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David Poland

By David Poland poland@moviecitynews.com

Seeing The Forest For The Binge Viewing

I used to think journalists were the grown-ups of the world, offering considered, reported perspective when others went off on flights of fancy.

Things change.

The release of “House of Cards,” a 13-episode TV series costing approximately $60 million (the next, already contracted 13 will benefit from the existing set-up and cost more like $40 million to produce) has put a lot of very smart people in a tizzy. Will this change the way television is made and disseminated?

The obvious answer is, “no.”

The obvious reason is, “math.”

First, I should note that there is no significant reason for Netflix not to release their new product this way… though I suspect that we will see variations on this first experiment in future.

Yes, I said, “experiment.” Netflix has a big problem, really, with the media’s intensity about them at the moment. Some have asked why Netflix is not being treated like Apple right now. Because it’s not their turn yet. With the media so head over heels in love with a company that has, basically, run out of fresh rabbits to pull out of its hat, the backlash when there is a small failure—see Summer 2011—can be equally insane. In the case of the “HoC” full-season release idea, it is the first time Netflix has really delivered this kind of content, fully under its control, and the notion that this first step into the water should define the company’s entire approach forever—lest the media start claiming it’s moving backwards—is preposterous.

If the goal is to increase paid subscriptions (one of the media’s favorite ways of falsely blowing Netflix’s horn is to lump in unpaid subscriptions and international subscriptions as though they were the same thing as paid domestic subscriptions), there is a good chance that releasing, say, four episodes of a series at once could create the same media excitement, but extended over a longer period. I believe we will not see the words “House of Cards” in the media much—until the Emmy nominations—after March 15 or so this year.

Regardless, when you watch “House of Cards” means nothing to Netflix, unless it gets media attention. The media, in theory, will drive interest in the series and that interest will drive subscriptions. All the buzz about how many people watched how many episodes on the first weekend, the first week, or ever, really, means nothing in operational terms to Netflix. In fact, the company has been downplaying the significance of the event as a percentage of their overall viewership… not because this opening weekend was not successful, but because if it becomes perceived as too important, it is easily disregarded just a couple of months from now… like when the next quarterly report comes out and the first $75m quarterly bill for the Disney deal hits their books.

It’s so oddly counterintuitive. The media looks at this event—releasing “HoC”—and touts it as groundbreaking… and then tries to measure it through conventional methods. But the only significance of conventional counting methods in this situation is, again, media. It doesn’t actually matter what percentage of broadband service Netflix usage eats. The only people who have a direct stake in those numbers are the companies providing web access, who should be paying Netflix a royalty for expanding demand for higher-end web access. But the truth is, the consumer has already lost that war, as the cost of home internet has gotten significantly higher in recent years and the wireless providers have capped usage and now, with few exceptions, are charging around $10 a gig for access, which is extremely profitable.

Where is the disconnect that we all seem to have when engaging spectacle? Watching a football game on the field is wildly different than watching in the stands and incomprehensibly different than watching on a TV. Not only is perspective forced in different ways, but the actually connection to the human being performing on the field is a total game-changer. There are intimate moments that we can connect with, like Joe Theismann’s broken leg. But the idea of wide receivers and defensive backs running sprints downfield 25 times an hour and just coming back to the huddle for a minute before running the next one… for the TV audience the hard work of that is completely lost when all they are watching is where the ball is going.

But I digress…

Follow the money. That is all that matters. Here is a show that is, from Day One, averaging a cost of $4 million per episode. How do you pay that price? Is dumping an entire season onto the web at one time with no advertising revenue and, allegedly, no plans for further paid exploitation, a sound financial choice?

Well, it’s great for the show makers. They know their boundaries before they shoot a frame and they have a big, fat budget with which to work.

And if you are Netflix and you decide it is in your interest to subsidize the costs of such a program (or at least half of the costs), that is your call, Deep Pocketed Big Daddy.

Television production funding is a risky business by definition. As brilliant as the team at DreamWorks SKG was when they launched, it was television that put the business in the hole out of which it never climbed (until they sold themselves off and out of the standalone studio business). Lots of money in… wait to see how much you get out. And Netflix isn’t—at this point—trying to play that game like others have for decades. They are not looking for the next “Seinfeld” to not only offset prior losses, but to generate billions in profit in post-network ancillary markets.

