content for free but I am one who will actually pay for content.”
Yup, me too. Fortunately there are still some companies worth rooting for, and a bunch of sources of either free entertainment or else entertainment I’m happy to pay for. Cheers to the good guys….
Re: Re: Re:2 I will mourn the loss of Netflix
Exactly. The comsumer will find a way, if they like the product, but dislike the distribution.
Re: Re: Re:2 I will mourn the loss of Netflix
Entertainment is and always has been overpriced. I can’t wait for the endgame on this. I can’t wait until the Brad Pitt’s of the world are paid the same (or close to) as a cameraman or caterer. I heard comedian Louis CK on the radio say that the song he wanted to use as the opening theme on his FX comedy show would have cost the network $20,000 every time an episode aired. I think that’s a bit high don’t you? Piracy and cheap/free streaming is going to put an end to over corporatized mainstream entertainment.
Re: Re: Re:2 I will mourn the loss of Netflix
So you people are the ones feeding the studio trolls with money to buy legislation.
DVD Place shifting
Netflix should continue to purchase the cheaper DVDs then when you request to watch it streaming they load the DVD into a reader and stream it just to you. Kinda like a slingbox but for DVDs.
Re: DVD Place shifting
That would certainly be an interesting approach. I wonder whether they would win the lawsuits?
In related news....
My subscription for 4 discs at a time goes up $3 a month tomorrow.
Yeah I still get discs because they work good with grandkids. The older ones stream movies or use the discs it depends, I have one that is consumed by Smallville right now and he has to have 2 of the discs at all times (teenager I don’t even try to understand his logic).
I too will mourn the loss of Netflix I’ve had a long relationship with what I consider to be one of the best customer service companies in the world.
As has been said movies cost $1 or less I don’t care how many gimmicks you attach to them the content that the studios are so proud of simply isn’t worth more than that to me.
'sOK
I realized I could do without TV, and don’t bother with that anymore. I may find out I can do just fine without movies also. A good book won’t lie to you, presume you a crook or try to rip you off. Once you own it, they can’t make the print disappear off the pages, tell you what countries you are allowed to read it in or charge you extra if more people want to read it.
The article would be better if it included some maths.
I see commenters filled the gap, but still it would be better to have them:
1) Available directly
2) With short analysis explaining why do you consider them high.
I hate Hollywood
I love Netflix. I won’t hold it against them when they raise their rates, as long as they prevail. Later, when they have the power and 400 million subscribers, I hope they buy some of these Hollywood studios and fire the idiots. Every time Google, Netflix or other services give us what we want, the morons come out of the woodwork.
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That is because Netflix like services help keep it in check, sure i could dl a movie I want, convert it for streaming on my network, then watch it;
Convert it? Methinks you’re doing something wrong. If you can’t find the film in the format you want, you need to find better sources. Just sayin’
@ Anonymous Coward: You seemed to miss the point, which is really not about Netflix (or “take your pick” provider), but about the owners of the content and how does it/can it get to market. If no one views it, a great piece can be thought of as worthless, it doesn’t add as much value until it is viewed (esp. multiple times). The general public are viewing movies more often through Netflix, Redbox, Blockbuster, Walmart, Amazon, etc on an on-going basis then there are movie goers to a theater. Where would the value be without having an alternative to a theater, really? What is the objective of the content owner? I would say first it is profit, and second see their work flourish. You seem to miss this because you are either a) working as a hollywood agent or on on their behalf or b) you are actually too thick-headed unable to comprehend this concept and just like seeing your own text online. I would like to think it is the former.
'sOK
Yeah, but they’re working on that….
'sOK
Don’t worry, I’m sure the publishing companies are working on that…
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It is the company that matters, and how they deliver the product.
I will mourn the loss of Netflix
i have sweet faith that someday content industries will figure it out. it’s either nothing or market price. there is no in-between anymore. there are no middlemen. there is no more secret collusion. you can’t artificially push the market price needle higher because you can no longer hide from nor block out your competition.
’cause, like it or not, you have to compete with free from now on.
games have (mostly) figured this out and profits are raging upward. give people what they want and you’ll make money hand-over-fist. and what do people want? what will they pay for when it comes to content?
convenient access to a quality experience. end of story. period.
it is a truism. from the resurrection cakes in ddo to any song ever created at your fingertips in itunes. meet their need right then. don’t make them wait. don’t overprice it. find a solution in your industry to one of these two pain points (there are only these two points on the triangle you can control now — convenience and quality) and you’ll be rich.
fighting costs money. fulfilling makes money.
you mr. content provider, for pete’s sake — be a profit center and stop being a goddamn cost center.
m3mnoch.
