
What Hollywood Execs Privately Say About Netflix - kenjackson
http://www.hollywoodreporter.com/news/hollywood-execs-privately-netflix-71957
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Umalu
The article pokes fun at Netflix for purchasing little-known, unpopular
titles, as if Hollywood is somehow putting one over on Netflix. But what drew
me to Netflix initially was its ultra-deep selection of DVDs, which was far
better than the local video store. Seems to me Netflix is trying the same
thing with streaming, building the biggest catalog as fast as possible so
people will view it as the #1 streaming choice, even if Warner Brothers
withholds its marquee movies and sticks it with "Pushing Daisies."

~~~
steveklabnik
Are you really surprised that entertainment executives fail to understand the
Long Tail, and are pretty much giving a huge advantage to Netflix?

I find the jabs incredibly amusing. Shows who exactly is in the know, and who
isn't...

~~~
alanthonyc
Forgive me, but I just finished (finally) reading Clayton Christensen's "The
Innovator's Dilemma," so naturally, this looks like another prime example to
me.

It _is_ amusing to watch the entertainment execs flail around. But apparently,
it's not necessarily because they are incompetent. Ironically, it may be their
actual _competence_ in their current positions that prevents them from seeing
the value in the long tail (or anything else made possible by new technology).

They have long made money a certain way. Now, a new method (internet
streaming) is coming along. They would like to use it, but they _can't._ They
can't because it doesn't satisfy their current customers.

Netflix is happy to pay for and take the deep catalog. They are new and
therefore able take the risk in creating the new market.

I can't give the theory a good showing myself in a brief comment. But if you
haven't read the book yet - go do it now. It's amazing how stuff he wrote ten
years ago about older companies sounds like a history lesson to me today about
Microsoft, Google, et al.

~~~
chc
I think you're giving Netflix the short shrift here. Netflix entered the DVD
rental service and beat Blockbuster — they were extraordinarily competent in
that arena, arguably more so than most movie studio heads are at their jobs.
Now they've moved outside that area of competence by getting into streaming
and cannibalizing their own business before any competitors sprung up to do
it. They specifically overcame the dilemma you're talking about.

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jaysonelliot
It's amusing to watch various media companies horsetrading the rights to
stream a particular show or movie on a given month, worrying about getting one
week ahead or one month behind or whatever.

Meanwhile, millions of consumers look at the confusing availability of media
and unpredictable technical quality of streaming, shrug their shoulders, and
just download high-quality versions of whatever they want to watch at their
leisure, thanks to torrents.

iTunes succeeds with a pay model in a world of piracy because it delivers
predictable quality, widespread availability, and downloadable content instead
of streaming.

That's how they beat the subscription music services, how they beat piracy,
and what the movie studios need to learn from.

~~~
icefox
I regularly see a movie I would be interested in seeing in the theaters and it
to my netflix que. Just a few months later it appears at my door (or removed
from my que when reviews turn out it was bad). At least for me they
overestimate the value of seeing most everything 'right now'. While I could go
see the hot new movie, I just got in the mail the movie that came out 3-6
months ago to keep me busy this evening.

As for piracy, just like iTunes between always having a plenty of items from
my que for streaming and getting a new disk every few days it is easier for me
to use netflix than pirate. That is when I knew they had a model that was
going to be very successful.

~~~
icefox
On the downside I just saw inception last night, but that is the exception and
not the rule.

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mjfern
Hollywood is being shortsighted about online content distribution.

Consider what happened in online music distribution. The music companies were
very resistant in making their content available online, until Napster and
others began chipping away at their revenue. Then the music companies aligned
with Apple and iTunes. At first, iTunes looked like the answer to the
industry's problems, providing a regulated online distribution channel for
music (DRM and all). But over time, as iTunes gained market share, Apple
gained extraordinary industry power. Now Apple captures much of the value in
the music industry, not in the form of music sales but with hardware sales
(iPod, iPhone, etc). And even though the music companies have tried to boost
the market share of competing distributers (e.g., Amazon) to reduce Apple's
industry power, Apple's strength is still largely intact.

I think Hollywood can learn something here. Despite resistance, we know that
video content distribution is moving online. It's just a matter of time. If
Hollywood is dragged kicking and screaming into online distribution by
Netflix, then so be it. But Hollywood must know that if they enter online
distribution hesitantly and with just a single partner, then overtime Netflix
will gain significant market power and the tables in any negotiations will be
turned. It won't be Netflix paying high prices to obtain any licensed content.
It will be the content producers begging to get onto Netflix to distribute
(and showcase) their content to viewers.

I think the best thing that Hollywood can do at this stage is to embrace
online distribution and create a competitive marketplace. This will not only
enable Hollywood to retain its industry power, but also increase the
availability of content for viewers. Will it increase Hollywood's revenues and
profits relative to their historic highs? I doubt it. But at least it won't
lead to a dramatic decline in revenues and profits, as what we've seen in
music sales. Your thoughts?

