
Why Netflix is producing original content - gregpurtell
http://blogs.reuters.com/felix-salmon/2013/06/13/why-netflix-is-producing-original-content/
======
CognitiveLens
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.

~~~
dasil003
> _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
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
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.

------
nitid_name
We're slowly but surely collapsing back to the channel model of content.

The bundling the cable services were forcing on us to support ESPN (which
accounts for something like $15-20 in your TV bill) and then topping with the
a la cart channels (HBO, Showtime, etc). Now, we have a few a la cart
providers that stand on their own with original content (in addition to
licensed content).

My big fear is that the a la cart streaming channels will eventually start
running commercials in the manner of Hulu. Throw in ISP bundling of streaming
services, and voila, we're back to Cable Television... only since it's on
demand, we can't DVR through commercials.

~~~
maratd
> we're back to Cable Television

This will never happen, for the simple reason that you have choice and as a
result, competition. You can choose Netflix, Hulu, Amazon Prime, or any of the
smaller ones.

Netflix gets commercials? It will literally take a few clicks to switch to
Amazon. All 3 get commercials? Watch competition sprout.

That's the beauty of the Internet. Barriers to entry are significantly less
than in the real world, which allows for competition to flourish. There is
literally nothing stopping you from starting your own streaming service. Most
of the technology is proven and widely available. And, of course, anybody can
license content. This is universal and required by law.

~~~
mbreese
What are you talking about? Of course it will happen. The only way you can
have true competition in the way you suggest is if all providers have the same
content.

When we start getting Netflix producing shows A, B, and C, and Amazon Prime
producing X, Y, and Z, if you want to watch only A and Z, you are stuck paying
for both services.

It might not be as bad as paying for 200 channels when you only watch 3, but
it's still the same model - just at a different scale.

~~~
maratd
> you are stuck paying for both services.

No, I'm stuck using thepiratebay.org and when they get tired of losing
revenue, they'll start sharing the content. Piracy is most certainly a force
to be considered here and it can actually nudge the players toward a more
competitive position where they're not hoarding content.

------
confluence
At the end of the day capitalism always comes back to bridges, trolls,
control, volume, monopoly and power. NFLX can only continue to exist so long
as it stands in between people and the things they desperately want. If the
good they sell is non-exclusive however, then they are only one amongst many
competing trolls all controlling similar bridges to the same exact island. In
such conditions, prices will invariably fall to the lowest cost distributor,
and costs will invariably rise to the worst managed ones, squeezing one's
margins to shit. It sucks to be one of the 10 different bridges that people
can choose between to cross over to get the stuff that they want. It's also
why being an airline sucks. Competition sucks. Hard.

It also makes you a bitch to both your clients ("I'm switching right now
unless you give me a better phone deal!") and to your suppliers ("So you need
my content yesterday? Pay me X billion right now or you can go get fucked.")

To make money long term you need to either be the lowest cost producer for
non-exclusive goods, or the sole controller of exclusive goods. You can make
money both ways, but the former is much, much, much harder. NFLX, and every
other company in existence, is either going for volume or for monopoly. That
is why they are producing original content. It's because volume sucks.

It's also why startup success is largely luck based. Imagine a million
different trolls, building a million different bridges, to a million different
islands. Now imagine that upon one island a scarce metal is accidentally
discovered and some random dipshit idiotic troll has just somehow, through
sheer chance, managed to acquire exclusive control of the resource. Now, if
you want to get that metal, you are going to have to pay that troll, and the
more people want it, and the more desperately they need it, the fatter the
troll will get.

Stand between people and the things they desperately want and you'll never go
hungry. But you might get some indigestion.

Fuck competition. Become one with your inner troll; charge people through the
nose for what they want, and then charge them again, and again, and again. And
then when they can't take it any more, kill the product, and make another one.

Rinse and repeat.

In AAPL we trust; all others bring shitty margins.

Previous comments on competition and monopoly here:
[https://news.ycombinator.com/item?id=5253747](https://news.ycombinator.com/item?id=5253747)

~~~
maratd
> Fuck competition. Become one with your inner troll

What a morbid way of looking at things... and it's not terribly accurate,
either.

You can make a very good buck on volume, even with fierce competition and
extremely tight margins.

So you can't charge a whole lot for the toll because there are a dozen other
bridges? Boo hoo! Have you thought of selling coffee to your clients as they
pass?

You can easily make up margin on the up-sell or cross-sell. Something that
anybody who worked in consumer electronics retail already knows. And that type
of retail is extremely low-margin and competitive. The guy across the street
and on the internet has the same exact widget as you.

This is something that Netflix isn't doing. Yet. And there's quite a bit of
margin there.

Oh and here's a little bit of insight, once you have a "bridge" you can point
it at any "island". It's super easy, almost like copy and paste. How many
countries have access to Netflix?

There's plenty of opportunity in volume and you serve the greater good. Not
every company has to be a hipster love fest like APPL, where you pay through
the nose for substandard hardware. That's just as crass as children refusing
to wear anything but brand name clothing.

Volume capitalism is beautiful because it mercilessly lowers the price of
goods, allowing access to all. And you can make quite a profit too!

~~~
mbreese
You had me right up until calling Apple a hipster love fest with substandard
hardware. This adds nothing to your argument and just makes you sound grumpy
(as in get-off-my-lawn type of grumpy). The crass children comment just
reinforces this picture. I personally find their hardware to be high quality,
and most of their margins come from the supply side. But that's beside the
point.

