How Hollywood Accidentally Built Netflix (vox.com) 57
An anonymous reader quotes a report from Vox: [T]he story really starts in 2008, when Netflix broke into streaming in a big way, through a backdoor: It purchased the digital streaming rights to movies from Disney and Sony -- that is, movies you've heard of, like Pirates of the Caribbean -- from Starz, the pay TV channel. Starz had ambitions for its own streaming service, but those fizzled, which is why you have probably never heard of Vongo. And that's why Netflix got those movies for a song -- around $30 million a year -- while becoming a pretty good streaming service almost overnight. For context: In 2012, when Netflix wanted to make a new streaming deal for content from Disney, which by then had realized that streaming was a real thing, Netflix paid an estimated $300 million a year.
A contractual loophole let Netflix get Disney's and Sony's stuff without cutting deals with Disney and Sony. But soon enough, media companies were scrambling to sell their stuff directly to Netflix: They saw Netflix as an easy source of nearly free money -- if Reed Hastings and company wanted to pay them for old shows and movies they were already selling other places, then they'd be happy to do it. But that free money wasn't really free: Netflix took the stuff Hollywood considered its leftovers and built a giant business with it -- and ended up competing directly with the established media players, using their own content. Which leads us to today, where the biggest media companies in the world find themselves years behind what used to be a Silicon Valley upstart. The full story on the impact Netflix has had on Hollywood and the people who run it and work in it was told in this week's episode of Land of the Giants: The Netflix Effect.
A contractual loophole let Netflix get Disney's and Sony's stuff without cutting deals with Disney and Sony. But soon enough, media companies were scrambling to sell their stuff directly to Netflix: They saw Netflix as an easy source of nearly free money -- if Reed Hastings and company wanted to pay them for old shows and movies they were already selling other places, then they'd be happy to do it. But that free money wasn't really free: Netflix took the stuff Hollywood considered its leftovers and built a giant business with it -- and ended up competing directly with the established media players, using their own content. Which leads us to today, where the biggest media companies in the world find themselves years behind what used to be a Silicon Valley upstart. The full story on the impact Netflix has had on Hollywood and the people who run it and work in it was told in this week's episode of Land of the Giants: The Netflix Effect.
Logical, I guess (Score:5, Insightful)
If all traditional, well established businesses had perfect foresight there won't be any new players on the market....fortunately that is absolutely not the case.
Slow Learners (Score:5, Interesting)
Hollywood keeps learning and forgetting the same lesson over and over again. When TV came along, Hollywood saw it as the death of movies. They introduced the widescreen format, and pushed for stereo and surround sound systems, to compete technically with television. Meanwhile, TV stations started buying broadcast rights to movies. Originally it was only small, independent movies, then the large studios realized they could make a ton of money by licensing out old movies to rebroadcast on TV. And thus the tradition of watching The Wizard of Oz on Thanksgiving was born.
Then, VCRs came along, and studios saw them as the death of movies. Then, smaller studios started making their films available to rent, and the larger studios realized they could charge video rental stores $100 for a movie and make a bunch of money.
Then, Jurassic Park was released, and they charged $20 to purchase it right out of the gate. Video stores bought dozens of copies instead of the usual two or three, and people bought even more copies to own it.
The lesson - if you make it cheaper and easier to use your product, people tend to buy more of it, and you'll make more money.
Re: (Score:3)
Hollywood keeps learning and forgetting the same lesson over and over again.
"Learning and forgetting the same thing over and over again" is a long-winded way of saying "not learning".
Re:Slow Learners (Score:5, Insightful)
Netflix isn't just a different delivery mechanism though, it's a different way of financing movies (and TV). Netflix movies have a much flatter revenue curve, it's not all make-or-break on the first weekend and sometimes it takes a while for word of good ones to get out. The whole model of subscribing for a month means that each movie is part of a package, not a one-off payment just for that single video.
Netflix also made home cinema technology cheaper. No need to upgrade your Bluray player for 4k or HDR, if your TV supports it then it just works.
For once a company was ahead of piracy and actually offered something that was both a viable business and competitive with free(ish).
