The Economics of Netflix's $100 Million Show
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That's their problem, they don't own the pipes either. They don't own the pipes and they don't own the content (before House of Cards). Up to now they provided...well...a useful cute little UI, but it's hard to make a lot of profit for a prolonged period of time on that. So they either go into pipe building or content building. Content building has the better leverage to the large customer base they've got, and in that context producing House of Cards makes perfect sense. I hopes it works out for them.
IMO, licensing and aggregation are the "hard" problems, not UI or streaming or whatever.
They have 30 million users spending $100/yr. Assume they spend half their income on content. That's $1.5bn/yr. That's a huge amount of money, and it's only going to get bigger as they grow and expand into new territories.
Increasingly, Netflix revenue is so high that it will seem inconceivable for content owners to turn them down in a gamble to go it alone and increasingly hard for anyone to compete.
I am extremely bullish on Netflix. I think they have a sound business model with huge upsides and the downsides are hugely overstated.
For 8$.
House of Cards is phenomenal, period.
"We believe that February 1st will be a defining moment in the development of Internet TV...The constraints of the linear TV grid will fall, one by one." - Page 5-6 Letter to shareholders http://goo.gl/VBGv6
Look beyond the short term $100M price tag for this one show, this is a shift in power. Netflix is building an old stone house...
“Money is the McMansion in Sarasota that starts falling apart after 10 years. Power is the old stone house that stands for centuries. I cannot respect someone who doesn’t see the difference.” - Francis Underwood on House of Cards
Netflix is becoming truly vertically integrated.
You're right that in terms of a fraction of hours of content per month, most of what they show is not first-run original content, but I don't watch TV 24 hours a day, so I don't care. Like I said, if I got that amount of original content from four or five different providers (let alone 10), that would be more television than I have time to watch. The fact that they mostly show movie reruns is immaterial.
So yes, I would like to just be able to buy Game of Thrones, but I'd also, personally, like to be able to just buy Deadwood or (on Showtime) Queer as Folk, and I think if every show had to justify itself to network executives on raw viewership numbers instead of on audience-broadening power, those shows would never get made; their audiences are too niche compared to their production costs. I certainly appreciate the opportunity to see at least some content that's not aimed primarily at 18-35-year-old straight men.
Of course, this is the kind of reasoning that justifies 100-channel cable packages instead of a-la-carte cable channels, so take what I'm saying with a grain of salt. But I think the expectation that a-la-carte show purchasing could really work, economically, is probably not realistic (and this without even getting into the issue that it'd be tough to pay for a $75-million Game of Thrones season at a dollar an episode).
The problem with HBO adopting a pure-streaming service is that it's still more lucrative for them to work with the cable providers.
I don't understand why people find it so inexplicable that they're spending $100m/yr on creating exclusive content as an extension to that.
Very unlikely since Netflix is planning to further expand abroad and the key in their business is exclusivity...
The math in this post is bogus since it's only based on incremental revenue brought by new subscribers. Getting more exclusive content does not only bring new subscribers, it also increases retention.
I think the real news is not that netflix is producing its own content but that it's using state of the art analytics to design this new content predicting/modeling the type of scenario/actors/director that would best work for it's 30M+ subscribers.
That's where the true disruption is. If somehow they are better at predicting what people like or don't like, they can design the right show for a given audience and maybe one day change the scenario in realtime depending on your mood a this very specific time...
This is the kind of disruption that we actually need for traditional media companies.
1. They muscled into the "prestige television" club for $100MM. It may be overpriced, or it may be underpriced, either way it's very good for consumers.
2. They validated television is the new book. You gorge on 13 hours of good television the same way you gorge on 13 chapters of a good book. This is very good for show creators.
A triple win aligning interests while getting to say f-you to existing preconceptions. This is what "disruption" looks like. Now I'm just sad I didn't buy NFLX after people freaked out over Qwikster.
1. Books are obviously composed of text, and, when you read, you're also imbibing the rhythms of the language you're reading (see http://www.newyorker.com/arts/critics/atlarge/2007/12/24/071... for more on this).
2. Related to number one, many more of us need to write than need to shoot and edit videos. Reading skill is related to writing skill.
3. You'll read far more words in a given block of time than you'll hear in video. Reading is much more information dense in this sense (whether a minute of video is worth a thousand words can be debated elsewhere).
4. It's easier to quote and store text than it is video. Notice the word "easier:" I'm aware that it's possible to quote and store video. Related to this, I use the scheme Steven Berlin Johnson describes here: http://www.stevenberlinjohnson.com/movabletype/archives/0002... .