Frustrated
You say physical media is dead I would disagree. When I can purchase a used hardback book and have it delivered to my house for less that 1/2 the price of an ebook there is a problem.
Yes I have a couple of kindles and they have their place but as the publishers keep raising prices I purchase less of their ebook content. Guess who loses? The publisher & the author not me.
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Like Blockbuster and Best Buy, who have both done SO well?
The product is the marriage of the content with the ease of use of the delivery system. Netflix has succeeded IN SPITE of the content, not BECAUSE of it.
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Actually he is wrong, infringement is on the increase where things are not available online. They have just taken a shift from P2P and bit Torrent to WebLockers and other distribution methods. There is a direct corrolation between when things are available online for free and when infringement occurs.
Hollywood has *already* killed the golden goose.
They just haven’t figured it out yet.
What is the golden goose? Customer regard and loyalty. Hollywood has become a town run by lawyers and accountants whose sole focus is money. Picture quality? Theater experience? The audience itself? Who in the Hollywood executive suites gives a damn about them? We’re just wallets, and don’t count.
The result is that they’re losing their audience. Theaters have become a place for teenagers to get out of the house and out from under parental eyes, and the “quality” of the pictures shows it. The result, at least at my end, is Netflix, Redbox, and never EVER buy a DVD.
Feh.
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Yeah, If I were the studios and labels I wouldn’t like the price being set … Free … But thats just me.
There is no doubt in my mind that they will kill the golden goose. They simply do not get it and sadly they do not seem to care. Shortsightedness is a bitch.
“What’s not surprising is that they keep asking for more and more…“
Yep, they did the exact same thing to the cable and satellite companies. Every contract renewal they demanded more and more. Now those services cost so much people are dumping them.
The studios would much rather have all of $20 than half of $100. And if they keep trying to squeeze companies like netflix and redbox they will find that instead of having half of $100 they instead have all of nothing becasue they are unwilling to provide a product that people want.
I hate Hollywood
I love Netflix. I won’t hold it against them when they raise their rates, as long as they prevail. Later, when they have the power and 400 million subscribers, I hope they buy some of these Hollywood studios and fire the idiots. Every time Google, Netflix or other services give us what we want, the morons come out of the woodwork.
I love Netflix too. I’d gladly pay more for the same service. Despite the FUD, I can’t imagine they’re going anywhere.
New to Netflix
My kids got me a 1-year subscription to Netflix. Before that I rarely watched movies.
As it currently stands, the selection for streaming is barely adequate to keep my interest. If things stay as they are I will probably renew on my own when the subscription runs out. However, if the price goes up or the selection drops then I won’t. renew.
One alternative to high-priced movies is to not watch them at all. Netflix changed me from a non-movie consumer into at least a small revenue stream. I suspect there are a lot more people like me who will pay something to be able to watch movies, but won’t pay exorbitant amounts.
The movie industry has fallen into the trap of thinking that everyone is willing to pay them a lot of money for their product. I don’t think that they are capable of understanding that not everyone wants to pay them a lot of money. They don’t seem to grasp the fact that some people will just ignore their product because the price is too high. Consumers also don’t care what studio produces their movies, and they don’t want to have to subscribe to several different services to get a selection of movies. Netflix does understand this. Netflix is based on getting modest payments from a lot of people who send them money every month. As long as Netflix can keep its customers, it will keep sending checks to the studios.
I think that the studios will kill the goose that is laying golden eggs for them. I expect that I won’t have to decide what to do when my annual subscription to Netflix runs out. I think the studios will have managed to effectively kill it off by then and deny themselves a revenue stream. And all the studio execs will congratulate themselves and get large bonuses for doing it.
New to Netflix
My kids got me a 1-year subscription to Netflix. Before that I rarely watched movies.
As it currently stands, the selection for streaming is barely adequate to keep my interest. If things stay as they are I will probably renew on my own when the subscription runs out. However, if the price goes up or the selection drops then I won’t. renew.
