Thomas K. Arnold is considered one of the leading home entertainment journalists in the country. He is publisher and editorial director of Home Media Magazine, the home entertainment industry’s weekly trade publication. He also is home entertainment editor for The Hollywood Reporter and frequently writes about home entertainment and theatrical for USA Today. He has talked about home entertainment issues on CNN’s “Showbiz Tonight,” “Entertainment Tonight,” Starz, The Hollywood Reporter and the G4 network’s “Attack of the Show,” where he has been a frequent guest. Arnold also is the executive producer of The Home Entertainment Summit, a key annual gathering of studio executives and other industry leaders, and has given speeches and presentations at a variety of other events, including Home Media Expo and the Entertainment Supply Chain Academy.
The Reed Hastings many of us saw Jan. 6 at the opening keynote of the Consumer Electronics Show was a little older and a lot richer than the Reed Hastings I remember from more than a decade ago, asking some of us who are now home entertainment old-timers what we thought of letting consumers rent discs by mail.
Since then, Netflix has become one of the entertainment community’s biggest-ever success stories, a subscription streaming service with nearly 70 million members in more than 60 countries and a market capitalization of more than $46 billion — nearly the same as General Motors Company.
And yet the company’s basic premise is the same: letting consumers watch specific movies and TV shows where and when they want to, with the ability to pause, fast-forward and rewind — just like Blu-ray Disc, DVD and, back in the Stone Age, the videocassette.
Streaming is the new video rental, and Netflix is the new Blockbuster — on steroids, as they say.
In light of this, I find it odd that some analysts and journalists maintain Netflix numbers should no longer be counted in the quarterly tally compiled by DEG: The Digital Entertainment Group. The three reasons that keep getting cited are that 1) Netflix is eating home entertainment’s lunch; 2) Netflix consists mostly of TV series; and 3) if you count Netflix, why not count premium cable channels like HBO, Showtime and Starz.
Yes, subscription streaming revenues for 2015, mostly from Netflix, are up 25% from 2014, while total sales of movies and TV shows to consumers, on physical discs and electronic sellthrough, are down by more than 6%. But when DVD came of age and disc sellthrough began chipping away at video rental, there were no calls to take DVD sales out of the mix. Observers realized the commonality between video rental and disc sales — which is that in each case, the consumer made a conscious decision to watch that specific movie or TV show.
Sure, Netflix offers consumers the viewing equivalent of an all-you-can-eat buffet — but we’re still deciding whether to go with the shrimp or the crab claws. Blockbuster and other video rental chains also experimented with block pricing — and in the early days of home video there were chains that sold monthly memberships, just like Netflix sells monthly subscriptions.
As for the fact that TV shows are driving Netflix viewership, again, it comes down to a question of choice. Consumers are choosing which shows to watch, and when — just as they did in the halcyon days of TV on DVD, which at one point was a $4 billion a year business. I don’t recall anyone saying, back then, that consumers who pick up a season set of “The Sopranos” or “West Wing” aren’t contributors to the home video revenue stream.
As for the contention that if the DEG counts Netflix, why doesn’t it count other premium channels — good point. Maybe the organization should include all transactions that involve consumers choosing to watch specific programs “on demand,” because this is precisely what has always been home entertainment’s distinguishing feature: the consumer choice to watch something at his or her discretion.
It should also be noted that many of the movies that show up on Netflix were sold to the streaming service after, or in lieu of, a disc release — easy to understand, given the huge money Netflix has been offering studios for content.
And now with original programming, delivered to consumers on demand, Netflix is again doing what Blockbuster was doing in its final days — cutting deals to offer exclusive content to its customers.
Reed Hastings may be hailed as a great innovator, a great disruptor — and he certainly is.
But he’s also one of us, a home entertainment guy who simply managed to come up with a clever twist on the concept of renting a movie.
Home entertainment is dead. Long live home entertainment!
