Netflix spooks Hollywood more than ever
The name of the game in Hollywood right now is to spark ownership of digital movies, and Netflix's streaming rental service undermines that strategy. Moreover, Netflix may be hurting the major studios in ways that few expected.
LOS ANGELES--Hollywood film executives want you to know that they are not at war with Netflix or the Internet.
(Credit:
Greg Sandoval/CNET)
Some of them told me over the past week that they have every intention to continue to distribute films and TV shows over the Web and at attractive prices to boot. They plan to provide viewers with a multitude of ways to access Internet content: on Web-connected handhelds and TVs, video game consoles, and iPads.
Only, don't ask them to do all this at the expense of the long-term health of their business. The general feeling with the studio executives I spoke with is that they cannot and will not throw in with Netflix and imperil other more lucrative revenue streams, such as pay TV or traditional broadcast services. They don't believe it is a forgone conclusion the Internet will become the dominant means of video distribution or that Netflix has already conquered the category.
The winds have once again changed direction in Hollywood. At a time when Netflix, the Web's top video-rental service, continues to report big growth in the number of subscribers and revenue, more and more studio decision makers are concluding that Netflix represents a serious threat if not kept in check.
On previous trips to Hollywood over the past two years, most of the studio executives I spoke with seemed to have a love-hate attitude towards Netflix. Many said they wanted to wait and see how Netflix's streaming service fared. Some were skeptical that the service could ever draw a large audience without hit films and shows, which they doubted Netflix could afford. At the same time, even Netflix's biggest critics at the studios were glad to have the company help bid up prices for content.
But since then, Netflix has proven it can acquire both sought-after content as well as a large audience. Netflix's rapid rise stunned many at the studios and now even former supporters there are wary of Netflix's growing influence. To make matters worse, Netflix is having some unanticipated impacts on the studio's businesses. Here are a few of the reasons why some film-industry execs said Netflix is raising red flags:
• Netflix siphons off sales from other important areas, such as the airlines. Since more airlines are offering in-flight Internet access, a Netflix account means that movies may be less valuable to the carriers.
• There is evidence that Netflix's streaming service discourages users from purchasing newly released DVDs. The studios see indications that for even hit films, which likely won't appear on Netflix's streaming service for years, some Netflix subscribers are satisfied to wait until they do.
• Films offered on Netflix lose value rapidly. Some cable and traditional broadcasters won't go near a title once Netflix begins streaming it. Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service's commercial-free films and shows anytime they want.
The prevailing feeling among the studio managers I spoke with is that Netflix's streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.
Netflix as disruptor
All this hand wringing about Netflix can be traced to the company's recent success. Netflix streaming has become too big too fast. The video-rental service, founded in 1997, surpassed the 20 million-subscriber mark in the quarter ended December 31. That represents a 66 percent jump in subscribers from the 12 million the company possessed a year before.
The service is also out to a big lead when it comes to building an online distribution network. Netflix is available on more than 200 Internet-enabled devices and platforms, including Xbox, PlayStation 3 and iTunes.
The studios don't want to see any service running away with Internet distribution and accumulating the kind of power that could enable it to one day dictate terms. That's how iTunes dominated the music industry during the past decade.
The Hollywood executives I spoke with said they have nothing but the highest regard for the abilities of Netflix CEO Reed Hastings and his management team. Indeed, perhaps Hastings should be flattered by the roadblocks Hollywood is building for his company. The film studios and TV networks have already watched his management team grind other distribution powerhouses into dust. In the past two years, rental chains Blockbuster and Movie Gallery have each filed for bankruptcy protection.
The studios don't want to help a discounter like Netflix do the same to cable.
But at this point, you might be saying to yourself, "Too late." Consumers want to watch what they want when they want and they want it all cheap. Web services like Netflix provide that. What could big media companies possibly come up with that matches the value Netflix offers?
Collecting DVDs
For starters, the studios want to foster more competition. To do this, Hollywood is counting on UltraViolet, the name given to a set of technology standards that will enable consumers to play digital video across a large range of devices and platforms--just like the DVD can. The standards will also enable services to come along and offer consumers a way to store their digital media on their servers. The film industry wants to see new business models grow out of UltraViolet.
The studios don't want to say goodbye just yet to physical discs but it's important to remember what their goals are and why Netflix may not fit into their plans.