One alternative to high-priced movies is to not watch them at all. Netflix changed me from a non-movie consumer into at least a small revenue stream. I suspect there are a lot more people like me who will pay something to be able to watch movies, but won’t pay exorbitant amounts.
The movie industry has fallen into the trap of thinking that everyone is willing to pay them a lot of money for their product. I don’t think that they are capable of understanding that not everyone wants to pay them a lot of money. They don’t seem to grasp the fact that some people will just ignore their product because the price is too high. Consumers also don’t care what studio produces their movies, and they don’t want to have to subscribe to several different services to get a selection of movies. Netflix does understand this. Netflix is based on getting modest payments from a lot of people who send them money every month. As long as Netflix can keep its customers, it will keep sending checks to the studios.
I think that the studios will kill the goose that is laying golden eggs for them. I expect that I won’t have to decide what to do when my annual subscription to Netflix runs out. I think the studios will have managed to effectively kill it off by then and deny themselves a revenue stream. And all the studio execs will congratulate themselves and get large bonuses for doing it.
New to Netflix
My kids got me a 1-year subscription to Netflix. Before that I rarely watched movies.
As it currently stands, the selection for streaming is barely adequate to keep my interest. If things stay as they are I will probably renew on my own when the subscription runs out. However, if the price goes up or the selection drops then I won’t. renew.
One alternative to high-priced movies is to not watch them at all. Netflix changed me from a non-movie consumer into at least a small revenue stream. I suspect there are a lot more people like me who will pay something to be able to watch movies, but won’t pay exorbitant amounts.
The movie industry has fallen into the trap of thinking that everyone is willing to pay them a lot of money for their product. I don’t think that they are capable of understanding that not everyone wants to pay them a lot of money. They don’t seem to grasp the fact that some people will just ignore their product because the price is too high. Consumers also don’t care what studio produces their movies, and they don’t want to have to subscribe to several different services to get a selection of movies. Netflix does understand this. Netflix is based on getting modest payments from a lot of people who send them money every month. As long as Netflix can keep its customers, it will keep sending checks to the studios.
I think that the studios will kill the goose that is laying golden eggs for them. I expect that I won’t have to decide what to do when my annual subscription to Netflix runs out. I think the studios will have managed to effectively kill it off by then and deny themselves a revenue stream. And all the studio execs will congratulate themselves and get large bonuses for doing it.
Re:
you’re missing the cost of distribution. license fees and postage are essentially interchangeable fixed costs. and, when you look at their two-year $1.5 billion (yeah, with a “b” http://gigaom.com/video/netflix-could-lose-big-in-postal-rate-hike/ ) in postage costs, $16 million for a single, high-profile title for two years doesn’t sound that bad.
you can negotiate licensing down as titles age and decrease in popularity. however, postage costs will only go up.
seems smart enough to me.
you know… i bet those netflix accountants can actually do math. who’da thunk?
m3mnoch.
I will mourn the loss of Netflix
like it or not, you have to compete with free from now on.
This phrasing has always bothered me, because downloading a movie isn’t really free. At least not from an economic standpoint. You have to find the thing you are looking for (time). You have to be willing to download from that source (trust). You may or may not get a finished file that works correctly or has good quality (more time). And so on …
Other than that, I totally agree with you. What you are really competing with online isn’t price, it is quality and convenience. I find Netflix much easier to use than downloading and the quality of the movies is often as high or higher than what I would download (not interested in 3 and 4 gig HD downloads, sorry don’t have the patience). Also, on Netflix I can start streaming a movie, decide it is crap and stop; I don’t have to spend an hour downloading the whole thing only to decide I don’t want to watch it.
People will pay for movies and they will pay for services that make accessing those movies easier, but why would anyone pay $20, instead of spending their time and effort, when they will get an obviously inferior experience (previews, unskippable menus, DRM problems, a fixed format that will go out of date, etc.)
And the rest!
Yeah its a total repeat of what the record labels did to the early music sites. The record labels came in with lawyers and law suits and forced concessions and financially unworkable terms.
The studios are going about it in a slightly different manner. They are going to nickel and dime Netflix to death, with ever increasing fees, and the inevitable requests for profit sharing, followed by lawsuits seeking profit sharing, or talks of investing followed by negotiating via lawsuit (aka the EMIs trick).
so I agree – Colour me completely unsurprised by this.
Compete with piracy?