Re:Slow Learners (Score:4, Interesting)
This is an excellent analysis.
Anecdotally in support: I have never pirated a film I could watch on Netflix.
Perhaps some day we'll see Congress enact compulsory licensing for films as they do for songs. As much as they try to do, hollywood will never convince me that films and television are not commodities.
Re: (Score:2)
Netflix isn't just a different delivery mechanism though, it's a different way of financing movies (and TV).
That's also true. Streaming significantly alters the supply and demand mechanics working in traditional mediums. With theatrically released movies, you only had so many physical screens to show movies on. With TV, there are only so many broadcast hours in the day on each channel, though with modern cable there are a LOT more channels. There is no limit on streaming. The only physical limits are how much bandwidth is available to push data out, and how much storage space there is to hold it, and both are rel
Re: (Score:2)
It is like most established companies. When your company/industry gets to a point, you really don't want to change what works.
This method has both positive and negative effects. There are a lot of fads that had came and gone, and these companies didn't jump on and they were better off for it. Then they are the technologies that have changed the market where they may be late to the market, but often will get there in time to recover. Then you have technologies that are so disruptive that it kills your ind
Re: (Score:2)
This method has both positive and negative effects. There are a lot of fads that had came and gone, and these companies didn't jump on and they were better off for it. {...} (Do you remember Vinyl Video, where you can watch a movie on a modified record player).
I think there's a small bit you might have missed from the top post:
Technology that succeed disrupting the market are cheap and simple.
The "failed fads" are usually a combination of contrived, requires unusual hardware, etc.
DIVX [wikipedia.org] is the prime example of such a failure: it relied on proprietary special readers, it relied on a special scheme of "self-destructing" DRM copies. All this fo
Re: (Score:2)
I somewhat disagree with you about DivX. They provided a reliable experience at a time when video standards were poor. They got this guarantee pressed in to silicon with device manufacturers, at the same time that people that people learnt they could download a movie off the internet compressed to a size they could fit on a CD.
They did this so successfully that they missed the boat with H.264, by which point the rest of the industry had realised the importance of standards, compliance and consistency. Th
Capital difference. (Score:2)
I somewhat disagree with you about DivX.
Please note that I was referring to DIVX (all capital letters) - the special player that played special "single-use" DVD disc, that would only work for 48, then get rejected by the player. There's no special video standard involved, it's still MPEG-2 Video like your standard DVD. The adition is a new different encryption layer and a special "self-destruct" DRM scheme rendering the discs useless after 48h.
The whole point of all this mess was just to avoid needing to send back the medium in online rentals.
Cr
Re: (Score:2)
I should have read your Wikipedia link rather than assuming it was about DivX the company. :) But I also disagree with the suggestion that the DIVX format was only slightly cheaper. As I recall, it was just a few dollars versus 5-10x as much for a DVD purchase. I.e. it was the cost of a rental with less hassle. Their business failed, yet Netflix was extremely successful with the mail out and return model - maybe that's your point about technology though?
DIVX Rental (Score:2)
I.e. it was the cost of a rental with less hassle.
Yup, the key idea is making rental, but without needing to return the physical object on time (because the software DRM will self-destruct after 48 hours).
But requiring a special (and thus more expensive) model of DVD player for it to work (unlike support for MPEG 4 Part 2 ASP, it wasn't a widespread feature available from countless cheap no-name Asian devices). Also you end up with useless silver discs piling at home that you'd need to get rid of anyway (but you don't need to do it within 48 hours anymore)
Re: DIVX Rental (Score:2)
And this is where the other DivX stepped in by aiding piracy :). Convenience+free competed well against the other commercial options and appealed to Chinese silicon manufacturers! Officially DivX was a licensing company, and they made so much money at it that they could pay the flat MPEG-LA fees to provide the H.264 codec for free to their users, helping to build a virtuous cycle of convenience based on piracy (and this continued despite their attempts to build a legit commercial business from these founda
Re:Slow Learners (Score:4, Insightful)
I don't believe it's that they didn't know.
It's that they didn't want.
While they are the only source, they can have a monopoly on things and have control, which will make more money (in their eyes).
