Thursday, February 18, 2016

Can the “Netflix Model” Truly Remain Viable?

In what seems like a different universe rather than just a different decade, the powers that be in entertainment media didn’t think much of the concept of streaming movies on the web. You can’t really blame them either. Sure, YouTube was making a name for itself, but who would want to watch big screen movies on tiny computer screens? Beyond just the issues the majority of the population had with reliable streaming of large content, the idea of people wanting to watch television and movies on smaller screens was counterintuitive to the trends most of the people in charge were used to. For decades the goal of home entertainment system building had been to go bigger and better. Larger screens and better and more complex sound systems for bigger images and louder sounds were the coveted items of many a shopper.

Why would anyone pay good money to look at a little screen when they had a big screen sitting there waiting to be fed a DVD with better overall video and audio quality and none of the loading and buffering issues? It just didn’t make sense to the old guard, and they saw the idea as a surefire flop. So, when the brains behind Netflix came a calling, the various owners of so much of the entertainment content out there were happy to let these fools part with their money without really demanding more than they were offering for the streaming rights. Then Netflix became a massive success and the game changed entirely.

Netflix’s streaming service at its early best was practically a one stop shopping location for what sometimes seemed like damned near everything. If it was a major new property and had been out on DVD long enough, you could probably find it on streaming. On top of that, you could find a huge number of classic films along with more than a few unheard of straight to video films that didn’t always manage to both suck and blow at the same time. Added in with that, you also had a small ton of television shows, and it was all available for under $10 a month. It was a formula that gave birth to the concept of “binging” as not only a national pastime, but as damned near an Olympic level sport for some. Netflix’s streaming subscription service grew like gangbusters, and it was a large part of what made Netflix a hugely profitable business.

The home entertainment mentality of bigger and better that some cited as an issue for streaming success didn’t seem to be much of a stumbling block at all. A number of younger consumers were more than happy with smaller, portable viewing devices if it meant being able to take their entertainment with them anywhere they went. Plus there was the geek factor. As soon as the need arose, people were putting “how to” guides on the web telling anyone and everyone everything they’d need to hook their home computers into their TV sets for an evening of streaming in front of the big TV plugged into their home entertainment system. Still later,  getting slightly ahead of things here, the rise of the streaming industry would impact the home entertainment industry by giving us game platforms, disc players, and TV sets with built in streaming capability and devices designed just for streaming services.

However, the thing you have to deal with when you become a success is the fact that everyone is going to see what made you a success and want to get their piece of the action. With Netflix, this meant two things started happening. First, the market started seeing the growth of other streaming services basing their business model on Netflix’s. Second, the owners of the content Netflix got for a steal when everyone laughed at the idea of streaming services having any success started having other ideas about both the value of their content and where that content would best serve them in the long run being streamed. This led to a few obvious outcomes.

Netflix had to hike its rates to cover the costs of the higher prices demanded for licensing content for streaming. Not much in all reality, but enough that more than a few people winced. But this was also accompanied by a loss of content. Some of the content was lost when better deals were to be found for the content owners at sites like Hulu, Amazon Video, or some other service. Some of it was lost when content owners decided they wanted their own pie rather than just a piece of the Netflix pie and sought to use their most popular properties as the centerpieces of their own streaming services.

To counter the loss of some higher profile properties and to compete with the newer streaming competition, Netflix announced its intention to start generating original content. This of course meant almost everyone else who didn’t already also own a network or cable channel was going to start doing the same thing for their streaming service.

On one level, this was a great thing. You could get most of these services for around $10 to $15 a month each, and, despite many duplicated viewing options, you could build a nice selection of services for around $30 to $50 a month that would provide you with 24/7 access to a huge library of movies, shows, and specials. For a number of people, this meant the ability to watch almost everything they wanted to watch whenever and however they wanted to. For them, this ability beat the hell out of cable and dish; especially when the prices for cable and dish could be three or four times what they were paying for their selection of streaming services. This gave rise to a legion of cord cutters. People were happily leaving cable and dish behind with the only downside being some cord cutters finding themselves half a season to a season behind on some of their favorite shows.

