BUSINESS

Hollywood Feels the Chill

SOURCE: PriceWaterhouseCooper Global Entertainment & Media Outlook
As Netflix rewrites the script, everyone else is scrambling to keep up

Netflix doesn’t care about ratings.

The streaming service doesn’t care whether you watch it or not, as long as you pay the monthly fee. It’s all about the monthly fee. Which is de minimis. You don’t even need cable, you’ve got more than you can watch on Netflix.

This is how disruption works. And the movie and TV industries, like newspapers and music and taxis and hotels and others before them, are getting disrupted. Big time. And Netflix is the disruptor.

First, Netflix made it easy to rent videos, mailing them out in those red envelopes, all you could eat, please remember to send them back. And it kept track of everything you ordered.

Then it used its data to greenlight the programming it knew its customers would want.

Then it paid for blue-chip content like “House of Cards” to burnish the image.

And before long, Netflix was the new HBO. Only with more content, all delivered upon release.

This was the opposite of the established game. It wasn’t about ratings or demographics. It wasn’t about hype. It wasn’t about keeping the customer hooked on one show over months. It was about putting the customer first, and whenever you do that in the 21st century …

You win.

Nobody else does this. But Netflix figured it out. So now video entertainment is all Netflix and chill.

SOURCES: PriceWaterhouseCooper Global Entertainment & Media Outlook; Statista, TheWrap
FROM THREE CHANNELS TO 500

How did we get here?

Well, in the beginning, there were three TV networks and you watched what they showed you and were happy about it, or not. It didn’t matter, you had no choice.

Then came cable. With not only a good signal, but also choices. Like HBO and CNN and, ultimately, Showtime, TBS, TNT and more. Bruce Springsteen sang that there were 57 channels and nothing on, and while that may have been true three decades ago, you can’t complain now — there are 500 channels and 400-plus new series every year, never mind movies, reruns and news, and your problem is you need a whole ’nother life to watch television.

But the film and television businesses didn’t believe digital disruption would impact them. They saw the music business decimated by Napster, but they thought people loved movies too much to steal, that they were addicted to the paradigm.

Wrong.

First and foremost, it’s about money. Certainly on the producer side. You know why you have those 500 channels? Because the cable system pays them! Forget all the stories about the massive payments to ESPN, which you don’t watch. Those multiple iterations of HGTV and MTV and Fox — they’re supported by the cable system; that’s right, some of your monthly bill flows straight back to them. And you don’t like it.

Oh, you might like the programming, although very few do — viewership can be anemic. A hundred thousand people watching a cable show is considered good. But you hate the bill. You hate the cable company. You hate everything about it.

Concomitant with this phenomenon is the rise of apps. Not only on your tablet and phone, but also now on your television, too. You can have direct access to HBO and Netflix and Amazon.

But their goals are not the same.

SOURCES: Statista; Motion Picture Association of America, The Numbers
HOW NETFLIX WON

Netflix appeared on the stage as the anti-Blockbuster. It mailed you what you wanted and there were no late fees, long hail the DVD! And then Netflix — hey, “net” was in the name from the beginning, that should have told you what was coming — pivoted from mailing DVDs to streaming content over the internet, all you can eat for about 10 bucks a month.

People want streaming because they want their entertainment now, and ownership is a thing of the past, it’s all about access.

And then the movie studios woke up.

DVDs cratered, streaming became the norm. The studios saw the payments for films by Netflix as a boon — until they suddenly realized Netflix had too much control, and the tables were turning and the streaming giant would want to pay less. So, when contracts expired, producers pulled their content.

And did Netflix cry? Complain? Like everybody else in America when their livelihood is challenged?

NO!

Netflix decided to go into production, to beat the studios at their own game, to create its own content.

Prodigiously.

I own no stock. I’ve never met CEO Reed Hastings. There’s junk on Netflix.

But when I have time to kill, when I want to be entertained, whether it be with mindless drivel or deep-diving documentary, I just fire up the Netflix app and there’s always something to see. I get excited.

And with all that product has come hits. Not only “House of Cards,” but also “Orange Is The New Black” and “Stranger Things” and … Everybody talks about television, and everybody wants to know what you’re watching, and they want instant access to what you’re touting — which is on NETFLIX!