1. House of Cards was 13 "chapters" that have definite rhythm and flow. Every hour was a mini three act play and it would make sense considering at the end of the day, video is just scripts brought to life by an accomplished playwright, accomplished director, accomplished talent, and accomplished cast.
2. We don't live in that world anymore. We're a civilization on an escalating need for input stimulation. It's an addiction, you're either the pusher or you're user. We've transitioned on the web from merely just hypertext to multimedia and real time, like how we've transitioned from typing in boring text updates to photo updates, and how we've moved from just merely chatting to video chatting.
3. But you experience much more in a given block of time than just pages on a book. And look at the movie industry versus the print industry. And the impact of a well crafted moment in a show, I posit, is much more powerful sometimes than a page can deliver.
4. Surf Tumblr for a few hours and you'll understand how things are done these days. Kids don't just share quotes anymore, kids share GIF screen caps of their favorite moments in the movie or show they like. And there are better and better tools each season to make screencapping creation/sharing easier by the day. Look up what IntoNow is doing with their community and how they're getting people to interact in real time to individual shows.
Writing's on the wall: People don't read anymore, quoth Steve Jobs.
Depends on the writer. I've been haunted by single lines in novels for years.
> Surf Tumblr for a few hours and you'll understand how things are done these days. Kids don't just share quotes anymore, kids share GIF screen caps of their favorite moments in the movie or show they like.
In David Brin's uplift series, he posited that the "uplifted" sentient dolphins would mimic echolocation signals to beam images and short imagined movies directly into each other's heads. It's like we're becoming David Brin's dolphins. Someday, our tools will be so powerful and the interfaces so slick and efficient, we will just instantly produce little movies and beam them into each other's brains. We've already seen the effect of video on speech and syntax: "It was like..."
Though, which is more likely? This world of people remembering lines to Star Wars or this world remember the explicit teachings of Jesus Christ?
The two final episodes of The Wire left me sleeplessly sitting in the garden, because of the events that transpired and the adrenaline involved.
The Body, one of the best Buffy episodes I can recall, left an impression on my young self that can still give me goosebumps when I think about it.
And the final episode of last season's Breaking Bad comes to mind, as well as the last episode so far.
I can't think of other occasions right away, but there are many more like it.
That said, on average books seem to have that effect more. Few things really topped how I felt after reading 'The Red Wedding' in A Song of Ice and Fire, for example. I think the main reason is that for television shows, the writers have to make many more concessions, because of producers, Nielsen ratings, and so on.
I wasn't attacking anything.
Numbers 1, 3, and 4 have nothing to do with what I wrote. Number 2 sort of does, and, if you think we don't live in a text-based world anymore, look at blogs, essays, this site, code as text, etc. There is a large portion of the population is aliterate, but that's a loss.
I want someone to curate and select shows for me, and show them in a channel, so I can just browse (an improved Cable Tv experiencie, hopefully ad-free, but probably not :P ).
I also miss live (or slightly delayed but current) sports - that would be a killer feature for Netflix.
Let's call it the 'Post-Buffy' school of thought, where character nuance, motivation, back-story, plot and sub-plot are all delivered with a kind of attention to detail formerly only used by novelists. There may be a few examples from the 60's -- The Prisoner comes to mind -- but even that can't really touch the narrative layers we've seen in the last decade: The Wire, Lost, Mad Men, Breaking Bad, Battlestar Galactica, Game of Thrones (TV as novel if there ever was one), Six Feet Under, Dexter, Band of Brothers, and so forth. These aren't just books, they're novels.
This I think is partially the result of the ability of viewers to sit down and spend concentrated time with a series when they come out on DVD. The first time my wife and I did this was maybe 10 years ago with Buffy and Angel, and it was the most fun I'd ever had with television. This was a new experience. We'd lose 4 or 5 hours late on a Friday just chaining one after another, like the Battlestar Galactica skit on Portlandia.
What I think Netflix is doing, and probably what it has massive amounts of data to back up (I watched Buffy through Netflix, come to think of it), is that this new type of viewer engagement -- long sessions of series "gorging" -- has completely transformed the way we experience television. I think this is why they released the House of Cards episodes all at once. This is also probably why they're not releasing viewing numbers -- the new experience context of contemporary viewers has very little to do with the old Nielsen ratings arc, and would be a poor measure of the show's success, from Netflix' own point of view.
But in any case, I could believe the numbers are different. Perhaps box sets were not as major a part of 1990s/2000s TV-watching as I had thought?
I'm interested to see how well House of Cards does and if it becomes popular enough for them to afford more exclusive content as well as negotiating lower content costs from other publishers.