In the nearly 30 years that I have been in this business, the one constant has been change. Cassette to disc, rental to purchase, physical to digital.
And yet our definition of home entertainment is as crystal clear to me as it’s ever been: the act of bringing a movie, TV show or other filmed content into our home for personal consumption where and when we want it — with the ability to stop watching and resume watching at our discretion, without relying on a commercial break.
Subscription streaming has thrown something of a wrench into the traditional home entertainment business model, which has always been transactional — the consumer pays to watch a specific movie or other program.
\Subscription streaming is effectively a twist on the cable model of bundling: You pay one price and get access to a wide assortment of programming.
But the similarities end there. With cable, you get access to channels, which is why cable is concerned part of the television world.
With subscription streaming, be it Netflix or Amazon Prime, consumers select specific shows to watch — just as they did in the old days when they walked into a video store and grabbed cassettes from the shelves.
It’s clearly home entertainment — a matter of choice.
So, on the “rental” end of the business, Netflix is the new Blockbuster (and let’s not forget: Netflix began as a DVD-by-mail rental service, and that’s how it effectively killed what was once referred to by industry insiders as “Big Blue”).
On the “sellthrough” side, consumers also have broken through the digital divide and taken to buying movies electronically, over the Internet — but if the sale of digital downloads hasn’t been anywhere near as big a success as subscription streaming, keep in mind that Blu-ray Disc and DVD sellthrough is still a big, big business. To be sure, it’s not as big as it was a decade ago, or even five years ago, but if you take a holistic view of home entertainment you’ll see that the total amount of dollars spent has remained remarkably constant over the years, despite a proliferation of new technologies, online services and gadgets — from Facebook to YouTube and “Words With Friends” — that are now competing for consumer eyeballs.
Numbers provided every quarter by DEG: The Digital Entertainment Group attest to this — and they don’t factor in Amazon Prime, with the rationalization that we don’t really know how much money subscribers are spending to stream content because many people subscribe just to get free two-day shipping.
One other constant in home entertainment, aside from consumer choice, is the quest by the studios, who own the content, to get the biggest bang for the buck. Nearly 40 years ago, when the business began, they fought retailers who wanted to rent their movies and pocket the spoils; the studios lost that battle but ultimately got a piece of the action through revenue-sharing. They also successfully shifted the business toward sellthrough with the advent of DVD, the ultimate model from a studio revenue standpoint.
Now, there’s a very similar battle being fought. The studios want to sell movies electronically, or at least be able to get a piece of each “streaming” transaction – something that’s impossible to do under the subscription model. And yet they’re not protesting as loudly as one might presume because of the big-dollar front loads – the amount of money Netflix and Amazon are paying for ‘B’ movies.
But they realize this isn’t going to last forever, as subscription streamers move more and more into original content – which is why we are going to see a renewed push into “sellthrough,” both physical (with the arrival of Ultra HD Blu-ray Discs) and digital (with enabling technologies like Vidity, which allow buyers to actually possess the movie files they buy).
Yes, it’s a topsy-turvy world out there, an increasingly challenging environment for studio executives who simply want to maximize the amount of money they can generate from their content. But with every challenge, it seems, we’re also seeing a new opportunity.
And as long as there are TV screens, recliners and comfy slippers, that’s not going to change. Home entertainment will survive, and even thrive, regardless of the environment. We just have to figure out how to make it worth our while.
Now that Sony Pictures Home Entertainment (SPHE) has become the second studio to announce Ultra HD Blu-ray Disc releases, two months after 20th Century Fox became the first, we’re likely to see most if not all the other majors follow.
It reminds me of the Blu-ray Disc launch 10 years ago, although back then the studios waited until the days leading up to the Consumer Electronics Show in January to issue their proclamations of support.
Of course, back then there was a competing format, HD DVD, that was stealing much of Blu-ray Disc’s thunder. With Ultra HD Blu-ray Disc, there is no rival packaged-media format, at least none that I am aware of. The competition will be other methods of Ultra HD delivery, including hard drives and, of course, streaming.
