Is the Netflix Empire Built on a House of Cards?

[Wayde Robson]

I think you misunderstood me. I'm not questioning financial capabilities of these no doubt technology GIANTS.

I hear you. Sorry if I seemed outraged in my comment... tone is difficult to convey in text. I appreciate the discussion.

Yeah, for sure when it comes to entertainment production Netflix has captured lightning in a bottle that few in entertainment history have ever managed. As a consumer who loves Netflix, I can't wait to see the next "season" of Stranger Things... I hope to God they can continue.

The main idea that got me writing this article is - what we're seeing from Netflix is rare, even for the HBOs of the world. I hope it lasts, but we all know would happen if only one year went by with Netflix coasting on its reputation... if it suffered one year of sequel seasons just not being as good anymore meanwhile it's newest biggest hit shows just don't hit the same heights anymore.

If it happened to Amazon - it would still be around the following season trying to make a hit. Apple could certainly survive a few years of meh content. That's because those companies don't need to rely on the entertainment industry.

But if that happened to Netflix I don't think it's controversial to say that the lights would go out within the year and Netflix would join the hallowed halls of has-beens alongside the Palm Pilot, Blackberry, and MySpace.

If that "meh year" does come along for Netflix, and odds are pretty good that it will eventually... there are a lot of years coming down the pike.

Netflix either has to figure out a way to make TV shows profitable (it can't, TV is sexy but ain't profitable - not like boring poop such as medical supply logistics - now that's profitable). If it does happen it will likely get scooped up by... guess who... Amazon, Facebook, Apple or Google.

I sincerely hope that doesn't happen. I don't believe monsters like the "four horsemen" are good for consumers in the long run.

But the current tech-economy is seriously winner-takes-all.

 

[Gunny]

Thank you for a very informative article. Your insight regarding the revenue vs investment required to provide all of this "original content" was something I had been curious about as well. I've been a Netflix subscriber since the early DVD-only days. I've since gone elsewhere for my movie needs since Netflix never could deliver timely new releases anyway. Today the movie choices offered via streaming are of no interest to me and I realize this is more or less by design.

Though the DVD business inexplicably still exists, Netflix has clearly decided their future is in original content. The problem I have with this is the majority of the original content they have presented is simply not that compelling and they appear to be grossly over paying for much of it too. Case in point is the lineup of comedians such as Patton Oswalt, Kevin Hart and Dave Chappelle. Most of them are well past their primes yet receiving millions from Netflix for some of their worst material to date. Perhaps the best example of this is Jerry Seinfeld. His recent Netflix special, while marginal at best, is available on Netflix but his mega hit TV series is not and [to my knowledge] never has been. I realize House of Cards is a notable exception and I also know there are others such as Orange is the New Black and Stranger Things, although I have not personally watched those. Legacy TV networks understood content just fine. They knew that it's real value was in syndication. Netflix has some content worthy of resale but not much. It seems operating at a loss is an acceptable business strategy these days thanks to Amazon but the party will eventually have to to end.

 

[BoredSysAdmin]

Thank you for a very informative article. Your insight regarding the revenue vs investment required to provide all of this "original content" was something I had been curious about as well. I've been a Netflix subscriber since the early DVD-only days. I've since gone elsewhere for my movie needs since Netflix never could deliver timely new releases anyway. Today the movie choices offered via streaming are of no interest to me and I realize this is more or less by design.

Though the DVD business inexplicably still exists, Netflix has clearly decided their future is in original content. The problem I have with this is the majority of the original content they have presented is simply not that compelling and they appear to be grossly over paying for much of it too. Case in point is the lineup of comedians such as Patton Oswalt, Kevin Hart and Dave Chappelle. Most of them are well past their primes yet receiving millions from Netflix for some of their worst material to date. Perhaps the best example of this is Jerry Seinfeld. His recent Netflix special, while marginal at best, is available on Netflix but his mega hit TV series is not and [to my knowledge] never has been. I realize House of Cards is a notable exception and I also know there are others such as Orange is the New Black and Stranger Things, although I have not personally watched those. Legacy TV networks understood content just fine. They knew that it's real value was in syndication. Netflix has some content worthy of resale but not much. It seems operating at a loss is an acceptable business strategy these days thanks to Amazon but the party will eventually have to to end.

I think you're missing few of newer Netflix original content:
https://www.netflix.com/originals
Ozark, Mindhunter, Defenders,Narcos. Purchased Longmire and few other I'm likely missing.
I think you're correct that Netflix is loosing AAA Hollywood movie releases and this is fully by design, not Netflix design, but one of studios. As I said, Content is King. Studios see Netflix is a fox in hen-house and not a partner. So licensing content would go so far for them and the only way for Netflix to survive is to add LOTS of new original content. This is the reason for the massive 8bil gamble they are undertaking.
I don't want to sound like Netflix apologist, but situation where we are now as consumers and studios enormous control over all aspects of content is unsustainable and Netflix is trying build an alternative. Good luck to them. God knows, they made mistakes, still do and will do in future, but I hope they will stick around

 

[Gunny]

