“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 email@example.com
Netflix grew massively in its first years as it created its own leadership in the streaming business.
And here’s the problem. It went from a $2.3b revenue company in 2011 to being a $3.2b revenue company in 2011 to being a $3.6b revenue company in 2012. But costs of revenues went from $1.4 billion in 2010 (the early, cheap era of streaming) to $2b in costs in 2011 to $2.6 billion in 2012. Netflix didn’t break out streaming subscription revenues or costs until July 2011, so those early days are blurry. But basically, Netflix was doing streaming as an added value on deals like Starz… deals which have all evaporated since.
The hot stat being sold as we officially enter the We Want To Be HBO era for Netflix is that they have $2b a year to spend on programming. But the truth is, most of that money (more than $1.5b) is already spent and more than 4 – 7 episodic series a year will require significant thinning out the current available programming on the service.
In one of the media love letters to Netflix (GQ), there is a playful bit about how uncomfortable Fox may be with doing “Arrested Development” for Netflix and not traditional television. But while the smirking suggestion is that producers like Fox are afraid of the network walls of Jericho falling, what is left out completely is the real reason why partnering with Netflix for new series is iffy. it’s simple. Producing shows for Netflix means throwing away all other domestic revenue windows, at least as Netflix is currently positioned.
Do people remember one major reason why HBO going to original programming worked so well? Post-run DVD sales. And if they wanted it—HBO Go is the current strategic choice—HBO could lease its catalog to stream on Netflix or a competitor for at least $100m a year. And HBO has occasionally sold into cable net syndication as well.
And please note… the production company at issue on “Arrested Development” is Fox… which also owns the network on which “AD” first aired, not to mention FX, which has a lower standard for ratings success. And Fox never went ahead to revive “AD” for either network. Yes, there is a great big cult of people who cannot wait to get back to the “AD” experience. But realistically, how many of those people aren’t already on Netflix?
Thing is, what Netflix needs is network-level smashes. They need to expand their subscriber base from 24 million paid streamers to 50 million in the next 3-5 years to make this really work. The holy grail—and I do think this will happen, probably for others, not an independently-owned Netflix—is 80m households. That’s when the entire industry shifts. But will a great Fincher series do that? Or are they preaching to the already converted?
This is the great irony of “We Want To Be HBO.” If the numbers at Netflix, as they currently do, compete with HBO subscription numbers, they will not be able to sustain the overhead of being an original-content creator.
So, you ask, how does HBO do it? Well, the HBO Originals era of “Tales From The Crypt” and “Dream On” is now over 20 years ago. “The Sopranos” and “Sex & The City” started over a decade ago. Netflix needs to turn this corner in 5 years or less. HBO had decades… the same way that Netflix as a cheaper, easier form of DVD rental had free room to run for years before Redbox stepped up.
God bless “Homeland,” but Showtime has been chasing HBO, in terms of originals, for over a decade and has not caught up. Most of their originals—not unlike early originals on HBO—are hard-R content of middling quality. Don’t get me wrong, Showtime has done well for itself over time. But it’s not HBO and it’s not the bar for which Netflix can afford to aim.
This is not an anti-Netflix thing. Not in the least. It is about the rest of the industry… an industry that keeps Netflix in business, not, long-term, the other way around. The film industry has direct investment in every revenue arm, with the exception (though that seems to be changing) domestic exhibition. Why would streaming be any different?
And Netflix’s $2b a year for 2013 already seems to be spent. $100m for “House of Cards,” $300m for Disney lease… how much for “Arrested Development?” I did seem to be the only one writing about content constriction in terms of Netflix’s overall business model, but there seem to be many others who are seeing it (independently, I’m sure) and writing about it now.
There are circumstances in which Netflix can thread the camel through the eye of the needle. But given that a company like Disney has 10x the revenue, is not averse to purchases, and will be more than 15% of Netflix’s content costs this year and for the next couple, their eventual purchase seems almost inevitable.
Look… the dream of Netflix is already dead. It is no longer a source of a high percentage of existing and new film and television content. For $8 a month, it is still a great bargain and worth subscribing to if you have broadband and a little extra money each month, but that was not the big excitement over Netflix. No one expected every single film and TV show. But 18 months ago, the service had a lot more content. And it’s only going to get thinner.
There is nothing wrong with what Netflix will become. It’s just not the dream. There is money to be made… especially when the company is sold. But people—especially media—have to get over the glory days. We need to stop re-reporting the self-flagellation about the conversion to streaming as primary, which was neither a mistake or misstep, but a long-considered choice to reset the foundation of the company for the future. Only then will their eyes be able to see the beautiful, smaller future for this once-singular company.