Netflix is now in the business of buying bait. And the only way for that bait to be truly exclusive to Netflix is pay for it themselves. And as new kids on the block, the price of playing with established names is enormous.

They could easily, in my opinion, have offset the costs of “Cards” by a million dollars an episode by bringing on a major sponsor to offer the show as Netflix does, without interruptions. How could Mercedes or BMW or Coke or whomever pass that up? Netflix’s subscriber loyalty is epic. And this is a high-end show. $13m is chump change for this kind of thing. But Netflix chose to pay the fare all by themselves. That is a statement. It isn’t a new model. But Netflix wanted to make a statement and they have.

It is no attack on Netflix to say they engage in smoke & mirrors the same way all entertainment does. They are selling a product. And after breaking onto the scene with a truly brilliant, unique, hard-to-duplicate idea (DVD rental by mail), they are still very smart, very creative, and in a business that is shockingly dissimilar to the one they were in just a couple of years ago.

As a DVD rental business, the product was not very complicated. New stuff… check. Archive… check. Managing supply of DVDs vs demand and operations was—beyond the great idea for a business—the entire ball game.

As a DVD-based business adding streaming, not very complicated. Pay a little extra so a small number of people could do this streaming thing… mostly not in HD… not going to impose much on your on-air ratings, cable channels… new frontier, so tech is the biggest thing.

As a streaming-first company, it gets a lot more complicated. Today, they have some competition from Hulu and Amazon… but that’s just the beginning. Studios literally went from being being paid an extra million or so a year for streaming to looking for a minimum of $100 milion a year for streaming rights alone. Disney is $300m a year. And when does it stream? And is it exclusive? And how much does each purchase help keep existing subscribers and/or create new ones?

Netflix is no longer just selling a product. They can’t just buy the content and have a good quarter or a bad quarter based on how much they paid for those DVDs. Now they are having to decide what to buy and offer their subscribers on a much more limited basis. They also have to convince current and potential subscribers that there is an ongoing value to those subscriptions, even as the amount of available content is declining. And then, on top of it, there is not only a lot of competition, but a lot more competition on the horizon.. competition that owns the content that is now of life-and-death value to Netflix without any option of an end-run, such as simply buying DVDs for a couple of dollars more from a retailer or wholesaler.

Let’s (generously) say that Disney draws 10 million new family subscribers to Netflix. That’s a billion dollars a year. And in 3 years, when Disney decides to take that business to their own company (though I still lean to the idea of them buying Netflix)? Netflix can’t stop them from leaving. The brand loyalty of those additional subscribers is to Disney product. And while the hope is that a good percentage of people who go to get their DisneyOnDemand subscription stick around, even if they lose just 40%, the company has taken a big hit.

Netflix is in the position, essentially, of paying for the first steps and education in streaming for all of the brands it is now paying to stream. Soon the kids will be grown up. What will Netflix do with a half empty 8 bedroom house? They can go after other content, but as the streaming models mature, the cost of leasing is only going to go up.

Media is so hyped up and so in the moment that the simple reality that we are still in the very, very early stages of The Streaming Era is obscured. 2016 is about when this story will actually be told, as the deals that studios have been making with Netflix and Amazon and Hulu are all up or have been up, broadband plugged into TV becomes as ubiquitous as telephones lines used to be in homes, and the lines between internet television and cable/satellite television are almost completely blurred.

But even then, as now, the story will not be about Netflix or Amazon or any of the other pipes so much as it is about the consumer. Springsteen wrote “57 Channels & Nothing On” in 1992. Now it’s 357 channels and nothing’s on. By 2016, it will be, essentially, 2357 channels and nothing’s on.

Households will spend between $150 and $200 a month on internet access and entertainment. That means, generally, $100-$125 for the entertainment side. Who will own what piece of that pie? It’s that simple.

Oh… and the pie will be 80 million to 100 million households… not 25 million.

And at that point, advertising on television will become a pricing option, not a standard. Ratings may well have a direct effect on revenues going back to producing entities. Once the producing entities have absolute control over the distribution of their products, virtually anything is possible.

I think the idea of studios attempting day-and date VOD with theatrical is self-destructive. But can you imagine a one-day event, somehow protected from piracy, a month before the release of a big film or series? I can. Post-theatrical will become static. PRE-theatrical will become a new hook.