Still, the good old Blu-ray Disc certainly has an advantage over its competitors, which is why a growing number of analysts and observers, me included, expect a resurgence in sales once Ultra HD takes hold — particularly if, as rumored, Sony is considering an enhanced PS4 capable of playing Ultra HD Blu-ray Discs.
As HD Guru observed in an Oct. 9 post, “What seems clear is that the Ultra HD Blu-ray system will stand as the reference-quality playback standard for 4K Ultra HD, high dynamic range and wide color gamut content delivery going forward.”
The Ultra HD Blu-ray specification, finalized last May, addresses a range of factors beyond simply increasing resolution that will significantly enhance the home entertainment experience for consumers. In addition to delivering content in up to 3840x2160 resolution, the Ultra HD Blu-ray format enables delivery of a significantly expanded color range and allows for the delivery of high dynamic range (HDR) and high frame-rate content. Next-generation immersive, object-based sound formats also will be delivered via the Ultra HD Blu-ray specification. Additionally, with the optional digital bridge feature, the specification enhances the value of content ownership by giving consumers, through an enabling technology like Vidity, the ability to view their content across the entire spectrum of in-home and mobile devices.
As for the future of Ultra HD, let there be no mistake: This is no tangent, like 3D, but, rather, the next step in our natural progression toward true movie-theater quality. DEG: The Digital Entertainment Group recently reported that Ultra HD TV set sales shot up 494% in the third quarter, with nearly 2 million sets sold so far this year. The Consumer Technology Association (until Nov. 9, the Consumer Electronics Association) has forecast 4K Ultra HDTV shipments of 4.5 million units for 2015, up from the 1.4 million units shipped last year. And according to IHS DisplaySearch, sales of 4K Ultra HDTVs are expected to reach 100 million units by 2019.
But studios and retailers won’t realize the benefits of this until 2017, at the earliest. While Ultra HD Blu-ray Disc software and hardware will begin appearing in stores next year, initial player prices of more than $3,000 (for the Panasonic DMR-UBZ1, which went on sale in Japan Nov. 15) will keep the lid on sales, mostly likely through next year’s holiday season.
But that’s the normal consumer electronics pattern. The first DVD players to hit the market, in 1997, cost more than $1,000; it took three years before prices plunged below $100. Similarly, back in 2006, the first two Blu-ray Disc players, from Sony and Pioneer, retailed for $1,000 and $1,800, respectively.
How long will it take Ultra HD Blu-ray Disc players to reach the “affordable” mark, generally considered below $300? It’s hard to tell — but if consumer electronics companies are smart, they will do so quickly, in light of the continued proliferation of home entertainment options.
Once they do, a Blu-ray Disc resurgence will be almost unavoidable — almost, because of the PS4 factor.
The fact that Sony Pictures Home Entertainment is one of the first studios to say it will release Ultra HD Blu-ray Discs is certainly an encouraging sign, but in this business I think we’ve all learned to take nothing for granted.
I will keep my fingers crossed — and I encourage you, all of you, to do the same.
The doom-and-gloomers smell blood, and they’re acting like sharks on a feeding frenzy.
The home entertainment industry is collapsing. Not only is the disc business kaput, thanks to Netflix and the millennial generation’s inherent dislike of ownership, but even the home theater systems we’ve all saved up for and installed in our family rooms are an endangered species because, on top of all those other attributes, millennials don’t give a rat’s hiney about screen size. They’d just as soon watch movies on their smartphones.
I love how we judge, generalize and assume.
The problem is, assumptions are often wrong, particularly when they are based on faulty generalizations and judgments.
Could it be we are mistaking tolerance for preference?
Here’s my take on the matter, as the father of three teenage boys and a guy who likes to ingest lots of information, research and studies, not just those that reinforce the latest trendy assumptions.
