The Irony of SVOD

23 Jan, 2015 By: Thomas K. Arnold

On the surface, it appears more than a little counter-intuitive: The same studios that a few years ago got into a tangle with Netflix and Redbox over renting new releases, a practice they said cannibalizes sellthrough, are now creating content specifically for Netflix and other subscription streaming services, which many see as the biggest threat yet to home entertainment sellthrough.

Not only that, but now Netflix will be getting The Interview, the controversial film about the assassination of North Korean leader Kim Jong-un, three-and-a-half weeks before Sony Pictures Home Entertainment releases the film on Blu-ray Disc and DVD.

Meanwhile, the subscription streaming juggernaut continues to snare consumer eyeballs. The latest numbers released by DEG: The Digital Entertainment Group show that consumer spending on Netflix and other subscription streaming services rose an estimated 25.8% to $4.01 billion, while discs sales fell nearly 11% to $6.93 billion.

Is our industry feeding the monster that threatens to devour it? Will producing content for a $9 monthly all-you-can-stream service ultimately undermine all existing distribution channels, including home entertainment — physical as well as digital sellthrough?

Studio executives say that’s a wrong assessment. Even though subscription streaming numbers are included in the DEG’s quarterly release of consumer spending on home entertainment spending, services like Netflix are much more like networks in that they buy TV content — a channel the studios have been feeding for years. Networks live off commercials; Netflix, off subscriber dollars. Both depend on viewership to keep the money flowing. TV production studios are in the business of creating, selling and marketing content, and Netflix, Amazon and the other streaming services are merely a new type of customer, now that they are scrambling for original content to keep their subscribers satisfied.

Are Netflix and Amazon luring viewers away from home video? No more so than a network with a hot new series everyone’s watching and talking about the next day at work. And as one studio executive pointed out, consumers are used to watching TV shows broadcast first and then being able to buy them, either on disc or as a digital download. The difference, of course, is the “on demand” angle — once, say, “The Sopranos” ran its course on HBO, that was it, whereas “Breaking Bad” can still be viewed in its entirety on Netflix, minimizing the need to rush out and buy the complete series on disc.

But from a truly big picture standpoint, these are all nuances. Any losses to the home entertainment divisions are more than offset by gains to the TV division — and in the end, it all goes into the same big studio pot.

If selling shows to Netflix and Amazon brings in huge wads of cash, studios would be foolish to not follow the money.

The bottom line, after all, is the bottom line — and a bottom that is then used to finance the next wave of content and keep the overall entertainment business healthy.

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About the Author: Thomas K. Arnold