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Podcast | Digging deeper - The future of Netflix

What is in store for the OG of OTT platforms? Will it redefine 'cinema' as we know it? What will be the impact of the streaming services of Disney, NBC, on Netflix?

Moneycontrol Contributor @moneycontrolcom

Rima M | Rakesh Sharma

The success of a media platform, any media platform is the amount of influence it wields on consumption patterns. That  Steven Spielberg is now waging the war for cinema's soul by treating Netflix like an unworthy adversary that does not deserve to compete for cinematic honours should tell us something. But why should Spielberg think Netflix is corroding the sacredness of big screen concept entertainment?

Well this is possibly one of the reasons why.

On January 18, 2019, Paste, an American monthly music and entertainment digital magazine listed out some of the most influential Netflix Originals that have shifted our idea about what entertainment really means. For now, it is all about being, yes, atypical.

As the piece said and we quote, "The fact that we can even make a list of the best Netflix original series is kind of amazing. Six years ago, the now-dominant streaming platform was best known as the company that put the Blockbuster out of business. House of Cards not only changed all that—it also changed the way TV is consumed, introducing the now-popular binge model. History is made by forward-thinking companies, and Netflix, let’s be honest, is making history."

Is Netflix making profit? That is a difficult question to answer not least because the platform is famously cagey about releasing its viewership numbers, but we do know that Netflix has about 137 million users worldwide (as of October 2018) and that profits in the October quarter reached $403 million with revenues growing 34% to $4 billion. But we also know that the company plans on investing $8 billion in original content. On this edition of Digging Deeper with Moneycontrol, we will try and answer what lies in the future of a platform that has personalised entertainment and inspired memes about cats, dogs, and yes, pet pigs watching The Crown with their humans on a couch next to takeout boxes. The story about what lies ahead for a company that forever changed the meaning of the word "chill" is what I, Rakesh Sharma, bring to you on this edition of Digging Deeper with Moneycontrol.

The big hits

Coming back to the Paste story, it mentions the binge staples on Netflix including The Crown, Sense8 ideated in part by The Matrix creators, Margaret Atwood’s historical novel adaptation Alias Grace, the comedy, Atypical, addictive crime drama Narcos, prison dramedy Orange is the New Black, the unpredictable horror of Stranger Things as well as The Haunting of Hill House, the beloved Lemony Snicket classic, A Series of Unfortunate Events, refreshingly cerebral food shows like Ugly Delicious or crowd favourite Chef's Table, the politically charged and enlightening Dear White People, the brave gaze of Queer Eye and of course House of Cards and many more.

The point being, the questions asked, the issues raised, the boxes checked and the genres covered within the span of these beloved shows  make big screen entertainment look tepid and one dimensional in its constant hunger to appease what is often the lowest common denominator. But that is only half the story.

While Netflix may have broken new ground in terms of storytelling, the old staples are still the most streamed shows on the platform, according to data from analytics firm Jumpshot. The Office is by far the most streamed show on Netflix, accounting for more than 7% of all view, followed by Friends (4.13%), Parks and Recreation (2.34%), Grey's Anatomy, New Girl, Supernatural, That 70's Show, Criminal Minds, NCIS, and Arrested Development. With the exception of the divine Arrested Development, new seasons of which Netflix is bringing out, the rest of the shows on that top ten list are all owned by Disney, Fox, WarnerMedia, and NBCUniversal. Enjoy these while you can, as more than half of the 50 most popular shows on Netflix are owned by companies planning to launch their own streaming services - Disney (and Fox; the acquisition is to be complete on 20 March), NBCU and WarnerMedia. The top 50 Netflix shows account for 42% of all Netflix views, according to Jumpshot. Not necessary that these shows will vanish from Netflix once these streaming services are in place, but Netflix will have to shell out more and more money to keep them on. Netflix shelled out almost $100 million for exclusive rights through 2019 to Friends, a show that has clearly had its week, its day, its month, and even year for several years now.

Steven Spielberg vs. Netflix?

Film critic Owen Glieberman wrote in industry magazine Variety a few days ago about what appears to be the war of the worlds between the cinematic planet that the likes of Spielberg inhabit and the one that Netflix has created out of well, nothing except the desire to offer options to jaded content seekers.

The piece begins with the Netflix statment, “We love cinema, ” in response to Steven Spielberg’s reported effort to push for new guidelines regarding the eligibility of movies to compete in the Academy Awards.

So what exactly is Spielberg's beef with Netflix?