It's not bad. Having Kevin Spacey as the lead is good. There's a good cast of supporting actors too. The writing is a bit mundane, but not terrible. I know the show is somewhat of a remake of a BBC show from a while back, but I never watched it so my take is purely on this experience.
I plan on watching the rest of it. It was interesting enough to have keep me up till 5am doing the "just one more" thing. The format of no commercials and having all the episodes available at launch is a really good thing. I was pleasantly surprised when the 2nd episode started playing as I finished the first one. I was fully expecting to have to wait a week to see the next one. No episode felt rushed, like things had to be crammed into a specific time slot.
The things that work for this format:
1) Release at once 2) Natural variable time lengths 3) Good production values 4) Good cast 5) Decent writing
If they use this as a framework for other types of genres, I think it will be good. I'd personally like to see the next show be sci-fi. Something with a unique premise that has never really been done by networks, because they screw it up. No time travel, or future detective, or alien invaders thing. Something gritty but uplifting, along the veins of Babylon 5, TNG, or BSG.
I'd like to see a near-future show about solar system colonization. Could have an entire system-wide, multi cultural backdrop like Firefly. Hell, try getting Josh Whedon to do it. Visits to Luna, Mars, asteroid mining colonies, deep space science labs, political intrigue from Earth, the companies that own colonies, immigration rights, etc. The solar system as a backdrop is big enough to have an infinite number of stories, but keeps everything so close together that it feels real. Star Trek provided a big galactic tapestry, but many times still felt distant and isolated.
Anyway, check out HoC if you have Netflix. Hopefully we'll see more shows from them.
You should check it out - it's available on Netflix :-P
If you don't have Netflix, you can watch the Premiere without signing up for the usual first free month.
And the other originals launching this year (in addition to the new Arrested Development season) are listed here: http://en.wikipedia.org/wiki/List_of_original_programs_distr...
This is a tangent, but HBO and Showtime appear to have noticed that there's a deep pool of talent actors with skills equal to famous, expensive actors. The cable networks realized that these lesser-known but very good actors can be hired to create very compelling shows that spend less on actors and more on the surrounding stuff that makes actors more effective.
I like the show, but Kevin Spacey's southern accent is so terrible it is distracting. I normally wouldn't care, but my I grew up in the Carolinas and he sounds nothing like any person or politician from the area. He needs to drop the accent as it takes away from the rest of his performance.
If they wanted a correct southern accent they should have hired Kyle Chandler.
I obviously can't speak to how well they nailed it, but there was a very specific accent in mind.
His accent might not be spot-on, but I find it plausible.
There are thousands of accents in that portion of the country just like anywhere else.
For me it's a wonderful departure from Kevin Spacey being "Kevin Spacey" in just about everything else I've seen him in.
House of Cards is delightful.
Production is very good, acting is quite good (although Spacey simply plays "high status" all the time with a rigid upper lip and not much nuance).
For me there are two problems
- The two main characters are cynical people who are obsessed with power and just plain mean... and they win every time. I don't care for them; at this point I would like to watch them fail and be humiliated, but I don't think it will happen, so I lost the main incentive to watch the next episode.
- The whole thing is predictable. At the beginning of each episode a minor setback appears for the Underwoods, and they defeat it with a smirk (Robin Wright's smirk really gets on my nerves now, although she's probably one of the most beautiful women in the world).
- - -
On http://en.wikipedia.org/wiki/House_of_Cards_(U.S._TV_series) a critic is quoted saying "This hardwired venality is what makes this show so watchable. Here are the realities of political life as most of us suspect them to be."
I'm not sure. I think HoC takes itself and its subject much too seriously. I think reality is much more absurd and difficult to control, as described in Armando Iannucci's writing, which I can never get enough of (The Thick of It, In the Loop, Veep, etc.)
- - -
EDIT -- The rant above is a little off-topic; the on-topic point is that this is a very good move for Netflix and that (as others have noted) they really don't have a choice.
If they don't produce their own exclusive content they are at the mercy of other content producers who will try to price them out of the market (and would succeed in doing so).
They are going to have to promote the show heavily offline I'm guessing. I am a fan so far after only 1 episode.
I really enjoyed the series, I expected to be disappointed because most US remakes of UK shows are abysmal - and the original is a stone cold classic, but I thought it was stunning and really enjoyed Spacey's FU 2.0.
Now it's just 'off limits' entirely.
legally, anyway.
Game of thrones gets downloaded by many tens of thousands in the first 24 hours. Episodes appear about 15 minutes after screening.
House of cards didn't make it to the torrents until 2 days after release and the numbers are nothing like game of thrones. Only half the episodes are available at this time.
As an Australian you could wait for it to be on TV, then it might be shown out of order, at all different (non-scheduled)times and episodes missed and cut.