As soon as something else comes along that they don't own, they run scared of it, claim it's "not as good", and have only token co-operation with it.
They're not sitting there doing "duh, internet, what's that?" They know exactly what it is. What they don't want is you using it. But they don't want to appear 100% against it (because that just reeks of a monopoly), so they play dumb and throw the occasional bone towards it.
There are thousands of people in that industry, and many of them in the prime age gap to have been doing exactly what Hollywood didn't want them to do. They understand. They don't care, while they have a monopoly over your viewing of their content.
They would have banned VCRs if they could have. Then they would have likely invented their own approved model 20 years later that only worked the way they wanted it to.
It's 2020 and we're still dealing with things like "I'd like to stream the movie on the day of release", "I'd like to buy the movie where I have the rest of my streaming movies", "I'd like to be able to download the movie and watch it offline", etc.
Not because they're too thick. Because they're likely too greedy. The work involved in a 4K CGI movie costing hundreds of millions is too technical to think that there aren't people who understand exactly what's going on. They just don't want you to know, or get wind of it, or ask them why they don't have it.
The economics really don't matter when you're that big. You can do what you like, so long as you continue to make money.
I still couldn't buy Aliens:Special Edition online until this year. That's nearly 33 years. They have it now, but it literally was not available on Amazon, Google Play, etc. as a purchase or even rental for those 33 years. All the compilations only have the normal editions.
In 2020 they finally put it on such services, unannounced. Why? I've been able to buy it on VHS, DVD and Blu-Ray for years. If they wanted money, they could have done that day one of putting Aliens online, charged an extra bit for it, and they didn't.
They don't care about the economics, or the scale. They just don't want to control their media (e.g. Disney is a prime example) and don't want you to ask awkward questions like "Why is it quicker, cheaper, move convenient and better quality to pirate a major movie that you don't even really try to sell any more?"
Re: (Score:2)
So license the movie to Netflix AND Amazon AND Starz. Make money that way. No, they're going to try and make their own crappy streaming service and then wonder why they're not making a good profit on it.
The big Hollywood mainstays don't understand what's going on, and never will. They're probably baffled that Netflix produced its own content and had some big hits and devoted followings for its lesser hits, even though they weren't sequels of blockbusters following a strict formula and weren't tailored to
Re:Logical, I guess (Score:5, Interesting)
Re: (Score:1)
This Infonet thing, whatever it was called, was some obscure fad that wouldn't last.
The infonet thing still might not last. It requires infrastructure to work. No infrastructure due to global warming, civil unrest ect. no infonet thingy. Add in a couple other provisos about a lack of security and the long term existence of the internet as we know it is far from assured.
Re: Logical, I guess (Score:3)
Re: (Score:2)
"he internet becomes too expensive for the majority of us"
The companies that could/would do that like AT&T/Comcast/Verizon don't want that. If it gets too hard or expensive to have internet at home, then people will move on to something else. People cut the cable cords for that reason. They can't afford to have people en masse cancel home internet connections.
Re: (Score:2)
The Kodak effect.
Comment removed (Score:5, Informative)
Re:Logical, I guess (Score:4, Informative)
Re: (Score:2)
And that's a drawback. I liked Netflix because it had a wide range of content and a large backlog of old movies and old tv shows. That's more useful than the new stuff. I will never subcribe to Disney to get Disney owned stuff. Now that I know I can get entertainment more cheaply, I will not be spending $100+ a month for it by subscribing to multiple services. Media companies should license out the backlog, for money, to reputable streaming services rather than creating their own second rate crap servic
Re: (Score:2)
Re: (Score:2)
If they tried to compete with video rentals in the past, like Blockbuster, you'd see a Disney video store offering only Disney movies for $10 a night, with tapes having to be returned by 10am in the morning. Additional profits are made by not requiring as much real estate because there would be fewer shelves, and also Disney merch to be sold at checkout.
Remember video stores (Score:2)
If you went to a good one you could get a wide variety of stuff.
Now, with better technology, it is all being broken up into silos.
It is actually Blockbuster et. al. that lost to Netflix. They were in the game of renting content, all they had to add was a bit of software to stream video.
