Comment by sgift | Hacker News Reader

Comment by sgift | Hacker News Reader

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> Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners.

I always thought it's the other way around and Netflix was in a "if life gives you lemons" situation. The content producers in 2010 (or 2005 .. don't know) didn't want to bother with digital, so they just gave it all to Netflix and that's that. Then when time came to renegotiate the existing contracts (let's say in 2015) the situation had changed: Everyone and their dog now knew that digital was great, so half of them didn't want to give Netflix anything anymore. They wanted to be a competitor and Netflix had zero leverage (e.g. Disney), the other half now had a far better understanding of the value of their digital catalogue plus was able to shop around "so, you don't want to pay us our prices? Let us talk with Amazon over here ..".

At some point Netflix had to find a way out of that situation and while "we produce our own content" may have a higher initial cost and is not what the existing audience wanted in the long term it frees Netflix from their dependency on competitors.

If the content owners are sane at all they are going to license content on a "per seat" basis, that is, $X per sub.

If Netflix produces its own content, it is going to pay $Y to produce the content, and that quantity does not depend on the number of subs.

If the number of subs increases, eventually (subs) * $X is going to be more than $Y and in that case it makes more sense for Netflix to own rather than to rent.

Now content owners might have wanted to increase $X when they saw that Netflix was a good business, but I think the real driver behind the change was the increasing number of subs.

The problem is that content owners have often proven abundantly insane. They use staggered release schedules while piracy allows their "saved for later" markets to rot when they could do simultaneous releases trivially.

Their release schedules often obey no ryhme or reason like "all by language, all by highest cost per unit first", etc. This is the industry that referred to VCRs, a clear new market for their freely broadcasted releases as the Boston Strangler.

Many of the "insane" situations were rational in the past or involve a conflict between multiple parties.

For instance, there is not a lot of ownership between movie theaters and movie studios. For movie theaters, an end to theatrical windowing is seen to be an existential threat. Movie studios probably wouldn't care a lot but they sell a lot through theaters so they don't want to harm the interests of theaters.

Piracy during that window (seemingly people who want to watch a movie at home when it is not yet available at home) does seem to be popular. It staggers me how many people are connected to torrents with horrible audio and video quality (often in a language you don't know until you watch it) when they could wait a while and download a pirate Blu-Ray rip.

Windowing across countries was a big deal when it was expensive to produce film reels so it made sense to put the audio track on CDs that could be distributed separately from the film, then organize showings to minimize the number of reels.

The transition to digital in theaters helped with that but also revealed the kind of conflict their is between theaters and movie studios. The distributor pays to make the reel (and save money in digital) and the theater has to get an expensive digital projector. The costs and benefits don't match and the sides have to compromise to make it work.

It is like how movie theaters for a long time have wanted to lower ticket prices because they figure they'll make it back at the concession stand, but the studios won't hear it.

Producing content does give Netflix independence, but on the flipside it also means they stand alone. Their former partners are now competitors.

My understanding of this is different. Streaming services are at the mercy of the prices determined by those who own the content.

If they make lots of money, up go the licence fees.

The decision to create their own content seems like an inevitable consequence of that, and acts as a deflationary force on prices as licenced content has to compete for airtime with content commissioned by the streaming service.

Producers are dependent on distributors, and distributors are dependent on producers.

Producers thought they'd improve their position by going into distribution. Distributors (Netflix) thought they'd better themselves by going into production.

Perhaps they would have been better off focusing on either producing or distributing. A distributor improves their bargaining position by growing the audience they can reach. Producer, by making better films that more people want to see.

In this case producers have a strong upper hand. If a producer does not sell any license for a year it loses a lot of money, if netflix does not have any license for a year it loses all its audience.

It won't work with Netflix's model. The flat rate pay x and watch as much as you want doesn't work for the producers, the prices they can negotiate for their content are always capped based on the fixed subscription at netflix. Given that it's much more appealing for them to launch their own service and get 100% of a smaller customer base which they can potentially grow in the future.

For Netflix, it doesn't work to only show their original productions on their own platform. We will likely see them start to show their films in theaters to maximize revenue, and even offer one-time access for people to watch a film but not sign up for a subscription. What's more, they're probably going to have to turn their series into events by showing new episodes on schedule, once a week. By becoming producers, they are forced to completely abandon their old model, I believe.

> We will likely see them start to show their films in theaters to maximize revenue

Seems unlikely to me. They're doing it on a very limited basis right now, but that's not for revenue; it's to get the movies in the running for awards.

> offer one-time access for people to watch a film but not sign up for a subscription

Seems unlikely. The number of people who think Netflix is expensive enough to avoid, and don't have friends they can mooch off of or get a group buy with is pretty small.

> they're probably going to have to turn their series into events by showing new episodes on schedule, once a week.

I'm really curious about this one. I have no idea why they would possibly want to do this.

In network TV land, broadcasters have time slots for shows so they can more efficiently sell advertising slots. Even if Netflix decided to start advertising, they can just tie ads directly to videos being watched.

> I'm really curious about this one. I have no idea why they would possibly want to do this

Traditional tv shows can also get buzz by people chatting and theorizing about them week to week as the episodes trickle out. This isn’t really possible with the Netflix binge model.

They can also release faster since episodes trickle out as they are done. Not sure how often this happens vs editing and releasing later.

Whether this type of “buzz” actually is that important from an economic perspective or if it just generates a bunch of noise online and at the water cooler, I don’t know. So far Netflix seems content to drop content using the binge model.

They started to be competitors when they entered the streaming business: Hulu, Disneys new service, ..

Yes this is true, but the point is that Netflix had to enter the content production industry, or risk having no content. Netflix had dominated online streaming but once it was clear that it was a popular thing, the content owners started taking their content away. For Netflix the choice was "make our own good stuff" or just give up.

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