Studio chiefs are eager to get consumers buying and collecting movies again. The home-video category is in decline. Disc sales are tumbling every quarter. One exec told me that 30 to 50 percent of DVDs are still in their original shrink wrap.
There are lots of different theories about why consumers have stopped collecting DVDs. Eric Garland, CEO of Big Champagne, a company that tracks digital-media consumption, says that the huge growth in disc sales was driven by the public's temporary gee-whiz reaction to what was then a nifty new technology.
"The medium was creating this false impression that we had a real need to curate libraries of films," Garland said. "People built film libraries because they had never been able to own movies before. Even then, most of the movies only got watched once."
The DVD helped the film industry generate huge profits for years and that's why the stakes are very high. "If we find out that people won't collect feature films anymore," Garland said, "than the business as we know it is broken beyond repair."
Netflix's streaming service, of course, provides an excellent alternative to buying movies. If Hollywood is serious about freezing the company out when it comes to popular shows and films, then it will be interesting to see whether Netflix can keep up its white-hot subscriber growth.
Keeping score will be easy. For starters, just log on to Netflix's streaming service and decide whether there's anything worth watching.
The movie and music studios are running themselves into the ground all the while narrating they're own bad decisions and they're surprised it's happening. They can't tell how to run a business even when multiple individuals are doing it right in front of them.
On top of that the movie studios still can't seem to understand that people want value for their money and so they keep the price high enough that most people just wait for it to appear on TV or Netflix...
The DVD is a dying market, just like VHS and Laser Disc before that. If I was to buy a movie today, I would go on iTunes and by the electronic version anyways.
Electronic distribution is the future, they need to figure out how that is going to work for them and move towards that as fast as they can. Over the Air and Cable/Satellite are bridges to that future. They are nothing more that streaming of video over Radio and cables, the same can be done over the internet. Why can't I go to NFL.com and buy a season subscription to my favorite team and watch that streamed over the Internet?
That's what the studios want to avoid. They'd also like it if you paid for the second of every movie you watch but that's another story. Even with cable companies you have several options you have dish network, verison, timewarner etc...
1. The studios are pricing their new releases too high. We used to go to the theater about once a month or so, but now, one trip to the theater can cost as much as $50 or more. Now I am sure that there are some members of the MMTB club (more money than brains) who are willing to just fork over this kind of money for a couple of hours watching a Movie that they won't even be sure they will like. BUT... Us poor folks can't waste what amounts to three meals for the family on one movie. Prices are just outrageous (an Hollywood wonders why people pirate their films..)
2. DVD and BluRay prices are better, but it seems that when it comes to some films and TV shows on DVD and Bluray, the studios are still living in a fantasy world in which everyone is a Millionaire with money to burn on bad films and TV shows. A perfect example would be the Warner Classics series of DVDs (not even on Bluray). These films are old, and I mean OLD. Most are from the 60's and 70's. These films are good films, don't get me wrong, but when they want you to spend $39 or more for one old movie that has already been through syndication simply because it hasn't been aired in decades, it's tantamount to price gouging. This is yet another incentive for people to pirate their films. A more reasonable fee would have been like $19.99. These were not actually A list movies when they came out. I swear, sometimes I think that Hollywood intentionally prices this stuff out of reach so they can beotch when people start pirating and trading these flicks. Then they could use that as a justification to hike the price up even more. It may seem far fetched, but the people in Hollywood are a very sneaky and conniving lot.
The only real thing keeping them and their overpriced industry afloat is the fact that streaming will not be available with the BluRay picture quality for another decade or so. That is assuming the ISPs and main carriers update their networks for it by then. I have a Netflix account, and I use it just about every day, but I do not use it for anything like watching a New Release film unless I am trying to see if it is worth bothering to spend money on. Which brings us to the last point...
Most of the new films coming out today are tired old repops of films made 30-50 years ago. The plots are boring and in a lot of cases stupid. There is way too much reliance on CGI (just look at SyFy channels "Original" films for an example of good CGI gone wrong.), the acting is sub par (it seems like any cute female with a large bra size is eligible for a leading role.) and the films are just plain bad. It's even worse when they try to "Re-Imagine" classics and totally destroy them in the process (Star Trek, and Day The Earth Stood Still are two very good examples of this). People nowadays are getting tired of paying a weeks salary to sit in a cinema for a couple of hours, drinking over priced soda (did you know that some Cinemas are actually kept dry so people will get thirsty and have to buy $6.00 12oz. Sodas?) and eating $12.00 stale and cold popcorn while watching a really bad movie that looked great in the trailers. The Studios and Cinemas simply ignore today's economic reality and continue to go on their never ending money sucking binge.