Re:Logical, I guess (Score:5, Interesting)
Except they STILL misunderstand their market, badly.
Now that the streaming market is kicking the ass of their normal distribution model (I don't think they're quite as foresightful as you seem to - I recall DIVX, etc), they now want to block out this 3rd party distributor and rake in all those sweet, sweet dollars themselves.
But they're really, really shortsighted. (Setting aside greedy AF.)
Currently I pay for Netflix, Prime, and hulu junior (I'm debating that last because I'm paying to watch shows with 7 fucking commercial breaks an hour? Really?).
Now that each content provider wants their OWN piece of the action, they're pulling their content from Netflix and expect me to pay them a comparable number now for their particular subset of the formerly broad generalized library.
I won't. Disney (alone) content ain't worth $15/mo or whatever. Nor is CBS prime or whatever they call theirs. Or any of the others, individually. $5? $3? Maybe.
As mentioned with Hulu junior, if you FURTHER monetize my eyeballs by overloading commercials to the hilt - well, I'll go back to torrenting the shit out of what I want to watch, play more computer games, and generally avoid you making $1 from me. Congrats, media companies. You just screwed yourselves out of a piece of my income that I was GLADLY paying.
BTW, because of the hulu commercial crap (and not to mention that their content delivery UI sucks balls both in design and function) I ... may be ... currently downloading something like 91 gigs of SG1 episodes so I can watch the last 8 seasons in peace. I'd have happily paid SOMEONE something to watch a 10 year old broadcast show. But you're all just too flipping greedy.
Re: (Score:2)
Re: (Score:2)
I expect you're right.
I mean, yes, there should be OTHER general streaming services than Netflix - well, there ARE with Prime, Hulu, Crackle, and a bunch of others dividing single digit market shares.
No, I expect the content makers will try to sell their walled gardens, each withdrawing their contact from Netflix and other generalist services.
The generalist services will either wither from lack of meaningful content, or like Netflix become another content producer...and will wither for the same reasons.
Even
Re: (Score:2)
Disney will have trouble with retention as they really only do movies. We plan to subscribe for a month every year and just watch any thing interesting, unlike Netflix which has continuous new content.
Re: (Score:2)
Netflix was also able to do what Disney and Sony can never do - provide a broad range of content from multiple media companies. As it is, Disney's streaming service gives you mostly Disney stuff, and Sony's service will give you mostly Sony's stuff. Netflix was essentially being like a cable company in that it showed other company's products. Netflix only started producing its own content when it started being blocked from access to to other company's content (in particular Starz at first).
So now we seem
I pay them for original content anyway. (Score:1)
Re:I pay them for original content anyway. (Score:5, Interesting)
It really depends on how you deal with content.
It sounds like you are mainly a Plot driven individual. So you see the movie you find out how it turns out, you don't need to see it again.
Others like to really like to pick the movie apart. So that movie with the Surprise villain, that may have got you the first time, when watching it again, you can focus on the details that the actor/director did to show that he was actually the bad guy all the time. Or if the movie is part of an expanded universe, you may be able to focus again on the growth or a character and hints towards the direction they are going to take.
Some people handle the movie for the characters, They become their friends, and re-watching the movies they become predictable and increase our connection to them.
For me I can watch Trek over and over again, and during different stages in my life I find myself relating to different characters.
As a Kid, I related to Data. As a Teen it was LaForge, Young adult I found Worf more interesting, Now as a middle age adult I see Picard are more relatable to me.
Rewatching the shows every few years, I find I pick up different meanings and I see the actions of the characters a little differently every time.
Re: (Score:2)
No, am I weird? (Score:2)
Re: (Score:2)
Re: (Score:2)
Re: (Score:1)
Re: (Score:2)
Because I saw it 5 to 20 years ago I have probably forgotten a lot of it. And it's still 1000% better than the new crap they keep churning out. A good movie or who is like a good book, you don't have to just watch or read it once only. If you liked The Fifth Element and haven't watched it a second time while drinking beer and eating pizza, you're missing out.
Same with video games. Most of the new stuff is crap, but I can replay the old games just fine.