Isn't that ignoring profit vs income?
All of them could compete on service, rather than in backroom negotiations.
Instead, consumers should look forward to a war of content exclusivity deals, which should be a boon to content owners, and ultimately lead to increasing prices or decreasing convenience for consumers.
And the MPAA isn't so formidable an enemy. They lose on issues like SOPA that receive any sort of public attention, because they don't have a populist message. Both sides of the aisle* have basically abandoned them looking for the next grassroots internet issue.
And this isn't that high of a hurdle. We already secured similar compulsory distribution rights for radio and cable without any concerted lobbying effort, because it's a really common sense solution that benefits consumers and producers. There's not as much legislative or judicial inertia on these issues as it might seem.
As to cost, Netflix is spending $100 M per show and doing 5 shows a year (maybe the others are significantly less?). But for just 0.3% of one show per year, you get a top lobbying firm. I'd be willing to bet other distributors would pitch in to defray the cost.
That's more pressure than this issue has ever seen, and it's an issue that's already been won in other domains. Given that history, I don't think it'd take more than two years of effort. Maybe five?
While Netflix is seeing revenues of just under a billion dollars a quarter, they'll be fine for a while.
Pricing: http://lobbying101.wordpress.com/about-lobbyists/how-much-do...
*UPDATE: I should have said "some individuals from both sides of the aisle," I didn't mean to claim the MPAA has lost all support, just that cracks are starting to show.
Would be great to see a new Star Trek series with SGU like production (visually the show looked great).
What a load of crap. Hollywood/TV doesn't have a lot of leverage because they're crooks. They have a lot of leverage because they sell a non-fungible product. People don't just want to watch a show about advertisers with a lot of sexist banter--they want to watch Mad Men. They don't to watch a movie with some random hot guy, they want a movie with Channing Tatum.
It's the same market dynamic that makes Apple and Louis Vuitton what they are except even more extreme. LV sells purses and so does Kate Spade and so there is competition there. But only Warner Brothers sells Lord of the Rings, and other swords and sorcery movies aren't fungible with LOTR.
I'd pay for more Legend of the Seeker, or for someone to do a Mistborn series. I'd pay to see Game of Thrones.
http://www.brandonsanderson.com/blog/1074/Mistborn-Movie-Upd...
http://lists.w3.org/Archives/Public/public-html/2013Jan/0172...
So I don't see their growth as a good thing.
I'll be honest, I used to be a DRM hater, like you, but for subscription services DRM doesn't even get in the way... The experience is just that much better, and I don't mind at all... I don't even think about it.
So, it seems our options are limited here. There isn't going to be online content without DRM, especially in emerging and very competitive markets. It's a necessary evil, I fear.
You are saying that some DRM doesn't get in the way, how is it exactly? DRM prevents users from using their system of choice, since DRM is practically never cross platform, and DRM stands in the way of copying (that's what it's created for) i.e. in a way of copying for legitimate purpose such as format and time shifting, backups, accessibility and various other applications of fair use. To put it practically - can you use Netflix on Linux let's say? Not without jumping through some weird hoops. Can you make backups from Netflix content? No. So I'd challenge that it's transparent and doesn't get in the way.
> It's a necessary evil, I fear.
No, it's an unnecessary evil. And there will be online content without DRM - content creators just need to come to grips with reality and do the right thing. DRM doesn't add any value - it only degrades it for legitimate users.
Content creators have two ways forward. First is dropping all DRM, which makes experience better for end users, and respects paying customers. It doesn't stop piracy, but it provides incentive to buy from those who treat customers with respect. Second way is pushing DRM, degrading the experience of paying customers and treating them as potential criminals by default. This way doesn't stop piracy as well, but such disrespect towards legitimate paying users doesn't create any incentive to deal with content creators and distributors who treat people this way, and artificial limitations which degrade the experience and flexibility of such content reduce the incentive even more (guess what incentive they increase? Exactly - for piracy).
Music industry realized that DRM doesn't offer them any benefits (and only offers disadvantages) so they dropped pushing it. Other industries are still catching up with the idea, but they'll come to it. DRM as a trend is dying, though in many areas DRM free distribution channels are still a minority. You can get more and more DRM free e-books, DRM free distributors like GOG and Desura show that it's not needed at all for gaming. What's really dragging behind is video distribution. Besides DVDs where DRM is trivially removable, there are virtually no DRM free channels especially for streaming. But I don't see any conceptual difference between music, books, games or videos and etc. In any of these cases DRM offers nothing positive to end users (totally on the contrary) as well as doesn't prevent piracy. So as a trend - it's dying but it will take time for it to be gone forever.