Cable and dish providers haven’t exactly reacted to this in the smartest of ways. Rather than working to reformat the old school business model to be better content providers, giving both more and better bang for the customer’s buck, they largely just tried to figure out ways to force the people still using their services to spend more money on them. This would sometimes involve breaking up tiers of popular channels and spreading them out a bit more while bundling them with lesser desired channels. All this has done so far is give even more people the incentive to cut the cord. The response to that by some media giants like Time Warner and Comcast has been to try to find ways charge more money for higher bandwidth use by some internet subscribers.

A lot of people talk about the new age of streaming as if it were a new Golden Age of entertainment. It may in fact be in a way, but it’s looking to be a short lived Golden Age. There are several problems with the system the way it’s developing. All of them could have possible fixes down the road, but the adjustment period is liable to be a killer for some shows and other properties. There’s also one major obstacle to buyer friendly fixes that I’ll touch on at the end.

One problem with the system is in fact the rise of binging a TV show. You actually saw this problem with DVDs even before it became a popular streaming pastime, it just didn’t have the catchy, pop culture name and it wasn’t as widespread.

There was a thing with fans of comic books called waiting for the trades. People would save their money by not buying six or twelve issues of a monthly book at three to four dollars a pop and get a trade paperback collection of a popular series with the same issues collected for some substantial amount less than all the original issues would have cost. The problem sometimes became large numbers of fans not getting a new series because they figured they’d wait for the trade paperback collection to hit the market. Thing is, if enough people did that the series might have lower sales and not always make it past the first trade. Companies adjusted eventually, but it took some time.

With streaming services, a lot of people are taking this attitude with TV shows. Even if they can watch it on TV, they’ll skip the actual series while saying they’re planning to watch it when they can binge it streaming. Sometimes it’s based on convenience because of keeping odd hours, but sometimes it’s based on having grown to prefer binging a series. This can be especially true with shows running a storyline through an entire season. If the storyline requires some slower episodes to build the plot, a lot of people have discovered the “dragging” parts of a season don’t feel like they’re dragging while binging in the same way they did when they had to wait seven days between episodes. This could lead to problems.

Now, I’m not going to completely do the Chicken Little thing here and claim the sky is absolutely falling, but it might drop a bit for a while. As more people leave cable and dish for streaming or give up shows when they air with the intention of binging them later, shows are going to see their ratings decline. Now, the reality may be more people eventually watching the show then they did in the days before streaming, but- just as it took forever for the old guard to catch up to the idea of streaming itself –the old guard isn’t going to completely figure out the new dynamics of the new business model for a while.

Some things may take hit. I’m not saying this show will, but it seems an example of streaming popularity impacting ratings. I freely admit this is anecdotal evidence, but I’m not in full research mode here. This is more discussion starter.

There’s a great spy spoof on TV called Archer. It had its highest ratings back in 2013 while the ratings for 2014 and 2015 saw declines. The weird thing about that for me is the show seems to have become more well-known and even more popular in the last year than it was in 2013. I know more people who have seen the show and love it now than I did a few years ago. I saw more Archer cosplays popping up at conventions ranging from smaller local shows to Dragon Con in 2015 than I saw in the previous three years combined.

When I’d talked to a lot of people this last year about Archer, they had only discovered it in the prior 12 to 18 months by binging it on Netflix. Many of them also, while loving the show, said they weren’t watching the show’s newest season on FX or FXX as waiting for the new season to hit streaming was seen as more convenient. It seems like a show that’s bigger now than it was in 2013, but it doesn’t reflect that apparent popularity in the ratings for the show on the channel it airs on. There are probably a number of examples like this- some apocryphal, some verifiable –all across the television landscape.

This might not be a huge problem when you have barely a handful of streaming services. But we’re now seeing the growth of an industry. We’re seeing everyone trying to get into the act these days. There’s a possibility the growing cord cutting and binging nature of streaming could impact the original sources for what people are waiting on to binge.