Up until last year I was an avid torrent downloader. I downloaded everything I wanted to watch that I could find online. The process isn’t hard – but it certainly isn’t streamlined and your average normal home user probably can’t do it. Netflix makes the process of watching movies easy. If I can pay 7.99 a month for a service that I just click on and can stream all the content I want right down to my TV, why would I want to do a filetype:Torrent search in google to find the files that I want. This seems like the opposite thing to do if you want to kill piracy… If they kill netflix I guess I’ll just have to go and do more torrent downloading….Its a shame people are so stupid….
'sOK
And just HOW are they going to apply DRM to paper?
If you really want an electronic copy, and the idiots publishing it want $19 for an electronic copy of a long-in-print book, get a used one, chop the spine and feed it through a scanner. Instant PDF.
Re: 'sOK
With ink that disappear after 24 hours exposure to air.
Or with new electronic paper that can emulate the texture of paper and have a microchip embedded in each page.
Sounds like Netflix doesn’t have a viable business model. Capped ISPs + paying royalties to studios = Death for Netflix.
Try again.
Re:
I find this to be very much true. I usually check Hulu or Netflix before any of the non-legitimate streaming sources. They could be showing me ads all day long and raking in revenue, but whenever I don’t find it online, it’s straight to torrents or don’t even bother watching.
it makes no difference what the entertainment industries are involved in, from allowing companies to stream videos to getting companies to police the internet for them, they want maximum income and protection for doing nothing. they cant get it into their heads that if pushed too far, there is backlash. when that happens, everybody losses. they still think that if they price other companies out of the market, by charging the same to stream or download as a shop bought disk (or often more), so stopping that company from trading, people will flock back to buy from the shops. here’s news for the entertainment industries, IT AIN’T GONNA HAPPEN!! you’ve pissed on the public with your attitude and that wont be forgotten in a hurry!
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“It’s the product, not the company that matters here.”
Wrong. It’s the convenience of Netflix that people pay for. If Netflix won’t pay, do NOT expect anyone else to come in, pay those high prices, and be successful. By that time, anyone who really wants the content would have found other ways to get it without paying more than what they felt was fair for the CONVENIENCE of Netflix.
And the rest!
I am jack’s complete lack of surprise.
I will mourn the loss of Netflix
It’s been years since i’ve stopped buying music CDs, then I’ve stopped buying it from itunes. the only source of musing is online radio now and I’m not the only one who does this. The same will follow with the movie industry. they will be sorry for bullying their customers.
I will mourn the loss of Netflix
Sad though it is, the demise of Netflix may be one of the only events that can get these kinds of matters onto the radar of the general public. Most people are simply unaware of the nefarious games that the **AA plays, but Netflix has enough fans that if it were ground into dust, and its customer knew WHY it was ground into dust, they would start paying more attention, and having more discretion in their purchases.
Re:
you’re missing the cost of distribution.
You’re missing the fact that a “streaming only” Netflix account costs about $8/month, and a “streaming + DVD” account costs about $20/month.
The lack of distribution costs is passed on to the customer, as it should be. They don’t suddenly have extra money to pay for licensing fees.
Compete with piracy?
I would disagree with your assessment that the average home user wouldn’t be able to torrent effectively, but your point still stands- Netflix offers a service that makes things easy, and that convenience is worth something.
Actually, I would like to pose a question to Techdirt. It’s true that Hollywood far overvalues its content, but that said, at least it is (mostly) not bereft of value. If Michael is correct, Hollywood prices itself at $16M a title (streaming license). How much value do you believe the average title is worth?
Re: Compete with piracy?
I would disagree with your assessment that the average home user wouldn’t be able to torrent effectively,
Don’t over-estimate the average user. I have a friend who is fairly intelligent, but yet I still haven’t been able to teach her how to download her favorite TV shows. (She doesn’t have a DVR with her cable package and can’t keep up with all the shows she wants to follow)
Frustrated
Just because you can still access something doesn’t mean it’s “alive” in an economic sense.
Single Core PC processors are “dead” yet you can still buy them. But the fact of the matter is that multi-core processors are the future and are already available everywhere in just about everything.
Just because physical books are cheaper and still easily accessible does mean it’s the future. That is a temporary condition. Remember that the Internet, alone, is still in its infancy, which means the digital revolution is barely out of the womb.