~~~
katovatzschyn
Hollywood will inevitably make the same mistakes, like Blockbuster before
them, that the music industry did. The publishing industry seems likely to
follow in the coming decade. Big business seems unable to make the swift and
radical change that is required in these innovative times. Can an industry
entirely change itself in a few years even with extremely strong incentive? I
think not- but that strong incentive is capable of doing the task very quickly
indeed.

~~~
smackay
These are not mistakes as much as they are inevitabilities. No business wants
to cannibalize sales or reduce their prices but these results are almost a
given with any form of digital distribution. The music industry tried to avoid
this and failed miserably and the film industry will suffer the same fate. The
place to look for lessons to be learned is possibly in publishing where so far
e-books have been introduced at much the same price-point as the paper
versions they might replace. This is greatly aided by the proprietary
platforms for delivery so it is not clear whether a similar strategy could the
pursued. That Netflix exists and is successful makes this unlikely. It is
indeed an interesting time to be in the film business.

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mcantor
Are we being trolled...? FTA: " _Seventeen million subscribers later, some
people probably wish a clerk would have just refunded the man his 40 bucks._ "
A few thousand ex-Blockbuster employees, and some antediluvian Hollywood
execs? Who cares! Maybe I'm just a short-sighted Joe Consumer, but I hear
things like "[Hollywood people] are worried about Netflix devaluing content"
and "no one fully trusts its motives" and I feel like I'm reading an Onion
article. I love Netflix. I would happily pay twice what I'm paying now. If
someone created an OS that was impenetrable by viruses, ten thousand Symantec
employees would lose jobs, too. It's called "progress".

The article provides explanations like, " _“Even though it has a detrimental
effect on their business, everyone keeps feeding them content,” BTIG Research
analyst Richard Greenfield says._ " Is there really anything here that isn't
exactly like the death knell of the tape cassette industry as CDs became
vogue, or the indignant crowing of Newspaper execs who feel so entitled to
business that they can't understand why customers are abandoning them in
droves?

Am I missing something?

~~~
corin_
Yes, you are missing something, though your overall point is correct.

" _Some people probably wish_ " refers to the people who stand to lose
business to Netflix, not suggestion that consumers will wish it, or that it's
bad for consumers in general.

~~~
brown9-2
I don't think he is missing the point; I think he is just pointing out the
absurdity of this article which seems to value Hollywood opinion and the
inefficient Blockbuster's demise over something that _17 million people_ are
happily paying for.

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timdellinger
I hereby hypothesize a new category of content:

"Straight to Netflix"

Much like straight-to-video movies that were never put into theaters, but were
designed to sell as VHS tapes (later DVDs), there will be content generated
for the sole purpose of streaming it on Netflix. Interestingly, there is
flexibility in the character of such content: originally it could look like a
two hour movie, or like a 22 minute or 44 minute or 60 minute TV show, but
there is room for innovation, including episodes that vary in length
throughout a season in order to accommodate the story. Or it could be a mix of
five minute shorts released on Tuesdays, alternating with 50 minute long-form
episodes released on Thursdays. Or it could be a two hour episode, released
once per month. Or quarterly.

~~~
ZachPruckowski
Yeah, I've long thought it's a great idea that circumvents a lot of the
weaknesses of tightly-constrained TV storytelling.