According to the piece, Spielberg who is a member of the Academy’s board of governors, has yet to publicly articulate any proposal against Netflix but based on statements like, “Once you commit to a television format you’re a TV movie”, and on the fact that Netflix has already proved its willingness to exhibit an Oscar contender in more than a few movie theaters, it seems likely that Spielberg would push for the Academy to require something like a three-month window between a film’s theatrical release and its availability on streaming services.

As the writer says and we quote, "Any movie that streamed before that wouldn’t be eligible for Oscars. The potential guidelines would be aimed directly at Netflix, with its short-to-nonexistent window. But is that fair to a company that loves cinema? We no longer have to watch a movie, even a great one, in a movie theater; that hasn’t been necessary for close to 70 years. Before streaming we had DVDs, and before DVDs we had VHS, and before VHS we had the Sunday Night Movie (or the 4:30 matinee), and before any of that you could watch the Late Show on television any night of the week. So watching a movie at home, and chilling with it, is neither a big deal nor a new thing."

But as the piece helpfully points out, and we reproduce verbatim, watching a movie at home the day it comes out is very new. Taken to its logical extreme (or even halfway there), it undermines the basic economic engine that has driven Hollywood for the last 100 years, or as long as there has been a Hollywood. Put in practical and specific terms: If you knew, this weekend, that you could watch “Captain Marvel” in your living room just two weeks from now, for a charge of, say, $75, would you go out and see it in a movie theater? Or would you wait to see it at home? Different people will have different responses. And everyone can craft their own example (would you have waited to see “A Star Is Born”? “Sorry to Bother You”? “The Favourite”? “Bumblebee”?), based on their own viewing habits and priorities. But it’s obvious, when you think about it, where this all goes. It’s potentially the biggest paradigm shift in movies since the introduction of VHS, and maybe bigger.

And if your remember, reminds the piece, after acquiring distribution rights, Netflix didn’t merely give “Roma” a token release; the film played in more than 100 independent theaters, and was kept there for months, with Netflix actually paying the theaters for the privilege of doing so.

And Roma wasn't even made by Netflix. So the signs are all there that from content creation for its own platform, now Netflix is spreading its area of influence by backing ideas that profit obsessed studios won't.

But the writer chooses to differ and says, "The fact that Netflix took on “Roma” in the first place  has inspired many voices in the media to parrot the line that they make the movies the big studios now won’t. I can’t send us into an alternate universe to prove this, but I persist in thinking that if Netflix had never existed, an Oscar-winning director named Alfonso Cuarón would still have made “Roma,” and it would still have been an award-winning phenomenon."

Still, it would be naive to believe that the association with Netflix hasn't benefitted Roma.

And Netflix is not just looking to become the cheerleader of brave, new cinematic voices but the purveyor of the definitive blockbuster. As the piece informs, "Netflix is making Martin Scorsese’s “The Irishman,” at a cost of at least $125 million. In 2019, that’s a stratospheric budget for a movie that isn’t a CGI-driven fantasy tentpole, and the magic of that number, so bandied about in discussions of “The Irishman,” has become its own form of advertising. What company, in the real world, would spend $125 million to back a gangster epic that’s the supreme labour of love of Martin Scorsese? The answer is almost axiomatic: a company that loves cinema."

The point is this, regardless of what Spielberg believes or not, the battle is not between big ticket entertainment and content consumption in the comfort of your own home. At least not for the consumer. She will still watch Black Panther and Wonder Woman on the big screen and catch them again on her favourite OTT platform. We are now inhabiting a space where entertainment cannot mean just one thing. It is time for expansion of the idea of entertainment and storytelling  and big studios have realised just that and are creating their own streaming platforms while vendors like Netflix are making tentative inroads into the studio system.

As the piece says and we quote, "Steven Spielberg’s attempt to try to erect a fence between what Netflix does (release movies via streaming, and a few times a year sprinkle them into theaters) and what the Academy does (recognize movies that play to audiences in theaters as movies) has been attacked, by some members of the Academy and, notably, by scores of online film fans who are probably under 40, as the last gasp of an archaic way of seeing things."

Netflix however further elucidated its contrarian stand by saying that it, "thrives on providing access for people who can’t always afford, or live in towns without, theaters. Letting everyone, everywhere enjoy releases at the same time. Giving filmmakers more ways to share art."

As the writer points out, the statement asked, implicitly: Are you against these things? And the online reaction against Spielberg has basically treated him as if he was.

