“Let me try and be as direct as I possibly can with you on this. There was no relationship to repair. I didn’t intend for Harvey to buy and release The Immigrant – I thought it was a terrible idea. And I didn’t think he would want the film, and I didn’t think he would like the film. He bought the film without me knowing! He bought it from the equity people who raised the money for me in the States. And I told them it was a terrible idea, but I had no say over the matter. So they sold it to him without my say-so, and with me thinking it was a terrible idea. I was completely correct, but I couldn’t do anything about it. It was not my preference, it was not my choice, I did not want that to happen, I have no relationship with Harvey. So, it’s not like I repaired some relationship, then he screwed me again, and I’m an idiot for trusting him twice! Like I say, you try to distance yourself as much as possible from the immediate response to a movie. With The Immigrant I had final cut. So he knew he couldn’t make me change it. But he applied all the pressure he could, including shelving the film.”
~ James Gray
By David Poland firstname.lastname@example.org
Is Netflix Abandoning Its Business Model Again?
Netflix, Netflix, what will you be?
It’s been less than 9 months since Netflix made its first high-end deal for streaming content with Relativity. Since then, it’s expanded into Canada, cut it’s base price, made a deal with EPIX and others, let go of Criterion, and expanded its base of viewers, marginally.
The media has sucked down the spin that Netflix is a threat to pay-tv and cable like hungry infants. So that spin is overriding something far more interesting about what appears to be a deal for a high profile new series from Kevin Spacey and David Fincher, who together (with many others) brought The Social Network to the world.
This is very, very interesting in two ways.
Firstly, this choice, combined with the exit of Criterion and the abandonment of Red Envelope, their previously stab at original content, clearly tells us that Netflix sees no future in quality film lovers as a primary audience for the service. Fair enough. But it will be interesting to see when the cineastes get the message.
Secondly, it seems that Netflix has figured out what some of us figured out months ago… that leasing content at over retail prices can only be a means to an end, not an ongoing, hard-charging business model. In other words, they can prop up the business to sell it and/or become a 2% a year growth middle man amongst many.
So now they are back, as they were with Red Envelope, to trying to compete as a “sign up for Netflix-Only content” play. This time, they can lead the way as the first streaming-first original content business. But with just this one show, they are looking at spending $3 per paying customer per year to have the show, or about 8% of the annual fee each home pays for the service. Will they try to sell advertising to go with it? Maybe. But that is a significant change in their model.
Of course, there will be ancillary revenue from DVD, foreign sales, etc. So maybe the show costs 2% of revenues. It’s still a lot when you have your foot in another business model, which is streaming library content and third window content.
Regardless of the hard numbers, it’s something new for Netflix. It’s a gray signal that the company is not likely to sign Starz (aka Disney & Sony) again. Just with what they have and Starz, streaming fees would be over $800 million a year, minimally. on total annual revenues around $1.35 billion. Do you throw in for a $50m a year deal while you’re waiting for that $400 million-a-year deal to close?
The idea that they are competing with HBO is interesting, but until Netflix can find a way to bring its streaming leases in line with a company like HBO’s… which is to say, paying less than half of what they are now paying and openly narrowing their range of content significantly… it’s not a real fight. If the money that HBO or Showtime was willing to pay for this show was close to what Netflix offered and either was willing to make a 2 season commitment at the top, there is zero chance that it would have gone to Netflix. The marketing power of HBO and Showtime are too much to pass up. But neither company would seriously consider a built-in 2 season commitment to anything for anyone. They pulled the trigger on Season Two of Boardwalk Empire on opening night… but they pretty much knew what they had and for that show to have one season would have made it even more expensive than it is (because of the build out). But they didn’t buy 26 up front.
So once again, Netflix is committing more than others to get on the same field. That only works s a shot-term model.
Anyway… the next couple of steps by Netflix will expose even more, as their outrageously pricey Relativity and EPIX buys did this fall.
And what does it say for Amazon, Facebook, and the other syndicated outlets for content that are interested in the space Netflix is currently in? If Netflix is abandoning the library streaming business less than a year into some big investment, what does it say about the future for anyone else? Truth is, it’s probably a better model for a company like Amazon, that is basically the world’s deepest Sear’s catalog already. Amazon is a warehouse business and they will never be reliant on streaming video as a primary business.
At Netflix, the writing on the wall was there. And they priced themselves out of the game. So it looks like a new strategy is here. In the great tradition of the network and cable game, make themselves a “must carry.” I wouldn’t be shocked to see them in the bidding for hockey or trying to make a deal to stream Major League Baseball or something like that before long. If they are going this way, no one show “airing” 13 times a year is going to keep customers paying $8 or more a month. If Netflix becomes a thrift shop, with content here and there and everywhere, the churn will get worse.
It’s gonna be interesting…