The problem is the economics. It seems people tend to respond negatively to
production values below a certain standard. Cable productions run about
$2M/episode, which translates to roughly $3M/hour or $50K/minute. Even if you
can cut that by 20%, you still need to make a serious amount of money, and
that's a lot of $2.10 iTunes purchases or $0.xy (I don't know what that number
is, but it's got to be smaller than a dollar) Netflix streams that you've got
to get in order to break even. And that's for the production values of "White
Collar" or "Leverage", not "LOST" or "Rome"

On top of that, you have the business costs. You've got to pay the overhead
costs, and you've got to pay development costs. Half the new shows that get a
slot on TV fail, and getting one slot filled requires shooting 2-3 pilot
episodes at a couple million a pop. In addition to expansion, you've got to
replace your shows every few years, since (a) even the best shows get stale
after a while and (b) costs go up every year.

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lukev
Netflix-style distribution is better for content producers, and _far_ better
for consumers.

The only parties it's not better for are the existing content distributors. I,
for one, will not weep at their inevitable death. The only reason they aren't
dead already is that they're deeply in bed with the content producers (if not
the same entities). But in the long term, they can't compete.

~~~
protomyth
I am not so sure about the better for content producer part. How much money
would a content producer get per viewing of a movie or how much does Netflix
pay for the rights? Is it economical if DVD / non-streaming channels dry up?

~~~
lukev
Per-item, it's probably less. But overall, they're drastically increasing the
size of their potential market.

Real life example: say I have a friend who says "dude, you should totally
check out Dexter. Great show!"

In the old content model, I go to Best Buy, see the DVD set for the first
season on sale for 39.99, and unless my friend is godlike in his predictions,
my response is "hell no."

In the new content model, I log on to my Netflix account and watch the first
episode. Not bad. I watch another. Pretty good, and now I'm invested in the
story. Whoever produces Dexter is now making _free money_ off of me that they
definitely would not have otherwise.

And that's only the first-order effects... by allowing the market to be more
responsive to the actual viewing habits of consumers (rather than being
mediated by network decisions on what shows to air), consumers will eventually
get more of what they want, particularly niche audiences who aren't a fan of
standard TV fare. This increases the _entire market size_ , and allows
producers of individual shows to expand the market on a per-show basis,
something that was previously impossible. Experimental indie shows were simply
not on the table, before. Now, they at least have a chance of finding a
market.

~~~
protomyth
I am still a little troubled by the economics. Could Dexter be made with
Netflix / streaming as it's only distribution model? There is no "free money".
Either the compensation is good enough or it doesn't get made. If the
streaming model can't support itself then I expect Netflix to stop getting new
content until it can be profitable for content providers.

~~~
lukev
> Could Dexter be made with Netflix / streaming as it's only distribution
> model?

I don't see why not, once execs are comfortable with it. Of course, it would
still air on broadcast TV, which won't go away entirely, and you'd have to run
promotional/marketing materials to make people aware of its presence on the
streaming sites (the sites themselves would probably do a lot of that for
free, since they benefit too).

There's no inherent reason this can't pull in at least as much money as the
current model.

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cryptoz
> Time Warner is so agitated by Netflix’s streaming that Kent has spoken of
> “freezing those rights” to maximize a show’s value on traditional TV.

I find it funny that there are still companies / people out there who are
afraid of the Internet. Maximize a show's value on traditional TV all you
want, but in the long term you will lose big.

~~~
ZachPruckowski
Honestly, I think Netflix and Hulu result in me watching more TV. If I miss an
episode or two of a show, that starts the slide into quitting the show. But if
the show's on Hulu, I can stay caught up, and then go back to watching it
live.

Similarly, I wouldn't want to jump into a show halfway through Season 3. It'd
be confusing and too much work. And I'm not going to buy two seasons worth of
DVDs because the current commercials look cool. So if I can get those back
seasons on Netflix then I can become a loyal viewer.

------
kenjackson
An interesting statement about their costs in the article, "Sending a disc
round-trip can cost as much as $1, and Netflix mails about 2 million DVDs a
day, whereas streaming a movie costs the company about a nickel."