Combining the demand for better care of our environment + the demand of having an infinite-resource of content at our fingertips 24/7, eBooks are the future and they already exist. That is why physical media is dead, or I guess, “Zombie”.
Re: Frustrated
So by “dead” you mean “will probably be overtaken by something else someday”. Interesting definition!
Re:
Streaming only is $8/month. Streaming + 1 disc at a time is $9/month. Not sure where you’re getting $20/mo unless you’re looking at something like 3 discs at a time (I haven’t looked at the other plan prices in awhile.)
I will mourn the loss of Netflix
Doubtful so long as piracy is a scapegoat.
Compete with piracy?
Average Home User (A.H.U.) cannot torrent effectively = true. However, if A.H.U. starts feeling pushed around by greedy film companies I would bet that some of those same A.H.U.’s, who today happily shell out (already too much) $$ for Hollywood’s remakes/rehashes/etc., might be a little more receptive to torrenting if a fairly ‘easy’ way was available. And I bet somebody is developing this, in his parent’s basement, right now as I write this. The studios, rather than racheting up the abuse of their customers, should instead be cozying up to them with better deals so they won’t feel compelled to look elsewhere.
Re:
The 19.99 is for streaming + 3 discs at a time.
The complete list of pricing the offer can be found at this specific blog post of theirs:
http://blog.netflix.com/2010/11/new-plan-for-watching-instantly-plus.html
the people in charge of Hollywood don't care
Hollywood used to be run by movie moguls who made motion pictures. Then they were bought up by multi-national media companies like Sony and Vivendi and now they’re run by marketers and accountant. That’s why they only make movies that are easy for them to market rather than films with artistic value. They treat movies like any other product the company may have, and can’t understand that movies aren’t just something else to put on a shelf with a price tag. They’ll milk Netflix to death and not think twice about it.
Meh. Good Bye to Netflix, and Good Bye to Hollywood. I would have no problems living in a world without either.
You could replace Netflix with a “studio=approved” model, but then what? that model would eventually not satisfy one or more of the studios, and you would get another revolt.
Netflix is a stopgap measure until distributed middlemen are completely wiped off the face of the planet.
middlemen = inefficient waste
Re:
I think Netflix is an exception to you “inefficient waste” categorization. In this case the middle man is bringing together all of the content into one location. There is value in that.
Personally I would rather pay one monthly fee and have access to all of the video content I want to watch rather than pay each studio a separate fee. Netflix is a one stop shop for video content, would you rather go to each studio’s approved steaming application to watch what you want? Do you even know which studio makes which movie? I sure don’t keep track.
We're still pretty far from a doomsday scenario here.
While I agree with the sentiment here that the content companies are overvaluing their content, I’m far from ready to say that Netflix is doomed.
The bottom line is the bottom line here, and the Hollywood Reporter article spells it out. 16.9 million subscribers paying an average of $8.99/month* equals more than $1.82 BILLION a year in sales. Meanwhile, Netflix is expected to pay $700M for content in 2011 and $1.2B in 2012. So even with zero subscriber growth, Netflix makes $3.64B in 24 months, and in that same span pays $1.9B for content.
(* – I freely admit I pulled this number out of my arse. I suspect the average monthly fee per customer is actually a bit higher than this.)
So the content companies see a cash-rich company, and they demand more money for their content. But here’s the irony: it’s the increasing price of content that’s driving people to switch to Netflix in the first place. Those same content networks demanding more cash from Netflix are also demanding higher carriage fees from cable and satellite companies. The TV providers then pass those costs on to customers. Guess what? The customers are dropping cable in favor of Netflix! And as more people do that, Netflix has more money to spend on content, which adds more value to its service.
Eventually, it may get to the point where Netflix has to start charging customers more as well, but we’re a long way from that yet, and $12.99 a month for Netflix HD streaming is still a lot cheaper than $65/month for a decent digital cable package. And once the sports networks start busting out their own streaming services, Netflix growth will only accelerate, and the cash they have to spend on content will increase dramatically.
Studios asking for more money is way down on the list of Netflix’s worries right now. They have more to worry about from ISP’s potentially degrading their service and competitors like Hulu creating something more compelling. Ultimately, though, it seems to me that Netflix + Hulu + ESPN will be the magic combo that brings down the house for cable and satellite TV. Everyone else will just be a niche app, but plenty of those niches will do just fine.