So I say, It's Hollywood's own fault and they need to stop whining about not being able to provide their execs with three Beamers this year for bonuses, and FIX their problems... Time to clean house Hollywood. And you are going to need a large vacuum.
I think many companies are caught off guard because the profit margins are not what they're used to. Well, what's better? A little profit, or no profit at all?
One reason why studios don't want to completely get behind Netflix is that the revenue gained from this sales channel (video streaming/subscription) isn't enough to offset the revenue lost from physical purchases (Blu-Ray/DVD).
Couple this with the fact that films typically generate most of their revenue from home video, not the box office. On top of this, home video tends to be much more profitable than the box office (due to factors like significantly lower marketing costs, among other things).
I agree that the studios need to evolve, but it's hard to see this happening soon. Unfortunately, this will most likely include restructuring (read "layoffs"), in order to lower costs and maintain a business with declining revenue. Flat out, some of the major studios are too big to sustain themselves at the rate that physical revenue (Blu-Ray/DVD) is declining. From this article, it sounds like they're hoping they can hold out and keep their major releases away Netflix, in order to stimulate more purchases/downloads. That said, if someone really wanted to watch a new release, they could just rent it on Netflix anyways.
Regarding Netflix, the quickest way to get studio support may be to raise prices (and thus increasing their revenue share with the studios)...of course, Netflix will want something in return...and as a current Netflix subscriber, hopefully that means earlier streaming access of major studio releases. The question then is, how much would Netflix have to raise prices to offset the studio's lost revenue from physical?
So how much would you pay (monthly) to have unlimited streaming of ALL studio releases from day 1?
And the article was spot on. We have all realized we don't need to own a movie library of mass proportions. I have dozens of DVD's from the past 10 years I've never opened. That I spent $20 on and can now get 5 for $20 in a dump bin at Wal-Mart.
I used to collect DVDs, now I go to Redbox. Unfortunately sometimes I'm still disappointed that I spent a buck and two hours (Ironman 2, Machete, The A Team). Do they have to screw up Red Dawn by remaking it? Why not remake something that was garbage to begin with (Gigli, The Mirror has two Faces) that can only get better.
Hollywood is committing slow suicide with poor quality movies and the need to preach too much politics/anti-religion/anti-military/green movement. Too much propaganda can spoil any movie, regardless of your beliefs.
More then anything it's the cost saving. The content doesn't need to cost the consumer so much; decent films pay for themselves at the box office. I will pay the outrageous cinema prices for a REALLY good movie; but why buy a $50 blueray I am only going to watch once? I don't need a massive collection of DVD's decorating my wall unit for street cred or something.
Netflix was exactly what I was looking for, an acceptably priced alternative to traditional broadcasting and distribution. What really surprises me is the lack of competition and innovation from the studios; how have they not set-up an online box-office or something similar to sell a product that 20 million people have already decided is right for them?
The writing's on the wall, just ask the record industry.
I still buy DVDs - and will probably continue for a long time.
I buy movies I enjoy now, and my family may enjoy later.
I buy training videos, to help educate myself and my family (deer hunting, fishing, wood working, math, science, etc) without endless hours of "this is how my grandpa taught me, and now I am passing it on to you in the same way", or hoping its popular enough to include in the streaming media list...
Ownership means "I get to watch it when I want to watch it".
The studios have so many venues to distribute through these days, they are worried they won't have the control to obtain the greatest amout of capitalization from ALL of them.
They want to control EVERY market, while turning a blind eye that the consumer truly carries the purchasing power and, in this economy, we are cheap.
The greed is causing them to self-destruct.
Personally, I think if they made less, we might have a few less Charlie Sheens emerging from the entertainment industry...
So I see no reason to buy dvd's. Renting, or streaming, or pay-per-view on DirecTV , or going to the theatre is good enough for me.