My youngest son, Hunter, loves to play video games. When the rest of the family is watching a movie or TV show on the 65-inch Panasonic in our family room that he doesn’t want to watch, he’ll stay in his room, playing Dead Island or Call of Duty on the PlayStation hooked up to his computer monitor with a gaggle of networked friends.
But as soon as we are done, he’ll come downstairs and resume his game play on the big TV.
The other day, I gave a friend of middle son Conner a ride home from a high school cross-country track meet. He was watching a movie clip on his smartphone, so I asked him what he was watching. “Just a few previews on YouTube,” he said. Turns out, his parents were out for the night and he had very little homework, so he was looking forward to watching a whole movie on the family room widescreen. He was using his smartphone to narrow down his choices.
And up in the tiny college town of Arcata, where my oldest son, Justin, is studying at Humboldt State University, a funky little video rental store near the central plaza is always teeming with customers. The town’s primary Internet provider, Suddenlink, isn’t all that great, so watching Netflix can be a real hassle.
Moreover, when Justin was living in the dorm he’d brave the poor connection and stream movies on his Apple desktop or iPad. Now that he’s in an apartment, I asked him what he wants for Christmas and the first words out of his mouth were, “The biggest TV you can afford.”
I know where I will be on Black Friday.
These anecdotes are supported by research. In a July blog posting, Bob Pearson, president of W2O Group, an independent network of digital communications and marketing companies, writes about his company’s latest survey about the entertainment habits of millennials. “Big screens still win — 63% of millennials surveyed said that their favorite place to watch a movie is on their TV at home and 25% would rather visit a movie theatre,” Pearson writes. “Back when the Boomers were growing up, that was the consensus as well … yet there wasn’t an option to show a movie on one’s iPhone, tablet, iPad, computer, etc. It is looking like big screens will continue to win when it comes to entertainment. Gaming on a phone, sure. Sitting down to watch a movie for 90 minutes? The couch and a big screen will always be more fun.”
As for cord-cutting, a new Nielsen study released in September suggests millennials may part ways with their cord-free streaming addictions once they start families. According to a New York Times article on the study, “The decision to go without a traditional cable or satellite service and rely exclusively on Internet streaming video might last only until millennials start families, new Nielsen research on the media habits of the 18-34 age group suggests.” The study found that among millennials who live in their own homes and have started families, 80% subscribe to cable, while just 6% rely solely on broadband connected to the Internet.
The Times concludes, “Millennials, more than a fifth of the total American TV audience of about 292 million adults and children, are considered crucial to the future of television because marketers covet their high earning potential and receptivity to ads. Yet with much of media in flux, their viewing habits continue to confound researchers.”
So we don’t really know all that much about millennials and their future viewing habits. Maybe, just maybe, they live and breathe streaming at this point in their lives because it’s cheap and conducive to their for-the-moment lifestyles.
But once they settle down, once they grow up, they just might want more choice. They might not have time for binge-viewing a TV series; they might not have the stomach for another 9-year-old ‘B’ movie.
They might want something new, something fresh, even if it means paying for it, either as a download or on a disc. And they might want to watch it on the biggest damn TV they can afford.
The home entertainment business is beginning to make sense again. The emergence of Ultra HD appears to have galvanized everyone to once again to work toward a common goal, which is the same goal the studios have been pushing since this business began nearly 40 years ago: getting consumers to buy movies for on-demand viewing, at a nice profit.
The Blu-ray Disc Association wasted no time in drafting specs for the Ultra HD Blu-ray Disc, which will be the optimum way to watch movies with four times the clarity, and 64 times as many colors, as HD. Nearly 10 years after its launch, the physical disc is still unmatched in terms of quality and durability.
Within weeks of the BDA announcement in late August, Samsung and 20th Century Fox were first out of the gate with a player and movie titles. (See story, page 10) Samsung’s Ultra HD Blu-ray Disc player promptly won a rash of accolades from the technology press at the IFA 2015 trade show in Berlin, where it was unveiled. As Tom’s Guide noted, “Streaming services come and go, but the UHD Blu-ray player will let you keep a permanent collection.”