He further writes and we quote, "In a subtextual way, identity politics has come into it. Spielberg is the “old white male” trying to hang onto his entitled way of doing things, while Netflix — representing speed, access, democratization, a multiplicity of voices — is the force of techno-woke rebellion opening up the world to greater possibilities. And just as Netflix has used a work of art like “Roma” as a one-film signifier of the company’s purity of intent, many observers have bought into the message of the advertising, which is: Do we want an Academy that disqualifies “Roma” from competing in the Oscars but rolls out the red carpet for a studio film that plays by the rules yet isn’t nearly as good? The Netflix vs. Spielberg battle has become, in mythical terms, a case of the rebel disruptor vs. The Man, and these days who wants to be on the side of The Man? The disruptor has all the cred."

Well, we think,  the Man doth protest too much but coming back to the central question.

What about the profit making?

The writer answers that question thus, "The company wants to prove that it loves cinema. Because by doing so, it can woo the filmmakers, and audiences, it needs to become an industry unto itself. It can woo them enough to remake cinema. And if it turns out that the vision of what cinema looks like — what cinema is — after it gets remade doesn’t happen to involve movie theaters, then so be it. It will hardly matter to Netflix, because Netflix will already own your viewing habits. Whether that’s cinema or not, it’s one hell of a business plan."

But as the piece asks, Is the technology of streaming now going to redefine what movies are? Because if a movie just streams, then what makes it a movie? Why not allow hundreds of films that are made for television to qualify for the Oscars?

We quote, "In the end, this battle is merely a preview of the larger streaming war to come: the one about how long all movies, and not just Netflix movies, will get to play in theaters before they’re available at home. Because if that model genuinely changes, with the backing of the major studios, and the window shrinks down to a month or two weeks, then all bets are off. Netflix now stands like a monolith, but with that potential change looming it could look like one more toothpick in the war for cinema’s future."

Netflix however has already moved on to the next big thing.

Towards an interactive future

Whether Netflix is able to challenge the entrenched studio system of movie making or is going to join it, is not yet clear but it knows already where to go next. Towards more interactive shows after the success of Black Mirror.

Shannon Liao of The Verge reported that Netflix plans to make more interactive TV shows after Black Mirror: Bandersnatch, the Choose Your Own Adventure-style program, found international success.

Netflix product VP Todd Yellin said in Mumbai at a keynote presentation  and we quote, "It’s a huge hit here in India, it’s a huge hit around the world, and we realized, wow, interactive storytelling is something we want to bet more on. We’re doubling down on that. So expect over the next year or two to see more interactive storytelling. It won’t necessarily be science fiction, or it won’t necessarily be dark. It could be a wacky comedy. It could be a romance, where the audience gets to choose, should she go out with him or him.”

The piece reports that Yellin also emphasized that Netflix would make far more Indian content, doubling content production every year exponentially. He pointed to the success of the Netflix original Indian series Sacred Games, about a cop chasing down a crime overlord. Yellin said, on average, two out of three viewers of Sacred Games lived outside of India, demonstrating how culturally specific shows could find global appeal.

So the strategy is not just about creating more shows with already popular formats but to make stuff more contextual, multi-lingual, relatable.

The piece informs, that to make more global hits, Netflix is also going to bring its original content to more dubbed languages. The bleak superhero series Umbrella Academy, in particular, is currently available in 25 languages; by next year, it will be available in 30, according to Yellin.

Advantage Netflix

On March 11, 2019, writer Anthony D'Alessandro wrote in online magazine Deadline, that when it comes to streaming, it’s still a fertile land, but Netflix does have the advantage of being first to the front line.

The piece quotes Netflix’s VP of Original Content Cindy Holland who recently said that on-demand television is in its very early stages, and there’s many opportunities for other companies to be successful.

The piece informs that  while neither Disney  nor Warner Media’s streaming service were specifically mentioned, Holland said that Netflix is leading the way in the on-demand television revolution. The companies that stay rooted in historical distribution models, for example, mainly television, they’ll find themselves quite challenged. About rising Silicon Valley competitors in the streaming space, i.e. Facebook and Google, Holland said and we quote, “we’re different from the large tech companies…they’re uncurated platforms. We’re a paid subscription service. Our first priority is to entertain the members in our worlds, and if we don’t do that, we won’t continue to thrive in our world."

As the piece points out, while traditional TV networks are tethered to ratings due to advertisers, and Netflix doesn’t have to necessarily worry about that, the streamer decides what works, based on their internal metrics of audiences’ tastes, and the projections they make off it.

Holland explained programming decisions thus, Netflix sizes up the audience and how much to invest. If that audience doesn’t show up to that level, what is the reason to continue to invest as they had  hoped? Holland said, "If there’s critical acclaim, that’s important to us, we’re about stretching investment dollars as far as we can; making good investments of our members’ money."