It was the advent of BluRay (and the thought of rebuying some of my collection) that helped me realize I had collector fever but Neflix was definitely the Nicorette patch that helped wean me off my crazy habit. All these studios that fear people not wanting to go see/buy new blockbuster releases shouldn't place all the blame on Netflix, the amount of crap that Hollywood pumps out every week has given pause to many of us and made us wonder whether it's worth the gamble when we know the content will be available on Netflix, Redbox, etc. in short order.
As for Blu-Ray, it's a lost cause. $ony pissed off lots of people, and Blu-Ray sales still come near DVD sales for the same titles. Disney took the correct approach by offering $20 or $30 for a film, and including a DVD of the movie as well as a digital download.
I stopped collecting DVD's because Hollywood has put me in a box. Blu-Ray disks are too expensive (and i only have one player and two TV's), DVD's are not HD, and digital download content is limited and too expensive. Also digital download content my limits ability to share as I can with DVD disks.
Hollywood and the music industry has never caught on to the fact that sharing is a huge part of marketing for entertainment.
Netflix customers *pay* for their content.
Torrent "customers" don't.
Netflix isn't an alternative to DVD sales; it's an alternative to piracy.
Squeeze the former, boost the latter.
Their call, really.
DVDs are dead. BluRay will die. The Internet is the future. Wake up studios!
These studios need to realize that people are getting smarter too. If they want to make their profits then maybe they should pay less to the talent, and if the talent doesn't like it, then there are others who would gladly take the roles for less money. There is a big shift occurring in the world economy. I don't think it should exclude Hollywood.
They don't care that Netflix customers *pay* for their content because they want more money, and they want you to pay multiple times for the same thing - just as we do now. They'll do everything to keep that business model, which they can for a very long time (studios have lots of money).
the only movies I buy right now are kids movies so they can be watched in the car as well as in the house. I used to buy lots of dvd's but then I started to realize at $20 a pop how many times will I watch them to make it worth it.
Now, guess what they are going to stop doing if the movie industry opens the flood gates to the Netfllix content?
Same goes for the cable company: why the heck would I subscribe to some "premium" service like cinemax or hbo when I can have a vast library at my fingertips for much less each month? Why the heck would anyone order a pay per view movie when you can get it from netflix a short while later?
It's funny to see Hollywood make the exact same stupid mistakes as the music industry made: fight tooth and nail to maintain outdated business models that are doomed to failure, instead of embracing new models.
As I see it, there are myriad reasons why Netflix is valuable. Being too friggin lazy to get up, put in a movie, and push play is not one of them. No wonder America is getting so fat. We can't be bothered to do anything if it means getting up. Embarrassing.
When it comes to the crap Hollywood tries to force on us entertainment, I think it's commendable that people won't pay or get up to put a disc in to watch it.
Let's assume they go away, and somehow Netflix gets shut down. Am I going to buy more DVDs? H*ll no! Am I going to get a Blu-Ray player? Not before Newt Gingrich admits he's gay and secretly married to Rush Limbaugh. Either I will give up movies altogether (certainly not unlikely), or I will increase my broadband speed from the current 25Mbps to 50Mbps and find sites where I can get whatever content I like - without paying more than $10/month for all I can stream.
And we'll give up cable TV completely. All we currently watch is the news, and the Food Channel. News I can get on my Roku box, and the food channel is available on their Web site, mostly.
And I learned my lesson with DVDs. I have boxes of DVDs sitting in my basement that I got at "bargain" prices. Some of THOSE are still in shrink-wrap. I don't need to repeat that mistake with another format, even digital. I've learned to be much more selective about what shiny plastic I buy. And what tickets I buy to go to the movies. If I I'm not 90% sure I'll like a movie, I'll wait to rent it.
Hollywood: My pockets aren't infinitely deep. Stop trying to pick them, and start trying to win them.
What are you, 12 years old? Do you sit aroud and watch the Disney Channel and Teen Nick all day long?
Granted Big Momma 3 is a lousy movie. I could tell from the trailer that is was a stupid movie.
Hollywood is not trying to pick your pockets. They are not forcing you to spend money on anything. If you do not want to buy for their merchandise, then spend your money on something else.
Looks like someone needs to calm down and stop insulting people!
Have something against kids' movies? Toy Story 3 was great according to my wife and kids.
I am still amazed that Hollywood still convinces people to get up and go to the theater for subpar experiences. Too many theatres have poor seats, neglected equipment and the perverbial sticky floors. They will eventually lose to Netflix. Too many people are satisfied with OK and cheap. They'll wait for movies or go to Redbox.