~~~
nc17
An interesting side effect is that copying a dvd is relatively trivial. Saving
a streamed movie is harder and you have no motivation to do it.

~~~
dkl
And for most of us, the reason we rip are: the unskippable content on DVDs and
ease of use. So far, netflix watch instantly satisfies both of those, so I can
see not needing to rip DVD at some point in the future, except for DVD's I buy
(I'd watch the ripped copy, not the physical one).

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TomOfTTB
The article’s interesting but it didn’t really answer the question I wanted
answered which is “who is actually making more money?”

Netflix is at the forefront of on-demand visual media and we all know how that
story is going to end. I don’t know of anyone who thinks people 30 years from
now are going to be catching reruns on TNT instead of requesting what show
they want to watch when they want to watch it.

But to me the big question is whether it’s better for media companies to drag
their feet or to be an early adopter. To use the HBO example they’re adamantly
refusing to license their content for streaming while Showtime has almost all
its shows available on Netflix. So from a business perspective the interesting
question is whether people will turn to HBO because of its scarcity or choose
Showtime shows instead.

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timdellinger
Another prediction if other players (Amazon, Apple, Google, and Microsoft were
mentioned in the original article) get into the market:

Tiered pricing. Much like basic cable (fairly inexpensive) + movie channels /
premium channels / sports packages (increases your subscription cost).

And perhaps eventually the holy grail that the cable industry would never go
for: a la carte pricing. Here's the price to add Discovery to your
subscription. Here's the price to add Mythbusters to your subscription.

And here's where it gets interesting: I could literally get a subscription to
Mythbusters, thereby providing Adam and Jamie with a source of funds that
would provide capital for them to create the next batch of episodes. I could
get a subscription to the Cohen Brothers, which would fund their next three
movies.

------
SkyMarshal
Money Quote:

 _"That means licensing fees can keep climbing as Netflix moves more of its
business to streaming and away from DVDs. Sending a disc round-trip can cost
as much as $1, and Netflix mails about 2 million DVDs a day, whereas streaming
a movie costs the company about a nickel. “We’re direct to the consumer, so we
don’t give half our money to a cable company,” Sarandos says. “Our money goes
directly to the content providers.”

Some content comes and goes, as in the case with the Timothy Hutton vehicle
Leverage, to which Netflix obtained streaming rights through executive
producer Dean Devlin. That didn’t sit well with TNT, so when the channel
renewed the show for a third season, it made sure to secure digital rights,
leaving Netflix with streaming rights to some seasons but not others.

“But TNT had to pay a lot more to secure the rights from Dean — it’s exactly
why Netflix is exciting for networks and studios,” Sarandos says. “We’re an
exciting new buyer in this space. We bid up the price of content.”"_

Eg, Netflix is good for the creators, not so much for the old-economy
gatekeepers.

------
tocomment
Interesting story about Netflix, I wanted to order "Earth final conflict
season 2" from Netflix but they only offer season 1 for some reason.

I spent an hour on their website looking for a way to request they carry a
movie, or even a "contact us" email or phone and found nothing. Would it
really hurt to let users at least submit something that's missing?

Why do they randomly not have the second season of a series anyway? This
sucks.

~~~
forensic
It's on usenet. Best sci fi ever made!

------
tsotha
What terrifies the Hollywood types is they'll lose the mass audience for their
product. The days when you can get people to pay $150/month for cable are
coming to a close, and the people who control distribution are on their way
out.

I don't think there's anything they can do about it, but you can't blame them
for trying to stave off the inevitable for as long as possible.

------
CamperBob
_In fact, Netflix is most interested in library stuff, says chief content
officer Ted Sarandos, who has been running around Hollywood striking streaming
deals with any network, studio and producer who has content to sell. Netflix
even likes serialized dramas that traditionally don’t sell for much in TV
syndication because, unlike procedurals, they must be aired in order. “I don’t
care about last night’s episode,” Sarandos says. “I do want all of last
season’s episodes.”_

I wish I understood his thinking. Ted, _you_ may not care about last night's
episode, but the _viewers_ damned sure do.

I, for one, would rather stop BitTorrenting episodes of shows that are likely
to be spoiled if I watch them even a few days after airtime. ("Hello,
_Dexter_? I have money I would like to give you. Why aren't you interested in
taking it? No, I am not going to get cable and subscribe to Showtime. Thanks
for your, um, input.")

~~~
anigbrowl
_shows that are likely to be spoiled if I watch them even a few days after
airtime_

How so? Do you mean by hearing/reading things that give away the plot? I often
watch shows several months or years after they've aired, but that's just
because I have so little interest in TV to begin with.

~~~
CamperBob
Yep, some shows are pretty sensitive to being spoiled. And some shows are just
plain addictive enough to demand instant gratification.

Ultimately it doesn't matter -- the business model of using one or two shows
to sell an entire cable channel can't be sustainable in the long run,
especially now that so many people are finding they can get by without cable
service at all.