SOURCES: Motion Picture Association of America, The Numbers, Box Office Mojo
A LOSING BATTLE

The movie studios keep fighting progress. They won’t allow you to pay to see the film at home the same day it launches in the theaters. Which is kind of like cutting off your nose to spite your face. Because all their marketing is frontloaded for a weekend of theatrical release, and by the time it goes to video on demand and cable and streaming, people have already forgotten about the movie.

And the studios are focused on worldwide product. So it’s all superheroes all the time. If you can’t understand it without dialogue, it won’t play in China, and it’s got to play there to make the studio’s numbers. So those are the movies they make, while Netflix is putting out intelligent, binge-worthy content that doesn’t rot your brain, that makes you keep clicking for the next episode.

Meanwhile, HBO and the other pay services are lost in the last century. Focusing on a limited amount of product. And if something sucks, it blows a hole in their schedule.

But Netflix doesn’t care. Ratings are meaningless. It just wants you to keep paying that monthly fee, so it just keeps pouring out content. In the first part of this year, it released just as many movies as the six major movie studios combined. This year, it will release about 80 movies — plus tons of TV series, countless comedy specials, lots of documentaries, and more. It’s a content machine. And now it’s signed production deals with big names like Shonda Rhimes, Ryan Murphy, David Letterman and the Obamas. More content. Always more content.

With Netflix beating its brains in, the entertainment industry is slowly waking up. With a Hollywood focus as opposed to a Silicon Valley one. Which is a mistake of hubris. Tech supersedes content. Distribution is king. And those looking into the future as opposed to the past win in the end. Hollywood is about windows and making the customer wait, Silicon Valley is about giving you more than you can handle, RIGHT NOW!

You’ve got to skate where the puck is going. Rupert Murdoch understood the challenges, so he decided to blow Fox out, selling it to Disney. But Disney had to fight off Comcast to get Fox. That shows you how high the stakes are — everybody is trying to get into the game, corner sources of content and distribution, before all is lost. AT&T paid $85 billion for Time Warner to get content to put into its pipes.

And the clock keeps ticking.

SOURCES: Recode, MoffettNathanson, Wall Street Journal
THE MOUSE ROARS

Disney may be the one legacy player that can go up against Netflix. It’s got Marvel, it’s got Mickey, it’s got ESPN. It’s not lacking in content. Now it’s scrambling to get into the distribution business. Disney’s plan is to launch a series of apps, like Netflix, in different genres, one for sports, one for kids, one for adults, not realizing people are sick of being pecked to death by ducks, they only want to pay one outlet, as long as it’s reasonable, they don’t want to subscribe to multiples.

But what is Disney gonna provide that Netflix does not?

Maybe sports. But with a shrinking audience and stiff payments to the leagues, that does not look like a good business.

And Netflix has its own franchises and its own kids’ content. And it already dominates the streaming business, it already has the customers paying for service to their homes and tablets and phones. Disney has to build that from scratch. Good luck. The same thing with Hulu, mostly owned by strange bedfellows Disney, Fox and Comcast, which has a fraction of the subscribers of Netflix. It’s the outlet of last resort, because few will see your production.

Among the tech companies, Netflix is not the only player in this game. There’s also Apple and Amazon.

Let’s start with Apple because it’s easier. It’s too late to the game. The brand name does not mean that much, otherwise the HomePod would have succeeded, and it’s a failure. Furthermore, content wants to be where it’s seen, producers don’t want their shows to exist in a vacuum. Latecomers don’t win unless they’re a giant leap forward. There’s no way Apple improves upon Netflix that much. Netflix is just too good and is constantly improving itself. Me-too fails in tech.

As for Amazon …

Always be worried about Amazon. Jeff Bezos may not be Steve Jobs, but he and Elon Musk are the best Jobs-like people we have left. Bezos ignores Wall Street and quarterly numbers, he plays for the long haul. And pays for it. Sure, he failed with the Fire phone, but Amazon Prime is a juggernaut, and it has streaming content baked in, movies and music, just like Netflix and Spotify, all part of the Amazon Prime subscription. I think it takes a while before people realize they get free streaming with Amazon Prime.

But the app is not as good and neither is the content. Netflix is far superior, but for how long?

Amazon is changing its vision, from searching for award-winning content to going for eyeballs. That’s right, Amazon wants the new “Game of Thrones.” And if it finds it, people will find Prime Video, and then it’s a two-horse race.