My whole point was - it doesn't make sense to make a Web standard out of a dying trend which on top is unethical and user hostile. Therefore Netflix is doing a really bad thing with pushing DRM into HTML standard.
Amazon, Apple, Netflix, Steam, Microsoft, Sony and Spotify all disagree with you. DRM isn't dying, the goalposts have just moved. I think people are starting to become more educated on what is and isn't acceptable DRM. If it's handled transparently then most people don't care. If it is handled poorly (I'm looking at you Installshield) then it's the nightmare we imagined.
There are certain things I can accept DRM on, streaming movies from Netflix, streaming movies from Spotify, cheap games from Steam, and reasonable SaaS subscriptions. And there are some things even I won't accept DRM on, ever. My music collection and my book collection, mainly. I'll pay the rent price for a game or movie, but I'll never pay the owner price and have you rent it to me. That's how I see DRM and that is how I instruct others to treat it.
As you said, we should be more pragmatic about it. I don't accept DRM on my e-books or music either, but I'm willing to compromise on movies and some games.
Sticker price is, as you mention, a big point as well.
I fully agree that DRM is hard to swallow on content that you've purchased outright though. I actively avoid purchasing things that I don't truly own after having purchased it.
Simple. See all arguments presented above. In short - it's unethical practice of preemptive policing which severely degrades usability and achieves nothing positive. It's based on implicit insulting treating users as potential criminals. Users naturally should be hostile to such disrespectful treating, and surely this should not become any kind of Web standard.
And just to note - a concept of a "stream that you don't own" is a sheer nonsense in itself when the data reaches the user. User should be able to back up any data - it's within the fair use of that data.
If you demand ownership of any data that comes over your connection, all you're doing is fostering an environment where we can't have nice things like Netflix and Hulu offering on-demand streaming of their immense libraries of content for a few dollars a month (much less spending 9 figures on creating original content). If you agree to the terms of service that Netflix provides their video under, the content you stream from them absolutely and undeniably is not something that you own -- no more than you own the rights to re-broadcast premium content that you receive via subscription cable or satellite and no more than you own the copyright to the content of a website just because you download it into your browser.
You mention degraded usability, which I've never experienced when using Netflix. If anything, Silverlight's "smooth streaming" is (by far) the best HD-over-the-wire experience I've seen still to this day. However, I've read that Linux users have a relatively awful time with Silverlight and Netflix. The latter are a perfect example of those who would benefit from accepting the real-world reality that DRM is necessary for premium content to be distributed online, and thus we ought to go ahead and make that a first class experience in raw HTML. Everyone would benefit from codifying that as a standard.
If you are talking about using doors - it's totally the opposite, usually it's DRM that violates privacy of users and is prone to all kind of abuse (example: https://en.wikipedia.org/wiki/Sony_BMG_copy_protection_rootk... ).
> If you agree to the terms of service that Netflix provides their video under, the content you stream from them absolutely and undeniably is not something that you own
It doesn't really matter how it's called ("owned" or not "owned"). Users have full right to use this data in the manner they want (like time or device shifting) if they do it for their personal needs and don't redistribute it to others. In most cases to allow such flexibility one needs to either get DRM free content, or to strip DRM from the DRMed one. It's especially important for people with disabilities who are mostly ignored by DRM schemes. Streaming is merely a convenience scheme, in comparsion let's say with simple download (i.e. it doesn't require you to store data and allows accessing it instantly in contrast to waiting for the download). Those who intend streaming as a way to restrict usage are wrong since they ignore users' rights on fair use of that content.
> If you demand ownership of any data that comes over your connection, all you're doing is fostering an environment where we can't have nice things like Netflix and Hulu
Not true. Nothing essential dictates Netflix or Hulu to use DRM except paranoid fear of piracy by content publishers which push them to use such nonsensical and unethical tools like DRM. And as was already pointed above - it doesn't even prevent piracy anyway. All it does - punishes the paying customers and shows disrespect to them. So - there is no such necessity for any content to be distributed on the net under DRM. And if some content distributors insist on using such methods - let them, but it should never be encouraged or proliferated by making it a Web standard. They need to be educated that it's a backwards and unethical approach. And people should be encouraged to avoid such distributors - for the sake of making a point that customers should be treated with respect and to show that unethical methods are unacceptable. Repsect is also a two way street. When distributors treat users with respect, users have incentive to support them more in return and to respect them back. Most distributors don't care about or never think about it. But those who do, are respected by users much more and it always pays back with more loyal customers.
Linux example only proves my point - DRM degrades usability (in this case for Linux users). DRM schemes will never be fully portable and will always restrict use cases.