Also in September, we saw the launch of Vidity, an enabling technology that lets consumers store their UHD content locally instead of in the cloud, and also easily move it around to various devices, from Ultra HD widescreens to smartphones. With each disc or download they buy they get a package of files geared toward all these various devices, for instant viewing anywhere, at any time.
Let’s face it — our industry is never going to put the Netflix genie back in the bottle. Reed Hastings and his crew came up with a brilliant concept, playing right into the twin “wants” that I believe dictate all human behavior: simple and cheap. Netflix was also able to hit the studios when they were down and offer them big bucks for catalog product, more than they were getting by putting it out on disc. The result, of course, has been a near-complete decimation of the catalog business — and a stern warning to studios that the content they value the most, the fresh new theatricals, must always remain in their control.
And the studios have done a great job protecting their new releases. The problem is, they haven’t done such a great job in keeping consumers interested in buying them. UltraViolet never lived up to its promise because it was a complicated process — further encumbered by Disney’s insistence on going it alone, with Disney Movies Anywhere. As the song says, “united we stand, divided we fall. …”
We now have an exciting new product, Ultra HD Blu-ray Disc, and it is incumbent that other studios follow 20th Century Fox’s lead and start announcing, and issuing, product — sooner rather than later. We also have Vidity, which not only eases the transition from physical to digital, but also immensely enhances the digital value proposition. Again, it is critically important that other studios join in and not proceed with their own proprietary variant.
The more I think about it, the primary reason home entertainment began to stumble and fall a decade ago was that it stopped making sense. At a time when the quality of the viewing experience should have been front and center, our industry kept getting distracted, first by BD-Live, a failed attempt to appear technologically cool at a time when few TVs were even connected to the Internet, and then by 3D, a perfect storm of a disaster (I remember buying a TV and no one knew which glasses I needed, not even the tech support guys at Panasonic!).
We’re at the point now where consumers are spending a little more than half as much on buying movies than they were a decade ago. Everyone’s tuning in to Netflix, studio home entertainment divisions have been bled dry of some of their brightest talent, and the TV folks are taking over, with OTT the mantra of the day.
And yet the opportunity to take back our business — selling movies to consumers — is now at hand. Let’s think long-term viability, not short-term profits, and do it right.
I hate buzz words and phrases such as “transformational moment” and “paradigm shift,” and yet I really hope everyone reading this recognizes the significance of the announcement by the Secure Content Storage Association (SCSA) that it has made available specs for “Vidity,” an enabling technology allowing consumers to move their 4K Ultra HD content easily around to virtually all their devices.
To use one of those phrases, this could be a real “game changer.”
The two biggest obstacles to buying movies and other content electronically, instead of on disc, is the lack of tangibility as well as the legitimate concern that your purchased content probably won’t play on all your devices.
Vidity smacks those two worries right out of the proverbial ballpark.
Much like a physical “combo pack,” you get everything with one single purchase — files for every device known to man, from your home theater system to your mobile phone.
And, again like a physical disc, you maintain possession of said files. They live with you, not on some far-off cloud, and you’re pretty much free to do with them what you want — move them around, take them with you to a friend’s house, transfer them to a new tablet when little Hunter cracks the glass and spills grape juice on your old one.
Vidity is also mercifully free of the other encumbering trappings so prevalent in the digital space, such as Internet access and the need to establish, and sign on to, myriad online accounts whenever you want to watch a movie.
I can’t stress how important this is to our industry, our business, our livelihood. If home entertainment is to survive, we need to establish a bulwark against subscription streaming with some sort of transactional business, which has always been the only real way for the home entertainment divisions of the studios to make money.
Under any sort of subscription business, content has no real value — which is a slap in the face to the creative community, and a blow to the pocketbooks of the studios. It’s merely part of a bundle, part of a package the consumer is buying for a very low price, sort of like those grab bags we all used to beg our parents to buy us when we were kids.