Compete with piracy?
Actually, I think this is a fun little question and I came up with two easy math formulas that I think give a realistic idea of what a movie should cost to stream for a year. (for simplicity i’m using only US based info.)
The first, if you believe every movie should make, over its lifetime, the same amount of money as the highest grossing movie ever at the box office (right now that is Avatar) works out to around $5 million per year. Avatar made $760 million and I’m guessing the average movie will be available under copyright for around 150 years.
The second, if you believe every movie should make, over its lifetime, the same amount of money as the median for the top 100 highest grossing movies ever works out to around $1.7 million per year. (The median of the top 100 highest gross is $264 million)
Either way $16 million per year is far, FAR to high considering the amount of money your average movie actually makes. Also, keep in mind that the majority of major hollywood productions are able to recover their expenses at the box office so any money from a streaming deal is almost entirely profit …
I will mourn the loss of Netflix
This phrasing has always bothered me, because downloading a movie isn’t really free. At least not from an economic standpoint. You have to find the thing you are looking for (time). You have to be willing to download from that source (trust). You may or may not get a finished file that works correctly or has good quality (more time). And so on …
All it takes is being a member of a really good private torrent site, and you’re golden. Also, knowing the names of a few really good release groups helps. A couple of sites I know do their own internal releases, and they are usually ahead of first sale date by about two weeks on majors. Honestly, if you’re a member of these sites, you’ll see a movie before it hits your local Blockbuster or Redbox, and certainly before Netflix can stream it. It will take you the same amount of time as you would on Netflix (or wandering around in Blockbuster) or less.
Eventually Netflix will have to raise its prices to the point where it becomes too costly for most people to use. This will be especially true when you consider that many of them will be stuck on capped internet services, where they won’t be able to fully appreciate their Netflix subscription, at least not without high overage charges.
Netflix’s profits will go down and eventually they will get bought out by one of the big entertainment companies, who will re-brand it and jack up the fees even more. It will continue to lose money until the company decides to shut it down, like every other corporate owned streaming media service.
Can't stream on Netflix but can on YouTube
I have a Netflix account and was looking to do research on a verbal debate and wanted to watch parts of The Great Debaters with Denzel Washington.
Turns out I could not stream it and could only get that movie via DVD on Netflix but I could watch for FREE the whole movie on YouTube.
This is the twisted sense of distribution we have and we will continue to have until the old guard dies off.
Re:
except i’m not talking costs in the future offset by revenue from subscription plans today.
my point is the interchangeability of postage and license fees.
just like the physical dvd price is higher today because of postage, as the streaming choices increase (the whole reason behind these higher license fees) thus adding more value to those plans, the streaming only option will increase in price in the future. or probably even split out into various limited-by-hours options.
m3mnoch.
Frustrated
So by “dead” you mean “will probably be overtaken by something else someday”. Interesting definition!
When he says they are dead, but they just don’t know it yet, yes, I think that is pretty much the definition I think of too.
Come to think of it, I am already dead, and just don’t know it yet, as I will someday (hopefully in the distant future) expire. Something else will probably overtake me some day.
Re:
Yeah, If I were the studios and labels I wouldn’t like the price being set … Free … But thats just me.
I keep hearing this argument, but I don’t agree with it. It is true that some small group of people are leaches (I was one when I was a kid, never met a cracked Apple IIe game I didn’t like,) but I think a majority of people will pay for content if it is reasonably priced (affordable,) portable (I can take it and put it anywhere I want to consume it,) and reliable (I have access to it whenever I want.)
Netflix gives me, personally, that capability. When I am on travel, I use my laptop and the available internet connection to stream videos to my laptop (where I used to take DVDs or hard drives with me,) and when I am at home, I can play it on the PS3 attached to a LCD screen, the WII attached to a CRT screen, or the PC attached to the projector, and watch whatever movie I want to my heart’s content. I am happy with the current cost of Netflix (affordable even if it was twice the cost.) I cannot download it and put it on my ipod (not that I would anyway, the screen is too small,) or use it where I don’t have internet connectivity, but internet is becoming so pervasive in society, it is getting really difficult to find normal, civilized, places without some sort of internet capability, either through WI-FI or 3g/4g cellular.