I think you're missing few of newer Netflix original content:
https://www.netflix.com/originals
Ozark, Mindhunter, Defenders,Narcos. Purchased Longmire and few other I'm likely missing.
I think you're correct that Netflix is loosing AAA Hollywood movie releases and this is fully by design, not Netflix design, but one of studios. As I said, Content is King. Studios see Netflix is a fox in hen-house and not a partner. So licensing content would go so far for them and the only way for Netflix to survive is to add LOTS of new original content. This is the reason for the massive 8bil gamble they are undertaking.
I don't want to sound like Netflix apologist, but situation where we are now as consumers and studios enormous control over all aspects of content is unsustainable and Netflix is trying build an alternative. Good luck to them. God knows, they made mistakes, still do and will do in future, but I hope they will stick around

Well, you're absolutely correct in that my list of Netflix original content was far from exhaustive. I mainly listed the huge hits I'm aware of [House of Cards, etc] and the abysmal comedic expenditures which I do not want to pay for with increasingly frequent price increases. Notwithstanding, I think I can agree with most of what you have said but, in the end, do you not feel profitability has to factor in? The numbers are clearly stacked against Netflix unless they can find new sales channels for their existing content similar to the legacy networks syndication model, and they need to do it fast.

 

[BoredSysAdmin]

The numbers are clearly stacked against Netflix unless they can find new sales channels for their existing content similar to the legacy networks syndication model, and they need to do it fast.

I've agreed with you first in sense that Netflix needs to improve it's revenue rather quicker than later.
I had a thought that unlike traditional content model, where syndication is required, Netflix technically doesn't need it since they could serve their original content without restrictions to any of their customers globally. Technically licensing their content to other network could even possibly hurt them in long run.
Not saying that content syndication is completely out of the question for them, but they should tread carefully and use it in only very limited cases to reach audience they can't reach otherwise normally.

 

[Darenwh]

Next somebody is going to ask if the HBO empire is built on a 'Game Of Thrones'...

 

[panteragstk]

Next somebody is going to ask if the HBO empire is built on a 'Game Of Thrones'...

It kinda is....

 

[Gunny]

I had a thought that unlike traditional content model, where syndication is required, Netflix technically doesn't need it since they could serve their original content without restrictions to any of their customers globally.

Unless I'm missing something, herein lies the rub. As the original article stated, even when Netflix does produce [or purchase] amazing new content, once viewed, it is largely useless to their current subscriber base. To generate new revenue from them a price increase is required and even ardent subscribers will eventually reach a breaking point with paying for content that doesn't interest them. Simple math illustrates the problem. New content costs way more to acquire or produce than new member revenue can ever be hoped to generate. Companies like HBO have corporate parents and a portfolio of other content producing companies that can subsidize and augment their efforts. Netflix lacks this. In short, I don't see how a company like Netflix can ever win a long-term content war with the likes of HBO. Reed Hastings has proven me wrong in the past. Maybe he will again.

 

[mtrycrafts]

In the end, isn't everything built on a house of cards?

 

[Johnny2Bad]

The way to make money in TV is twofold:
Get a popular program, so that you can sell re-runs. Stations are still paying for episodes of 'The Munsters" and "I Dream of Genie" fifty years later.

Get a program you can sell to other markets. Some rather benign shows like "Degrassi High" are sold in like 120 markets and two dozen dubbed languages. When I turn on my UK TV subscription I see "Dr Quinn Medicine Woman" on British stations. It's a rather ordinary show, but it's making money, trust me.

"Baywatch" is another example, it's in a hundred markets in syndication, making cash every day.

Netflix doesn't necessarily need to do those things, exactly, but it can leverage that strategy to get Netflix subscribers in the 100+ markets that they could be in. Netflix doesn't have to have "nothing but hits" ... people will still pay for TV when they've watched all the blockbusters and still want "something" to watch.

Maybe that's a little hard to see from America, where Netflix still is seen partly as a DVD subscription service. In the countries where it's doing well broadcasting on a subscription basis, they never did the "mail DVD" thing, and they are doing well in those markets. Better, actually, than they ever did renting movies.

Netflix is disruptive technology. The proof is how many players are trying to get into the subscription model. You need a base of subscribers, and Netflix has that. Some players have already failed, not getting the subscriber base needed to reap profits. If there was no money in it, nobody would be doing it besides Netflix, and that't not the case.

Rights to programming are National; you can't show a program just because you have the US rights outside the US. Getting those rights signed is key, and Netflix is way ahead of the game internationally. Even Amazon has little inertia there; they don't have nearly as many Amazon Prime members outside the US as they need to knock Netflix off their lead.

In the US, it's a dogfight. Outside the US, Netflix is way ahead of the game. That's TV 2.0, basically.

I'm not saying they have it made, the last words haven't been written yet, but they have a huge lead in most markets versus the competition. They've just committed to produce a half Billion $ worth of original programming in Canada over the next five years. Just an example of where they are at. So, it's their game to lose.

 

[j_garcia]

Looks like house of cards was built on a house of cards....

https://www.cbsnews.com/news/house-of-cards-production-season-6-netflix-kevin-spacey/

 

[Gunny]

Looks like house of cards was built on a house of cards....

https://www.cbsnews.com/news/house-of-cards-production-season-6-netflix-kevin-spacey/

Cute but not exactly. House of Cards was already on a downward spiral, getting worse with every recent season and, from what I've heard, Netflix was going to call it quits after season 6 anyway. The original developer, Beau Willimon, had already left the production years before. The fact they have allowed this decision to be pinned to Kevin Spacey is yet another reason for me to consider leaving the fold.