(This is a digression, but what is the difference between that and what is being done in indie VOD now? Event structuring. Releasing a film on VOD two weeks before theatrical badly cannibalizes theatrical, in my opinion. And online-only event, for just one show or one day, weeks before the big release, might act more like a worldwide midnight showing… and space between that—at least with a good film—and a theatrical launch may cause more interest and more excitement, not less.)

Summing up… binge viewing is fun. It’s a terrible release model if you and looking for a direct revenue model (ads or tickets or the like). But my big point is, for Netflix, it is just a distraction. It’s a stunt. I can’t say that it doesn’t matter at all how many people watch the show or how they watch it. After all, there is good bait, bad bait, and great bait. And no one knows what kind of bait “House of Cards” really is yet.

What we do know, from the film and television business over many years, is that the magic trick isn’t pulling the rabbit out of the hat once. It’s doing it every week or every month or every quarter. That is where things get tricky for Netflix. How many times do they have to make this work every year before it really gross their business?

And the simple, undeniable answer: No one knows.

Put that in your stream and binge it!

23 Responses to “Seeing The Forest For The Binge Viewing”

  1. KrazyEyes says:

    I’m 3 episodes into House of Cards and loving it. That’s all that really matters to me. If the quality is there I’m looking forward to the next series Netflix puts out.

  2. movieman says:

    Robin Wright and Corey Stoll are the true standouts of “HOC.”
    Wright should automatically be considered a front-runner in the Best Supporting Actress Emmy category–unless she’s slotted in the lead actress division instead.

    She’s really pretty spectacular here.
    Kind of reminds me of a young(er) Jessica Lange.

  3. The Pope says:

    Exhaustive, David. But well worth the read. Thanks!

  4. Joe Leydon says:

    Movieman: Which raises an interesting point: Do made-for-Netflix productions qualify for Emmys?

  5. Ray Pride says:

    Yes, Joe. “The first Netflix series, “Lilyhammer,” is eligible for the Emmys, according to John Leverence, Emmys senior vice president of awards. The Emmys made broadband programming eligible in 2006. Shows must have a certain duration to avoid being entered as a short, and they must have at least six episodes. “Lilyhammer” is eligible on both counts, and “House of Cards” will be, too.”

  6. DiscoNap says:

    House of Cards will fucking clean up at the Emmys. One of those good shows the awards crowds will pretend is even better. Spacey should submit the episode where he goes back to college, but honestly he’s McKellan in Richard III level the entire time, occasionally silly writing aside. Poor Jon Hamm will officially never win an Emmy.

  7. movieman says:

    Also found it interesting that movie directors David Fincher, James Foley and Joel Schumacher all helmed two episodes apiece of the nine I’ve seen so far. (Of course, Fincher is an executive producer of the series.)

  8. misterb says:

    You are missing the point that Netflix is establishing a technical dominance in several areas – probably not the point of your blog. But, if you are going to look at the business reasons Netflix makes the choices they do, you have to consider that they are definitely looking to build a barrier to entry with the ability to get a property on to a massive number of platforms simultaneously, and to point their viewers to new content better than their competitors. House of Cards and Arrested Development are the ante they have to pay to get credibility, but what will establish their beachhead is their technical chops. Make no mistake, they want to be Google, not Disney.

  9. sanj says:

    how much money does the cast of house of cards make ?

    can’t netflix spend like 10 million for 10 different projects and get more bang for the buck that way….

    couldn’t they make house of cards over up on youtube for like 25 million ? that way people might click some ads.

    DP – you should get people to binge watch all the dp/30′s oscars before the oscars are on tv ..thats like 8 hours worth of video people can watch a day…

  10. christian says:

    It’s amazing that Netflix hasn’t come to DP and fallen to the floor, begging, “Save us….O SAVE US!”

  11. David Poland says:

    As hysterically funny as that was, Chrisitan, if you actually read what I wrote, you’d know that I don’t think I am writing anything that Netflix doesn’t know. On the contrary.

  12. christian says:

    Netflix is being savvy – people like their binge viewing or they can go at their leisure. It gives a series a more cohesive arc as well so people can feel like they’re actually watching a film not series, which is still the most hyperbolic claim about shows whose endings have yet to be written. HOC is a solid far thinking move, to be celebrated whatever the outcome. And it will shift change.

  13. sanj says:

    most high profile tv series last 4 years…can house of cards make it that far ?