I think a lot of people will pay for the content if it is reasonable just because they realize that if they take and do not give, there won’t be anything to take any more. Sure, there are selfish people out there, but I don’t think that is a majority. The studios are killing the golden goose via greed, plain and simple.
Re:
It’s not the product, it’s how the companies deliver the product that matters. Netflix succeeded, not because they offered different product than e.g. Blockbuster, but because they offered it better.
I’ll say. I was a former Blockbuster subscriber. Blockbuster was cheaper than Netflix, but I left Blockbuster because their delivery was far worse. I was tired of receiving DVDs that were obviously pirate specials (a subscriber would buy a bad copy, rent the original, then return the bad copy and keep the original,) and they had absolutely *no* quality assurance. With Netflix, I’ve never received a bad DVD. I’m sure they send them occasionally (or they get broken in transit,) but with Blockbuster, I was returning the same movie four or five times before I got one that I could watch on standard DVD players.
Plus, streaming video to five machines was a bonus. Couldn’t do that with Blockbuster.
Frustrated
I’m just not sure why you want to mix up the future with the present like that, but OK.
Re:
It’s not the content alone, the studios have proven this time and again by not creating compelling business models nor compelling services in the streaming markets.
The company absolutely *does* matter.
I will mourn the loss of Netflix
I dunno, I’m already watching my Instant Queue slim down. This week, we’ve had 5 titles disappear from being available anymore.
I’ll support Netflix as long as we can, because we love their service; but we will get content other ways if not available through them.
Re:
“I find this to be very much true. I usually check Hulu or Netflix before any of the non-legitimate streaming sources.”
If you are like most people, after a while, you are going to give up on the legit sources because it becomes to much of a hastle, then go straight for the torrents.
Its what happened in Spain and where ever profits ranked higher than customer satisfaction. Which happens to be everywhere and that is short sighted and a recipe for failure.
Re:
“I think a lot of people will pay for the content if it is reasonable just because they realize that if they take and do not give, there won’t be anything to take any more.”
I am not going to go into the argument about how music and plays were created way before copyright, its old, its played out, and it annoys me more than squeekie voiced children saying “Oh My God”.
Everything else you said is “I will accept my lot in life, do as I am told because I can not change things, and accept what is given to me without question”. You are the consumer. You are the person paying their bills. You are the one that decides if they succeed or fail. Never forget that.
Now go out an write them an e-mail, tell them what you like and don’t like about the way they are acting, and how they are treating you. Because the customer is always … the one paying the bills.
I am a camel on the wind …
Re:
“It is the company that matters, and how they deliver the product.” and serve the customers.
I hate Hollywood
“Every time Google, Netflix or other services give us what we want, the morons come out of the woodwork.”
Pretty cool isn’t it? They see somthing shiney and are distracted from true task at hand, staying relevant.
Good on them … 🙂
Compete with piracy?
“Average Home User (A.H.U.) cannot torrent effectively = true.”
Yeah right … on the low end, 15% of the people on the internet have bit torrent installed. At the beginning of the month uTorrent & BitTorrent Hit 100 Million Monthly Users.
The other just don’t know about it.
Re:
“Capped ISPs”
Technology is increasing how much movies can be compressed. So that point is moot.
“paying royalties to studios”
All they need to do is create a set of simple tiers and do the pay per view thing for new movies. With one added ability, “cue to watch when the price drops to free streaming or this price”. Simply they need to create a Reverse Auction, where the consumer sets the price and not the studio.
So you entire comment is a fail.
And the rest!
Wonder what happens when Netflix pushes against it…
I hate Hollywood
“Despite the FUD, I can’t imagine they’re going anywhere.”
[citation needed]
Re:
I read Disney’s statement regarding licensing for the last quarter. It’s uncanny how they squeeze their partners for every ounce and dime they have in terms of licensing.
This is just one…
Now imagine the movie theaters doing the same to Netflix with all of the pressure and fall out from something that should be simple decisions.
License for $50,000 then an additional $1 if you bring in 5 people. Something small and work up. Not $175 million as you approach infinity…
Re:
And whose fault is that?
Compete with piracy?
IMO, the title is worth nothing in and of itself and remains worth nothing until people actually want to watch it. How much the creator should get paid for it is a different question and harder to answer. I’d say it should probably be worth a small fixed percentage per time of whatever sale price is (i.e. what the free market will bear) for the service being offered or something along those lines. Then, like everyone else, the content producer is free to compete in the market of distribution to get a larger slice of the pie.