Netflix pioneered, and continues to dominate, the subscription streaming model. The concept behind Netflix is pure genius, playing right into the two key consumer “wants,” which is to get their entertainment as simply as possible, and as cheaply as possible.
Hollywood fed this monster, selling more and more old movies to Netflix to make their financial targets and compensate for slumping disc sales — only to find that the beast began taking a bigger and bigger bite out of Blu-ray Disc and DVD sales, to the point where consumer spending on disc purchases and subscription streaming is nearly equal.
Physical disc sales alone will never be able to reverse this trend, even if the advent of Ultra HD triggers resurgence in disc sales, as many of us believe it will.
Consumers are now in the habit of getting their movies and TV shows online, and anything we can do to turn them into buyers is welcome. Raising the comfort level, as Vidity promises to do, is certainly a step in the right direction.
And if all the studios come onboard and not only supply plenty of good, first-run content — of the kind not available on Netflix — but also aggressively market and promote this content, we might yet have a chance of saving this business.
Blu-ray Disc’s 10th birthday is less than a year away, and the resiliency of the disc came to mind the other day when I was reading the Futuresource Consulting report about the continued popularity, among consumers, of buying movies on disc.
In case you missed it, the survey, of 6,000 consumers in the United States, Canada, Germany, France, the United Kingdom, and Australia, found that more than 50% still regularly buy either Blu-ray Disc or DVD. And in the United States and the United Kingdom, the percentage of people buying discs has actually gone up from an earlier survey.
That supports the notion I’ve held that the primary reason we’re seeing such big drops in disc-sale revenues is a sharp drop in the average sales price.
Don’t get me wrong — I’m not wearing blinders, by any stretch. The home entertainment industry has been disrupted by Netflix and subscription streaming, which continues to eat away at the transactional business because it plays right into the two primary drivers of consumer habits: the desire to get stuff cheap and easy. The Netflix model is focused on both, and that’s why we’re seeing continued gains in subscription streaming.
But let’s not count out the disc, not just yet. There are plenty of consumers who still prefer to buy and rent Blu-ray Discs and DVDs, maybe because they want new movies that won’t show up on Netflix for another, oh, eight or nine years; or there are bandwith problems in the area where they live; or they want a better picture and sound; or they’re simply coming down with what I call “Netflix fatigue,” a disenchantment with the tired catalog retreads that make up the bulk of Netflix’s movie library. Last April, PCWorld ran an article addressing precisely this issue, noting, “Netflix has a great roster of TV shows, but its movie catalog sucks, to put it bluntly” and suggesting viewers who want a better selection install a VPN and, in effect, “move to another country where Netflix offers its service. … The other day someone I know was in the mood for a baseball movie, but have you seen Netflix’s baseball movie selection right now? It's not great. The best choices were either The Bad News Bears or The Perfect Game. Fine movies, but not what he wanted. So he fired up a virtual private network provider, took a (virtual) trip over to Canada and lo and behold Netflix Canada was streaming Major League. Excellent.”
I’m also noticing a growing sense of optimism among industry insiders about a likely resurgence in popularity for the Blu-ray Disc, fueled by the advent of Ultra HD. Streaming services continue to have trouble transmitting true HD, so just imagine the clogged pipes that await a format with four times the clarity, four times the resolution, four times the pixels — and four times the data. With streaming, the focus is on getting the title to the viewer with as few buffering interruptions as possible. And while some streaming services now offer the same 1080p resolution as Blu-ray Disc, they use significantly more compression to deliver content over the Internet — which impacts image quality. As Forbes noted, “For cinephiles or even anyone inclined in that direction, HD content viewed on the finest Retina tablet display or LCD flat screen can’t come close to a Blu-ray.”