    Tom Hanks made that moon series and all those war seris for hbo and it won awards and got ratings and stuff but nobody is talking about it right now.

    DP – you gotta interview actors who are on series that are worth binging on – mostly old cancelled sci fi shows -
    firefly and lost seem to be popular -

    also i remember that spike tv – during the december holiday – they’ve got 8 straight hours of reality tv on…

    certain types of programming is way easier to watch for at least 4 straight hours – that’s reality shows.

    i’m a huge dp/30 fan and my limit is 4 per day . i always
    complain that DP never puts these things fast enough
    i’m sure DP has like 8 new dp/30′s he’s holding on for some reason.

    .

  14. Lex says:

    How are the Mara Hotness levels?

    Any skin?

  15. hcat says:

    Any chance that this might generate revenue from being sold to foreign networks? Not saying that it will offset that many costs but I do find it odd that while we talk so much about worldwide gross on the movie side, when people talk television nobody ever seems to mention overseas popularity.

    And this was a great article, no end is nigh, dream is over talk, just a reasoned arguement against all the hype.

  16. christian says:

    I guess “hype” means HOC shouldnt let anybody know it’s available for fear DP will launch Why Netflix Is Wrong Variation #25…..

  17. Triple Option says:

    I have wondered what their next revenue stream would be. Are they setting up to be ad supported? Even if there are no commercial breaks, if they had one or two spots at the top of every show would that send more people screaming to the door than would be covered by the additional income? Maybe it’s embedded ads or crawls?

    Yahoo will tease articles w/video clips and then you go there and you’re forced to sit through some 15-30 second spot for pet food or an SUV, which feels a little like a timeshare spiel but you grit your teeth and wait through it. Sometimes, though, they’ll have like multiple video clips. And then when the ad comes up for the 2nd video, you flip off the screen and then click to something else.

    I personally do not want Hulu+ and Amazon Prime and Netflix. I don’t really have the time but I think I’d prefer one that’s most inclusive and cost effective. I was happier when I had DVDs and streaming but I’m still cool w/just streaming. Maybe it’s familiarity but I don’t see myself switching to another streaming service but as I have a couple of premium cable channels, I can get some decent choices using their on-demand features so I could see putting my Netflix on hold for a few months. I don’t know if it’d take much though, like too many ads, to get me to dump them completely.

  18. Sam says:

    Christian, do you ever post ideas of your own and back them up? When you disagree with David or someone else here, have you ever actually substantiated your argument? I don’t recall a single post of yours longer than about two lines. Even if David were wrong 100% of the time, I’d rather read his reasoned arguments over your empty jabs any day.

  19. hcat says:

    Christian, David is calling attention to the marketing of HOC, just the way the media has gone over the top about it. I agree with you in the past David would go too far in the opposite direction to contradict the hype when Netflix made the news, but he does make valid points here that people who are ga-ga for Netflix sometimes look at it through rose colored glasses (something reflected in the often overvalued stock price).

    Or do you think that House of Cards is going to generate 100 million worth of new viewers over the years?

  20. hcat says:

    And as someone who still also has the dvd through the mail, my first thought upon hearing the plan to end Sat postal service was about how that would effect my viewing volume.

  21. Mike says:

    hcat, that’s exactly why Netflix has supported the end of Saturday delivery. They testified in front of the Senate about it a few years back.

  22. movieman says:

    Because your dvds need to arrive at the shipping center by Monday morning (to, hopefully, get first pick of Tuesday’s new releases), the USPS announcement struck fear in my heart.
    Will I need to mail my dvds back on Friday instead of Saturday morning?
    And will it even be possible to watch all three of the previous week’s dvds in just two days?
    I’m not sure how anyone can be satisfied w/ streaming alone since the bulk of new releases aren’t even available there.
    I depend upon Netflix to catch up w/ the sort of “smaller” indie/foreign titles that didn’t play theatrically anywhere near me.
    For example, my dvds-in-the-mail this week were “Little White Lies,” “In Our Nature” and the Diana Vreeland doc–none of which made it to northeastern Ohio.

  23. sanj says:

    review –

    House Of Crap

    Netflix’s original series “gambit” is half-digested, focus-grouped pap

    “For now, the show feels like it rocketed through Netflix’s production and distribution arteries, picking up flecks and chunks of other, better films and TV series along the way and finally emerging half-digested. Why belabour the analogy any further? House Of Cards is crap.”

    full review here-

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