True - you can make money on volume, but when you are in a race to the bottom
in terms of price, something invariably suffers... it's usually quality. So,
if you want to make money selling cheap crap, go right ahead - profit is
profit. Just don't assume everyone wants to be in that business.

~~~
maratd
> You had me right up until calling Apple a hipster love fest with substandard
> hardware.

Alright, alright. The hardware itself is, of course, not substandard. You're
paying for the brand, so it's just overpriced. Yes, build quality is wonderful
on the Air, but my Samsung Series 9 has similarly wonderful build quality.

You're definitely paying for the brand. That's why everything they sell has a
prominent Apple logo stamped on it. If it wasn't for that logo, people
wouldn't fork over the kind of money they do. Yes, they built up their brand
on good service and quality, but then, every luxury brand does that as well.

Now, somebody has to be the luxury brand and somebody has to make "cheap crap"
as you say. That's fine and there's nothing wrong with that.

But please don't pretend that Apple is for the masses. It makes about as much
sense as saying everybody should drive a Ferrari.

My point was that not every business needs to be run like a luxury brand to
make money. Look at Samsung and many others as an example. You can make plenty
of money on volume, up-selling, and cross-selling, as well as expanding
internationally.

~~~
fusiongyro
> But please don't pretend that Apple is for the masses.

Not every Apple product is for everyone, but they have done a very good job of
creating a product line diverse enough that anyone can afford something.
Minimum wage laborers are certainly seen sporting iPods. iPads are still the
most popular kind of tablet. If you can afford X for a product you want, if
you put in the effort/take out a loan, you can afford 1.5X for a product in
the same class. We're not talking about cars, where the luxury brands can
easily exceed the expense of commodity brands by factors of ten or a hundred.

> If it wasn't for that logo, people wouldn't fork over the kind of money they
> do. Yes, they built up their brand on good service and quality, but then,
> every luxury brand does that as well.

The fact that other luxury brands do something similar vis-a-vis service and
quality doesn't mean you get to slyly deduct it from reasons to buy Apple.
Buying Apple gets you a pretty thoroughly integrated positive experience. The
logo certainly has value, but it's a lot more than just the logo.

Expect to see Apple remaining in their market position for as long as it takes
their competitors to develop an appreciation for the advantages these non-
technical and semi-technical efforts bring.

------
jebblue
You know what would really be cool? If Netflix would use that money to get
History Channel content, I'd never leave Netflix.

~~~
da02
Are there any particular series/specials you would recommend from The History
Channel?

~~~
dev360
They have amazing history shows - like Pawn Stars and Larry the cable guy...
Swamp people too.

~~~
jebblue
Pawn Stars, American Pickers, Ice Road Truckers and American Restoration are
the top ones for me, precedence order. I like more of their shows though,
[http://www.history.com/shows](http://www.history.com/shows)

------
amalag
They should tie up with a good content provider. AMC has excellent shows all
available on streaming, Breaking Bad, Mad Men, The Walking Dead are of course
famous. Other good shows are The Killing, Hell on Wheels. I think if they make
partnership they will get a better deal out of it, rather than them creating
such content on their own.

~~~
roc
But what would the partner get out of it?

Anyone with a track record at this point has far more to gain by letting the
streaming providers compete for a license every few years.

Netflix might offer slightly better terms than competition would produce in
the short-run, but they'd want a longer license term to make up for it. And
that, given the growth and promise of the space, would be silly.

Consider the 700% licensing fee increases. Would Netflix offer a 700% premium
over a 3-year license in exchange for a 6-year partnership -- with who-knows-
what restrictions on future licensing of content produced under the
partnership?

They'd need to find a producer with a track-record for quality, but that was
also cash-strapped and needed someone to share future production costs to stay
in business or to make some wild expansion gamble. Which would only raise the
question of why a producer with a track-record would have trouble finding
another partner.

Plus the nature of Hollywood is that it doesn't make too much sense to partner
with AMC to get new content, based on their success in hiring successful
creatives, when you can just hire successful creatives directly.

What, after all, has _AMC_ brought to The Walking Dead, beyond hiring a
successful creative and providing a time-slot? Their input into the situation
has seemed to be the 'tweaking for profitability' consideration that requires
little industry acumen (AMC was remarkably ham-handed in this case) and that
Netflix might not even see the same need for in the first place.

------
buren
The main issue is, in my point of view, fragmentation. If you'd like to watch
both HBO and Netflix series, then you'd have to subscribe to two services.

~~~
notatoad
I don't think it's really a big deal. $8 for the new season of Arrested
Development or Game of Thrones is a perfectly reasonable price to pay. It only
seems like a tough price to swallow because netflix advertises themselves as a
place to find all the content you want to watch.

------
cookiecaper
The real reason Netflix is producing original content is short and simple:
current copyright law make Netflix completely beholden to the big six media
companies, and if these people, for whatever reason, feel they don't
need/want/like Netflix anymore, Netflix will be over. It can only operate as
an appendage of the major media corps. We caught a brief glimpse of this with
the Qwikster debacle, where licensing costs imposed for streaming forced
Netflix into a new model that was very poorly received, and ultimately had to
be rolled back due to public panic.

Netflix are beginning to chip away at that bondage by producing original
content, and giving people a reason to use Netflix that can't be taken away
arbitrarily by external forces.

Netflix could be a great champion of copyright reform ... if that wouldn't
cause all their content providers to immediately drop NF in retribution, that
is.

~~~
shmerl
Does Netflix release that original content DRM free? They claimed that their
interest in DRM is driven by media companies. So let them prove it by
releasing their own content DRM free.