Ultra HD TVs are coming and will eventually become the standard. And if history repeats itself, the early adopters will be hungriest for content — which, at this point, is best delivered on disc. After finalizing the Ultra HD Blu-ray spec and logo back in May, the Blu-ray Disc Association is going to start licensing the technology on Aug. 24 — this coming Monday.
If the studios as well as independent content suppliers really get behind this — and I sincerely hope they will — we could see a significant lift in Blu-ray Disc sales.
I know I’m not the only one keeping my fingers crossed.
There’s encouraging news for home entertainment in the mid-year numbers report issued July 31 by DEG: The Digital Entertainment Group, but I fear that once again people are going to overlook it and misinterpret the report in a negative way.
The big news, to me, is that in the second quarter of this year consumers spent more money on digital delivery options than on physical media.
I know, I know — the bulk of that increase went to Netflix and subscription streaming, at the expense of Blu-ray Disc and DVD.
But that’s really not the way I see it — I believe this little statistic indicates not only that consumers are comfortable getting their movies and TV shows over the Internet, but it also suggests that electronic sellthrough (or Digital HD — call it what you will) has a real chance of taking off.
You see, the more people tune in to Netflix, the sooner they’ll catch on that there’s a lot of good new stuff they simply can’t access. I am operating under the assumption, of course, that the average American’s viewing diet consists of movies, and not just the TV series Netflix excels at. And if you’re a movie fan, Netflix simply doesn’t cut it. I can tell you from personal experience that in every home there will come a point when people grow tired of the studio castoffs, direct-to-video bombs and 9-year-old theatricals that make up the bulk of Netflix’s movie programming and clamor for something new, something fresh, something hot.
My 17-year-old, Conner, after consuming dozens of DTV horror sequels and Lifetime movies with Dear Old Dad, reached that point a couple of weeks ago. He wanted to see Guardians of the Galaxy — and because he’s been programmed to watch electronically he didn’t bother to visit our disc room, home to more than 2,000 Blu-ray Disc and DVD movies and TV shows I can’t possibly live without. No, he switched over to Amazon Prime and bought the film (on the family credit card, of course) for $19.99.
I hear lots of talk on the studio side about how to make digital movie purchases more attractive. Early windowing — issuing a film on EST two or three weeks before any other platform, including disc — is certainly a good incentive. So is pushing down the price and adding the extras we’ve grown accustomed to through discs.
But the real key to EST’s success, I believe, is patience — Netflix has done a great job indoctrinating people to watch movies and TV shows OTT, and it’s only a matter of time before the novelty wears off and people want to watch something new and exciting again. And, just like Conner, they’re finding out it’s quite easy to do — as long as you’re willing to pay for it.
And my hunch is, they are.
If we’ve learned anything over the last half-century, it is that consumers love choice.
They also tend to choose things that are cheap and easy.
When I was growing up, it was on the tail end of the three-network universe. Our entertainment-viewing schedules revolved around their broadcast schedules, and if we didn’t like it about the only alternative was watching old “Flash Gordon” serials on one of the handful of non-network stations our rabbit-ear antennas would allow us to watch.
We jumped at the chance for more control over what we watched, more choices — which gave birth to first cable and then, in the late 1970s, home video.
Home video, at the start, was cheap, and relatively easy. You could rent a movie for a couple of bucks a night, but you had to go to a video store — and then bring it back the next day, lest you incur ruinous “late fees.” And if you happened to have the collector gene, you had to wait six months, maybe more, for the movie to be available for sale to consumers. Oh, sure, you could buy new movies for about $65 to $100, but that didn’t pass the “cheap” test — so very few people did.
Since then, every innovation that has caught on with consumers has expanded their menu of choices — and it’s been either cheap, or easy, or both. With DVD, you no longer had to rewind, and you could buy movies for less than $20 right when they were released, with no six-month wait. With Netflix, you got your movie in the mail — no return trip necessary and, hence, no grim specter of late fees hanging over your head. And let’s not forget about Redbox, which let you check out a movie as you’re leaving the grocery store — and bring it back when you run out of milk or toilet paper.