According to the piece, by the first 28 days, the streaming giant has a good idea if they’ve reached their viewership objectives for a particular series. Netflix viewership data also helps the streamer spot the white areas, where there might be an unseen opportunity for content.

Speaking of viewership data, the piece reveals  that most subscribers watch the platform on their TVs over mobile phones though the latter is growing. Average members watch two hours a day with weekends and holiday viewing being higher than weekdays as that’s when audiences have more time.

Being involved in the DVD business early on gave Netflix insight into the eclectic taste of its members according to Holland and that type of data insight enabled Netflix to provide content for every audience, not just one.

The piece quotes her again, "When we went into original content, we could offer a narrow set of titles for a specific demographic, but our business was much deeper."  The key, opines the writer was   creating title brands, and a “personalization” for subscribers so they could find the content they wanted to watch.

In the piece, Holland also detailed the early benchmarks for Netflix: House of Cards was a series meant to “define what Netflix” would be, that subscribers could see premium content as good as that on pay TV.

Transforming from a DVD rent-by-mail business to what Netflix is today, Holland said, “the question was how to grow the DVD business…to then grow to some form on the internet. That was the simple plan of the company." And no the company did not   have an original content strategy when they commissioned House of Cards.

But as the piece asks in conclusion, will the success of original content at Netflix stop other networks from   selling to them? Holland says and we quote, "We thought they probably would or that they’d allocate for their own services.”

And that is where the next challenge for Netflix lies. It is now not only a visible contender in the cinematic space despite  the disapproval of giants like Spielberg but television networks now may think twice before giving them their hit shows.

Everyone wants to create the next Netflix

In December 2018, Nicole Laporte wrote in portal that  the biggest proof of being a serious media company that totally gets the future is to announce a streaming service. From the newly formed WarnerMedia to Jeffrey Katzenberg’s Quibi et al, everyone is  throwing their hat in the ring vowing to create the next Netflix.

We quote, "Why wouldn’t they? Linear TV watching remains on a steady, downhill incline. Even my mother knows what Netflix is and has become one of the 137 million people to sign up for the app. Anyone under the age of 18 spends most of their time on mobile devices. In this environment, it’s not all that hard to drum up a couple hundred million–or, if you’re Katzenberg, $1 billion–just by saying the words “streaming platform.”

As the piece informs,  Disney announced in August of 2017 that it was pulling its content off Netflix in 2019 and launching a new entertainment app that would be built by BAMTech, in which Disney is a majority stakeholder. It wasn’t until  in November 2018 that the service was given a name, Disney+, and a few more contours to round out the picture: Content would be divided by brand (Marvel, Disney, Pixar, Nat Geo, Star Wars) and have exclusive movies and TV shows, including a new Star Wars series starring Diego Luna as Rebel spy Cassian Andor, following his adventures leading up to Rogue One: A Star Wars Story.

The piece further details  WarnerMedia’s new app that seems to be coming together more quickly; the company has only existed, after all, since June 2018 when AT&T acquired Time Warner and birthed the company.

The fruition of all these plans is however slower than anticipated with  AT&T going only so far as having a plan to have a plan. We quote, "Since being announced last summer, all we know at this point is that it will be a three-tiered service, not unlike AT&T’s data plans; content will come from HBO, Time Warner, and Turner (which anyone could have guessed); Turner exec Kevin Reilly will be heading the content strategy; and Friends, one of the crown jewels in the WarnerMedia library, will not be exclusive to the service at launch.

Then there’s Quibi, Katzenberg’s billion-dollar, short-form, mobile platform, which promises to have 5,000 episodes of “quick bite” content in the year after its launch next year, even though at this point it’s not fully staffed. Not to mention Apple, which is sinking $1 billion into a slate of high-profile press releases announcing deals with A24 and stars like Reese Witherspoon and Jennifer Aniston."

Basic questions remain unanswered...

As the piece asks, "How much will any of these services cost? What will be exclusive to these services and when will it appear on them? How much content will actually be offered at launch? Who knows?! Those are late-2019 problems. What seems to have mattered most in 2018 was staking out ground in the increasingly crowded streaming universe and stating your intent not to be left behind in the digital revolution."

And Netflix is already ahead in the game and as  the piece says, it has  begun directing its resources not just at big-budget TV shows, but at the people who make them.