Better deal then cable (Score:2)
and the DVD service is still going (Score:2)
My personal journey? (Score:1)
The Best Part (Score:1)
Hollywood seems to have about 2 dozen generic movie scripts that they work with. They change the title, cast, location, etc. but it's all the same basic story.
Thanks Nexflix!
Re: (Score:3)
And Netflix does this internationally too. They'll help produce movies in Columbia for example that ends up with a big market in the Spanish speaking world, and because it's dubbed and subtitled, even in the non-Spanish speaking world. What would have been a niche movie gets seen all around the world. Maybe not huge in Hollywood terms, but it's huge for the smaller studios to get that exposure. And its great for the customers who want to see something that's not just another Hollywood formula.
NetFlix Is Yet to Be Built (Score:2)
Until they're making a profit, they're not done. Until then, it's all just magic pixie-dust and lost investments.
Re: (Score:2)
I mean, making a profit and then spending it all on long term investments is an accepted business practice. Which is exactly what Netflix is doing. It's also what Amazon is doing and they're the most valuable company in the world.
Re: (Score:2)
I mean, making a profit and then spending it all on long term investments is an accepted business practice.
I know the pandemic has changed things but before it hit NetFlix were losing money; they had nothing to invest other than what their shareholders were prepared to piss down the drain after the last load of cash.
Ultimately, NetFlix are up against Amazon who can afford to give their content away for free (hell, they could pay us to watch it), and Disney who own half the world's back catalogue.
They're just waiting for the buy-out; all their value is in the logo.
Re: (Score:2)
IIRC, Netflix hasn't issued new stock since the IPO.
Re: (Score:2)
IIRC, Netflix hasn't issued new stock since the IPO.
You don't need to issue stock to squeeze money out of investors who are already exposed.
But, having had a quick look, NF is mainly just borrowing money - they borrowed $1Bn in April, taking them to $16Bn in debt at that point. As with the $2Bn in 2019, they issued senior notes which screw other lenders over if/when they finally go bust.
It's a hard one to call but if you're selling under cost, then a sales boost just sinks you faster but I don't know if the pandemic has changed their economies or not.
Re: (Score:2)
They're not losing money on delivery. They borrow money to produce shows/movies they own - assets. They're cashflow positive on suubscriptions.
Re: (Score:2)
They're not losing money on delivery. They borrow money to produce shows/movies they own - assets. They're cashflow positive on suubscriptions.
Cost is more than delivery; or am I misunderstanding you?
Re: (Score:2)
I meant, they're making money per-subscriber. They're just borrowing money to build a bigger wholey-owned catalogue. They're already profitable. They're just investing heavily in an asset. Since some big shows are worth 200MM/year (Friends, Seinfeld, Big Bang), and billions are paid for the Star Wars rights, it seems like a worthwhile investment. Esp. if you can promote those shows to your customers to build the shows value.
It depends I guess on if you consider their original programming an inherit cos
My respect (Score:5, Informative)
As a technophile, I'll tell you how Netflix earned my respect back in those early days - they supported nearly every obscure device possible. You could watch Netflix on a Nintendo DSi, a Windows Smartphone, even on a Blackberry (and of course Android and iPhone). Consoles like XBox and Wii were supported too. I'm not talking about crappy thin HTML clients, but actual native apps for all of them, and they all worked really well.
They really spent a lot of time and money developing all that software for so many platforms, and they earned a lot of respect through that move (and of course lots of customers!). It had to have been one of the most widely ported and supported apps around, especially one officially done by a single company that was not open source.
Re: (Score:2)
IIRC, they never supported desktop Linux clients very well, if at all. Do they even support Linux now? I might even subscribe to them if there was a Kodi plugin that worked as a Netflix client. As it is now, I just assume it won't work (or that it will be too much effort to get to work), so I don't bother and stick with buying/ripping DVDs.
I wish there was a site which kept track of which streaming services worked on which platforms.
iTunes for Movies (Score:2)
It's basically what happened with iTunes and digital music - Jobs bought the digital rights when nobody cared about digital rights. Then suddenly everyone cared about digital rights.