With advances in technology, we saw things get even easier, and cheaper. Netflix ushered in the era of OTT, where for less than $10 a month you can watch a good-sized haul of old movies, newer ‘B’ movies, or TV shows. If you want to watch newer, first-run movies, you can buy them over the Internet, as digital downloads, or pick up a Blu-ray Disc at the local Walmart.
We have never had so many choices, and our choices have never been cheaper — or easier.
That’s why it irks me to no end when I hear people say things like “discs are dying” or “Netflix is taking over the world,” or other misguided pronouncements like that.
It’s all home entertainment, and each sector of the business — physical discs, streaming, electronic sellthrough (or Digital HD) — plays a crucial role in the palette of choices this industry has given consumers.
Consumers get to decide which format, which delivery method, works best for them. And invariably, it will be a mixture — we’ll watch Joyride 3 on Netflix one night, and then buy a disc or download of American Sniper the next. We might spend two weeks binge-viewing “Breaking Bad” and then take a break and watch nothing but first-run movies for the next eight or nine nights.
So let’s stop talking about dying formats and competition and cannibalization, and realize that to the consumer it is, quite simply, all about choice.
Netflix appears to have an insatiable appetite for original content.
Speaking earlier this month at the MoffettNathanson Media & Communications Summit in New York, Netflix chief content officer Ted Sarandos attributed much of Netflix’s 20% year-over-year subscriber engagement hike to the success of original shows such as “House of Cards” and “Orange Is the New Black.”
The percentage of its total acquisition budget that Netflix spends on original programming keeps shooting upward; on an earnings call last month, chief financial officer David Wells said “it’s drifting up to 30% [and] could drift up to 40% … we are building out our … original content investment and that is cash intensive.” Accordingly, in his quarterly letter to shareholders last January, Netflix CEO Reed Hastings promised 320 hours of original programming this year, three times as much as in 2014.
Original content is not just the growth engine for Netflix here in the United States, but also abroad, where Netflix is aggressively expanding its reach. Sarandos noted that “House of Cards,” according to one report, is the most popular U.S. TV show in China.
And Netflix is more than happy to pay whatever it takes for exclusive rights — which is why some of the same studios that for years have griped about Netflix cannibalizing their sellthrough business are now creating original programming for the No. 1 streaming service.
Content, it appears, truly is king.
The more dependent Netflix gets on original content, the more it seeks global exclusivity of that content. Netflix no longer seeks blanket license agreements with studios for bulk programming. It picks and chooses specific programming.
To get control of that programming, Netflix is now dealing directly with creators and producers of TV shows and independent movies. When it licenses a show or movie, the rights are exclusive. That’s because binge-viewing, commercial-free, and on-demand access are key drivers of Netflix’s brand proposition.
“We’re either interested in the global rights or we’re not interested at all,” Sarandos said.
Netflix recently secured rights to African warlord drama “Beasts of No Nation,” starring Idris Elba. The streaming kingpin beat out independent distributors (such as Fox Searchlight) within the major studios — a win Sarandos attributed more to dealing directly with producers and granting immediate access than money.
It also secured exclusive rights to Fox TV’s “Gotham” and A&E Networks’ “The Returned” by dealing directly with the shows' producers, Warner Bros. Television (“Gotham”) and A&E Studios, respectively.
“For a dollar spent [on original programming] and an hour viewed, you get more hours of viewing per dollars spent on originals versus the licensed content,” Sarandos said.
At the same time, Netflix is still interested in bidding on sitcoms with major stars, such as “The Big Bang Theory,” “Mike and Molly,” and “2 Broke Girls,” provided the market for the shows isn’t overheated, according to Sarandos.
“We’re not seeking a lot of [random viewing],” he said.
But for the most part, original programming is the way to go for Netflix — regardless of what it costs, where it comes from, and who they have to beat out at the negotiating table.