Toy Story 3 is far more creative and their story far more than original than most movies that comes out with over rated over payed actors, actresses, and production companies. Some of these content producers should be sued for life piracy and our time we won't get back watching their movies.
The studios don't want to say goodbye to physical disks. Then why charge so much? Lower the price of a DVD movie so it makes more sense to buy it than to stream it a couple of times. Contrary to what the executives say I and many others do watch good movies many times it is the garbage we may watch once and do not want to waste our money on.
As for the fight they said the same thing about cable, HBO, CD-ROM, Laser Disk, video tapes, VCRs, DVDs, rental places in general, TiVo, you-tube(yes you-tube), and now Netflix anything that threatened their control will be attacked; so, just sit back and watch as Netflix, Veoh, ATT Univers, ect. bring a new online video service to all.
Netflix is a perfect example the of free market dictating terms, they are not losing money and are able to sell content at a cheaper price and easily distribute it to customers in a cost effective way at $8.99 a month.
I dropped cable a few years back and used netflix and an over the air antenna/DVR and found I had more than enough to watch, I only recently came back to pay TV with Uverse being available in my area. However even after buying back into Uverse I am still keeeping my netflix subscription, why you may ask???
Because the interface is great, I like have movies in queue that I can watch an any TV in my house in seconds all because nearly every device I have hooked to a TV can stream netflix.
Hollywood should be aware that they really missed the boat here, but like the music industry technology isn't worth their time if it will effect current moneymaking divisions until it is too late and a problem.
The only time we bought DVDs was from Disney with the $10 off coupons. I have no BR player, as I have no HD TV. mine works fine, and I don't need to see everyone's pimples in HD quality. I never enjoyed buying $20 movies to watch a few times and stick on the shelf.
The studios should embrace this model, rather than try to torpedo it, but we know that money talks. i'd rather a $5 movie on DVD, that is just the movie, no directo cut, no 5 tracks of commentary (director, producer, actors) over the movie. I don't need the games, and many times the deleted scenes stink, and so to0 do the gag reels. give me the movie, nothing else.
As for cable on demand. I'm sorry, but $5 for a movie, when I can get it on Redbox for $1, or Netflix, just doesn't make sense anymore.
"People can watch any of the service's commercial-free films and shows anytime they want."
... this is a good thing because that's what people want.
Or just rent a Red Box disk (or several if it's a long flight).
It is the best movie rental option. Before Hollywood Video closed in my area they were charing $7 to rent a BluRay disc and $5 for a DVD. It cost more to rent 2 movies than netflix does in a month, and no late fees.
This does not bode well for the old Hollywood elite. My kids think movies just appear in their iPods via the Netflix suggested list. I'll buy the occasional BluRay with digital copy for Disney flicks to put on the iPods for flights but really, physical media is dying. They better come to grips with it or just be prepared to be subservient to Netflix a la the music industry to iTunes.
Netflix is like our pandora (service oriented)... I do see a market for digital download (ie itunes, or product oriented), but DRM has to go and prices have to come down... iTunes' a buck a song is a great deal... if movies were like $3-5 a download for dvd quality with no DRM, no limit to the number of times you can watch it, and no limit to the number of computers you can have it on, that in my mind would be a great deal. Somehow, though, I dont think that will happen anytime soon.
Just "special" collections or "best of" Mythbusters seasons.
But they are still a lot of fun to watch.
These streaming services (and illegal downloads) also have a HUGE advantage over the old-fashioned methods (theater/DVD/Blu-Ray) the studios are desperate to keep alive: You press PLAY and the movie PLAYS. How great is that?! No previews, no commercials, just the movie. I don't need to be told how good Blu-Ray is, or what is coming soon, every time I insert in a disk.
These discs will delaminate over time and are not worth holding for a collection.
The future is all digital. Once Netflix owns a title in the library it is for the life of the service.
I'm hoping more people will share your experience, and develop a taste for less mainstream movies. I really enjoy following the trail to discover new movies on Netflix.
Hollywood has completely abandoned small movies in favor of potential blockbusters, so there is no room in the studio model for honest and real productions. They come from China, Poland, German, Romania, etc.
Netflix may help us return to a time when Americans were willing to read subtitles.