In the past couple of days, I have fielded questions from international journalists about Netflix’s reaching a milestone of 100 million subscribers, and its plans to spend $6 billion on original shows and movies this year. Can the company sustain this level of spending, and has it proved it can succeed in international markets?
Yep and yep.
Six billion seems like a huge financial risk (on forecast revenue of $11 billion) but it is clear from Netflix’s second-quarter results that content is strongly driving subscriber additions. Until fairly recently, most consumers signed up at the holidays, after receiving a Netflix-enabled device or a gift card. Results for Netflix’s Q2 — typically its weakest quarter — were astonishingly strong, indicating that people are signing up all year-round when they hear about shows they want to see.
That, and Netflix’s last bet-the-ranch move — spending more than $1 billion (on a lot less revenue) on marketing between 2005 and 2007 to acquire subscribers as fast as possible and drive off Blockbuster and Amazon — argue that this strategy can work to solidify the company’s position in international markets.
During the Blockbuster battle, consumers evangelized Netflix’s overnight delivery, movie availability and personalized user interface, and this word-of-mouth drove a lot of growth. Today, content is what subscribers talk about, and it’s clear that Netflix needs to give them something to talk about.
Dr. Joel Mier
It is still a thrill to find insider details about what makes Netflix such a force in consumers’ lives, such as this LinkedIn column from Dr. Joel Mier. Joel became director of Research and Analysis at Netflix in 1999 and served in that post for a decade. He helped Netflix expand beyond its early user base of young, high-earning male computer nerds and connect with ordinary Americans. This was not an easy task: Only about 60 percent of U.S. households had computers and Internet service back then, and Netflix’s early users were very vocal on Usenet boards about the young company’s customer service and operational problems. Joel now teaches marketing to lucky students at University of Richmond and serves as VP of Marketing at Contactually. Enjoy this great read!
Cannes plans to shut Netflix films out of next year’s competition to, I guess, reenact, in a transatlantic version, the trail of tears that is the doomed U.S. “window” system of releasing content. This is the distribution arrangement that delayed studio-funded movies from appearing on TV, video on demand and streaming services until after their movie theater and DVD runs. I’m all in favor of theatrical runs because there’s nothing more thrilling than emerging from a movie theater with popcorn stuck to your clothes and that secret conviction that you and Superman vanquished the Kryptonite monster together. I’m all for it, unless it means that viewers have to wait forever to see the dang film on Netflix or Amazon or whatever.
Yes, the French film industry benefits from theatrical revenues, but restricting films to certain platforms during special “windows” doesn’t suit consumers and is bad for the kind of international and independent films that Cannes celebrates. If you hold a film ransom in a theater, we are going to forget that we vowed to see it when the YouTube trailer popped up three years ago.
U.S. movie ticket sales have declined every year since 2013, when streaming services got serious about making content yet Americans watch a lot more content at home, and that trend won’t reverse itself unless we break the Internet. Better to have a movie theater run and allow simultaneous streaming at a premium that will benefit French filmmakers. Otherwise, your théâtres will look like that picture right there.
The media paid a lot of attention to the 2013 roll out of Netflix’s House of Cards – but the show did not mark the first time Netflix tried content creation. In fact, the company’s first foray into Hollywood as Red Envelope Entertainment was more important than its gambles on Lilyhammer and House of Cards because it laid the foundation for the huge success of its second try. The series represented a new paradigm for the company and the entertainment industry – episodes were released all at once, to all Netflix subscribers, and the series itself was the product of Netflix’s prodigious database.
It seems like common sense now, but nobody knew whether that would work in 2013. Nor did Netflix really know how much value it would reap from its little production company, Red Envelope Entertainment, or from its decision to sponsor the Spirit Awards, which honor independent films, starting in the early 2000s.
I attended a couple of the Spirit Awards ceremonies, and it was easy to see as I watched huge stars like George Clooney mingle with up-and-coming directors, writers, and actors in a big white tent in Santa Monica, California that this was the future of American entertainment. Those young directors, writers and stars remembered Netflix’s early support, and when the company plunged into content creation, they were on board. Here’s an interview I did with NPR about this in 2013.
Netflix hits Italy, Portugal and Spain in October. The coolest thing about Netflix going international is the relationships it is developing with filmmakers around the world. The ability to see the story of the Spanish Conquest from the eyes of Spaniards is going to be really really amazing. http://www.hollywoodreporter.com/news/alfonso-arau-talks-netflix-spanish-779949
This is a fantastic look at how streaming touches everything about entertainment. Reading this, I flash back to January 2007, sitting in a conference room at Netflix HQ with Reed and watching him demo the streaming app. I was watching the defining moment of a revolution. Pretty cool.
Here’s Richard Von Busack’s excellent piece for MetroActive: http://www.metroactive.com/features/Streaming-Television-Film-Netflix-Hulu-Amazon-Prime.html
There were some interesting tidbits in Netflix’s Q1 earnings call yesterday:
- the idea that the $1 billion writedown Time Warner is expected to take on its broadcast rights to LA Dodgers games could chill Netflix (and other streaming services’) spending on content prices
- that international piracy acts as a “governor” on Netflix subscription prices in international markets where piracy is rife
- that Ted Sarandos unabashedly said Netflix will keep pushing movie studios to release films day-and-date with theatrical releases
… but by far my favorite thing that anybody said on the call was Reed Hastings repeatedly mentioning Poland when talking about Netflix’s determination to get global rights to all content.
He was probably referring teasingly to reports that the company was readying its infrastructure for a Poland launch but the mention of the country that saw the start of another push for world domination made me laugh.
The Netflix juggernaut will keep rolling across the landscape of Europe until it has encompassed all by the end of 2016 — but in this case the conquerer is welcomed and heralded, especially by all the disappointed VPN users the company shut down earlier this year.
I think I need to get out more.
The concept of a Netflix Seal of Approval for televisions is cool for a couple of reasons:
a) There was a time when almost every major electronics maker turned down Netflix’s request to put coupons for free rentals in DVD and TV boxes (See how the worm turns!), and ;
b) The idea of an “Instant On” button, as described in this TechHive post lets us ponder what home entertainment is going to be like when nobody is watching broadcast or cable television any longer. Sort of like a video library where one calmly selects and enjoys content, free of all commercial distractions and time constraints.
Man, if I had known in the 70s and 80s that someday I’d be able to pick up “Lost In Space” or “Gilligan’s Island” at the very point I’d had to turn off the TV to do my homework or eat supper, life would have been a lot more serene for my parents.
I could try to romanticize my childhood “hardship” but, really, I can’t think of anything negative about the internet television viewing. I actually think I spend less time watching TV and get more of the content I want than back in the days when I suffered through the end of “I Love Lucy” and zillions of commercials to see the show I wanted. That’s progress.