And the rest!
“Wonder what happens when Netflix pushes against it…”
What ever happens It is going to be fun to watch. I do however hope that Netflix learns from the EMI lawsuits though and really pushes back. Pushing back against any sort of profit sharing is key because when they get their foot in the door they will always push for more. Think cable bills and the networks.
I will mourn the loss of Netflix
All it takes is being a member of a really good private torrent site, and you’re golden.
That still kind of misses the point (or seems to?). The point is that you are not competing ENTIRELY on price, which is the argument that is often made.
Of course, if you were just trying to let me know how to get movies, thanks, but I have a Netflix subscription and that will keep me entertained for the foreseeable future.
All it takes is being a member of a really good private torrent site, and you’re golden.
Even if this eliminates many of the points I made, there are still others. You need a computer (a couple hundred dollars at least), you have to connect that computer to a TV using certain types of video cards (or you have to burn it to a DVD, blank media costs money), you have to get up from the couch.
For $50 you can buy a Roku and have access to thousands of movies without even getting up.
As great as open source and free tools can be, it is ridiculous to believe that multi-billion dollar movie studios don’t have the resources to create a better experience that people are willing to pay for. I would love to meet some of the idiots running these studios but unfortunately I don’t hang out at coke orgies or go to expensive parties to meet hookers.
I hate Hollywood
You want a citation for his imagination?
Shooting Themselves in the Foot
I have already cut off cable, because I was tired of paying for packages of channels that I never watch.
This drove me to online streaming and Netflix.
If they kill Netflix, unless there is another Harry Potter movie after the one this summer, the movie industry has lost a customer for good.
I’ll spend my time/money on things that pique my reward system, not on an industry that punishes it’s customers for it’s own lack of insight and innovation.
Frustrated
Not “probably be overtaken” it already is overtaken. eBooks are already outselling hard-copies. The reason why hard-copies are cheaper is because their demand (quantity demanded) is lower. When demand is lower, the products are cheaper because the sellers are trying to still make their sales.
When something like eBooks are in high demand (and they are), people like Amazon can get away with higher prices.
Again, I used the word “Zombie” because physical media is already dead but is still around looking for every stupid excuse to stay alive. Which is why hollywood would rather fight netflix and redbox than work with them and CHANGE.
Re:
If Netflix won’t pay, do NOT expect anyone else to come in, pay those high prices, and be successful.
Which brings us back to the whole “killing the goose who laid the golden egg” argument. Netflix is the last company that will try to work with the studios. When a competitor comes in and sees that trying to play nice still gets you laid across the chopping block, they aren’t going to fall for it. They will risk failure bypassing the studios rather than accepting certain doom by working with the studios.
Frustrated
eBooks are already outselling hard-copies.
This shows paper books outselling ebooks almost 10 to 1:
http://thepostsd.com/2010/09/23/battle-of-the-books-ebooks-vs-paper-books/
This says ebooks are 9% of the consumer book market:
http://www.readwriteweb.com/archives/ebooks_ereaders_top_trends_2010.php
So where are you getting the information that ebooks outsell paper books?
Re: Frustrated
my gut was right:
http://gizmodo.com/5745505/rise-of-the-ebooks-kindle-books-now-outsell-paperbacks
I hate Hollywood
It is his new word for the month.
He tries to insert FUD in every post.
Frustrated
My gut
Frustrated
That’s specific to Amazon. Sony estimates it will happen within 5 years (meaning they believe it hasn’t happened yet):
http://www.geek.com/articles/news/sony-believes-more-e-books-than-real-books-will-be-sold-within-5-years-2010064/
This source predicts 2014:
http://www.geek.com/articles/news/sony-believes-more-e-books-than-real-books-will-be-sold-within-5-years-2010064/
The evidence still seems to me to indicate that paper is outselling ebooks. And even when ebooks have barely overtaken paper, I think it would be weird to declare paper “dead”, since it will still be a multibillion dollar industry.
Frustrated
You must have not read my post before. I don’t say “dead” as in “never to be useful again.” I say “dead” as in “the next version of it is already here and constantly growing in numbers.”
I don’t think it’s weird, it’s technology!
Frustrated
OK, I just find that a very strange definition of “dead”.
Frustrated
hmm, Dead ~= Obsolete