We quote, "After Netflix started this process back in 2017 with its $150 million overall deal with Grey’s Anatomy and Scandal creator Shonda Rhimes, the streamer has followed suit this year with a $300 million deal for Glee and American Horror Story showrunner Ryan Murphy and a $100 million pact with Kenya Barris, the mind behind Black-ish. With that, a talent arms race was underway, with even non-household-name scribes getting fat overall deals. Warner Bros. signed Jessica Jones(a Netflix series) scribe Melissa Rosenberg with an eight-figure deal. Marti Noxon, who created HBO’s Sharp Objects and has written on a number of big shows like Buffy the Vampire Slayer, Mad Men,  and Glee, got similar treatment from Netflix."

Netflix’s motivation, says the piece, is to pad itself with brand-name talent, who will attract brand-name talent, who will, in turn, theoretically at least, woo subscribers. Ultimately, that’s the company’s only real mission and business. It’s also a way to deal blows to traditional media and weaken its competitors as Netflix evolves into its own television network. Rhimes and Barris were two of ABC’s biggest showrunners, and it’s not entirely coincidental that the Rhimes deal was announced just weeks after ABC’s parent company, Disney, said that it would be pulling its content off Netflix in 2019 in order to keep it for Disney+. The Ryan Murphy deal came two months after Disney agreed to acquire Fox, which had been Murphy’s home base."

In conclusion the writer says,  the question for 2019 is: "How much longer can this extravagance continue? Netflix is operating on borrowed cash, after all. At what point does spending on big names become a liability, or at least an incredibly risky game, especially given that at this point most people are tuning in to the service to watch Rhimes’ old shows, like Grey’s? The headlines generated by the deals have certainly captured the media’s attention. But will the actual shows?"

And let us not forget, another big player in the space. Amazon Prime whose   The Marvelous Mrs. Maisel,  took home eight Emmys , including best comedy series and who as the writer says, has a deep bench of quality shows that have connected with the zeitgeist including Tom Clancy’s Jack Ryan with John Krasinski; the adaptation of the popular Gimlet podcast Homecoming, starring Julia Roberts; and the drama series A Very English Scandal, with Hugh Grant and Ben Wishaw.

But the piece asks the question that finally shows us to what extent Netflix has dominated the content space with  disruptive strategies across the years.

We quote, "Is the company that has always prided itself on being Disruptor Numero Uno, begun adopting some of the Hollywood practices that it is desperately trying to usurp?  Is Netflix indeed a tech disruptor or a Hollywood sheep dressed in disruptor’s clothing?"

These kind of questions are always asked only when a company has grown beyond our idea of what it was supposed to be and Netflix has transcended its own brief but thankfully what has remained constant is its ability to engage newer  audiences with stories that  challenge notions of the old and the new.

And that perhaps is the bottomline. That as long as Netflix can surprise us, it will survive.

In January this year, Business Insider reported that Netflix shares soared to a three-month high  on the back of a bullish UBS report that featured a breakdown of some of the most central questions surrounding the streaming giant.

Rebbeca Ungarino wrote  a summary of three questions UBS analysts, led by Eric Sheridan, addressed.

"Will original content drive subscriber upside, especially in international markets?"

And according to the writer, Sheridan and his team said they expect Netflix's original content slate to drive accelerating growth internationally, particularly with more local, film, and non-fiction content on the platform. They also contend there's still low broadband usage in growing markets like India, where Netflix could expand.

Last month, Netflix said over 45 million accounts watched the Netflix original movie, "Bird Box," in the first week it was released - a record, according to the company.

The second question was, "Will increasing competition threaten Netflix's market share or pricing power?"

We quote from the answer, " UBS said it expected subscription-streaming video will "come to dominate TV over time," creating opportunities for multiple players and rising competition. Hulu and Amazon Prime Video are gaining market share in the streaming space.

Still, the firm thinks Netflix is well-positioned because of its scale and slate of original content. That's also the driver behind their view Netflix can still command pricing power, or the ability to hold onto users while boosting prices."

Question number 3: "How are subscribers tracking in the US and key overseas markets?"

The answer, "Domestic and international subscriber growth for the fourth-quarter will likely come in strong given a few factors, the analysts said, citing application downloads, Google search trends for its original content, and others. App-tracking analysis suggests country share of downloads is tilting away from the US, and toward international.

Notably, Sheridan said growth in the US and more matured international markets appears to be plateauing, and that emerging markets in Latin America and Asia, particularly India, are the "bright spots on local language content push."

According to the writer, more broadly, the firm outlined its long-term view that Netflix should achieve higher margins than Wall Street currently expects as its content spend is now at a scale of the "major media companies."

And there it is. Whether Spielberg and other naysayers like it or not, Netflix is now a major media company. And it is not going anywhere. Not just yet.
First Published on Mar 14, 2019 07:21 pm
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