But what about HBO, the home of “Game of Thrones”?

Well, Netflix has more content. With a better app. And more programming, from original movies to series to comedy.

Starting to get the message?

The creative community certainly has. You take your passion project to Netflix — it won’t interfere, it will let you make what you want to. Which is quite amazing, considering the dollars involved. This is the opposite of the traditional Hollywood studios, which meddle with their money. You get some suit who has never been in front or behind a camera giving you an opinion. Who wants to listen to them?

And HBO takes a long time to get to “go.” Makes you make a pilot, tests it. It’s an endless, time-consuming process in a NOW world.

SOURCES: The Numbers, TechRadar, MovieInsider
NETFLIX’S ENDGAME

Going in for the kill, Netflix is broadening the kinds of content it offers.

After a failed experiment with Chelsea Handler, Netflix has doubled down with a bunch of talk shows, which are not limited to late night — you can watch them whenever you want! You’ve got Joel McHale, Norm Macdonald and young ’un Hasan Minhaj, whose jaw-dropping comedy special “Homecoming King” moved him to the head of the class. In regular TV you’ve got to start on SNL, make friends with Lorne Michaels and wait your turn. There’s no waiting at Netflix, which is why you want to be there!

And they overpay!

And take risks.

David Letterman’s got a Netflix talk show akin to Johnny Carson’s of old, while everybody on the networks is doing Letterman’s old comedy-based show. That’s right, everything on cable is long in the tooth — chances are taken on Netflix.

So where do we go from here?

Well, this madness is gonna end. Reed Hastings is Silicon Valley savvy. You pay now to make it later. So Netflix is not going to keep overpaying for content once it achieves dominance, once it wins the war. And then it’s going to reduce production because the numbers now are insane. And then it’s going to increase the price consumers pay.

So in the future it’s gonna be about access. At the most basic level. How are you going to connect with the content?

Right now the preferred format is cable. But 5G cell service will provide an option. And when you’ve got options, prices go down. As for the cable company’s triple play … WHY DO I NEED A LANDLINE?

Don’t think of 5G as a limited, high-priced service, but as an alternative. Hell, maybe you’ll only pay one or the other, the cable company or the cell company, wouldn’t that be a treat?

And then you’ll layer your services on top of that. Maybe buy a skinny streaming bundle from YouTube or Sling. You don’t want all those other channels, why pay for them? Which is why they’ll go out of business.

And then you’ve got your premium channels. Maybe ESPN if you’re a sports nut. Maybe HBO. But CBS? Come on, you want me to pay for that? That’s right, there’s a limit to how many services you’ll tack on.

THE FINAL BATTLE

There’s a war brewing. Between you and the content providers. They want the new game on the old terms. They want you to stream their content via the internet and pay just as much for it. There will be a game of musical chairs, many channels will go by the wayside. But will you end up paying the same two hundred dollars you do for cable and internet today? Let’s hope not!

You want to pay less.

And you can do this by subscribing to fewer channels and apps.

But one thing’s for sure, you’re going to continue to pay for Netflix. Because it was there first, it’s got the best app and more new content than you can ever watch. I still haven’t seen “The Handmaid’s Tale,” I refuse to pay for Hulu, I’m already paying for internet, cable, HBO, Showtime, Cinemax, Starz, Amazon Prime, Netflix, ENOUGH ALREADY!

Which is why Apple is not the comer you think it is. And, sure, I could borrow someone’s log-in for Hulu, but this is where Netflix is so smart, it allows simultaneous log-ins, it’s your friend.

For now anyway. Ain’t that the Silicon Valley way? The company is your best friend before it’s your worst enemy. Can you say Google? Can you say Facebook?

But Netflix is where all your friends are.

Did you watch “Ozark”?

Or “The Keepers”?

Or “Happy Valley”?

Or “Babylon Berlin”?

I recommend them all. They’re blue chip. Just pull up the Netflix app and see.

And if you disagree, that’s fine, at least we have something to talk about!

Life is about community; I’m sick of living in my own silo. I want to be able to consume content and discuss it, peel back the layers, get new insight.

But I can’t do this if I’m watching stuff on a platform no one subscribes to.

So if you want to know where I’ll be …

On the couch, in the bed, watching Netflix.

And chillin’.

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