Yes, eventually technology will catch up with regards to accurately tracking all forms of viewing, but there’s a short term issue with some things until the tech actually does catch up. But even then, there’s still a problem with that.

In the sometimes slow to change or respond to the times system we have, ratings make for bigger advertising dollars and advertising dollars help to pay for the shows. There’s no ad money in most streaming services, so advertisers won’t care how many millions of people watch a show on Netflix or another service like it. The worse the cable companies make it, the more desirable cutting the cord becomes, the more it will hit some shows in the short run. That could impact the potential production of content.

But that’s not even the biggest headache on the horizon.

Netflix (and Hulu after it) has grown so successful that everyone wants their version of the Netflix model now. Showtime and HBO made waves when they pulled some of their more popular properties from Netflix while stating their intention to begin their own form of streaming/on demand service. Others have been following this path with more being discussed for down the road.

Just in the last few weeks there’s been noise about hot genre shows from the CW being removed from Netflix down the road (and possibly Hulu after that) because of CBS and Time Warner both wanting to start a streaming service for the CW with the offer of being able to see both new shows as they air and having exclusive access to a back catalogue of prior seasons and older shows. Netflix and Hulu also just lost Doctor Who because BBC Worldwide is talking about starting a streaming/VOD service.

And Hulu may soon be impacted in a different way. Time Warner, rather than making its cable empire more desirable and user friendly, is looking into the possibility of acquiring 25 percent or more of Hulu. Their goal is to remove what they see as the harmful to cable business practice of having current episodes of shows available almost immediately after they air. Their plan would be to put a delay in place so that no episodes of a current season would hit Hulu until sometime after the season finale airs. While this might dampen enthusiasm for some cord cutters to subscribe to Hulu, it would ultimately do little to fix the root cause of cord cutting. But that’s the old tech mentality.

If you look into the various streaming services that are now out there as well as the ones being seriously proposed, it’s getting to be quite a large collection of “channels” available for subscription. Most of the prices that are out there now or being discussed range from around $5 to $15. That’s not a lot when you say it like that, but, as with everything, it starts to add up. Added in to the mix is the above mentioned streaming original programming. Netflix and Amazon are making a lot of heads turn with some amazingly good original programming, and others, such as CBS with the upcoming Star Trek series, are looking to create reasons why their service should be your service. But with everything that will be out there, again, it’ll start adding up if you want to catch all your favorites.

This is the interesting cord cutting conundrum. A lot of people are turning their backs on the old way of watching TV, ditching dishes and cable cords, and making streaming services the next big thing. But a big part of why they are doing that is cost combined with access to more things they actually want to see. As major media companies scramble to splinter the pie while in pursuit of their slice of it, cord cutters may suddenly be faced with the same problem they were once leaving behind. In order to watch all the things they most want to see, they may be dropping a huge wad of cash each month for a ton of “channels” that only have a limited number of actual draws airing on each of them.

Now, all of these streaming services are not going to last. Some will collapse due to limited desire and their content will perhaps all make its way back to things like Netflix. Some may eventually become merged as various companies buy and sell bits of their businesses. But the odds are we’ll be looking at a somewhat substantial selection with a hefty price tag attached to getting what you want.

The fun part with this is how it’s not even addressing the creation of content as we’ve long known it. A lot of the television people love to stream and binge was created old school for either rabbit ears TV (old or digital) or cable channels. A part of why the selection for the major streaming services we have had is both so large and so (relatively) inexpensive is because the lion’s share of the costs for the shows has already been paid for the old fashioned way. If the old system reduces or falls by the wayside, the Golden Age of streaming is likely going to become the current age of cable.

It will have to become that. We’ll likely be paying higher fees for steaming services that will have programming with commercial interruptions and that will have their programming based on the best ratings grabbing and ad revenue drawing shows. We’ll be spending lots of cash on services to see everything we want to see rather than on cable and dish tiers. It’s a likely inevitable progression because new content costs money and new content in the quantities we’re accustomed to is dependent on a lot of the things in place in the old school system. The likely only way we’re seeing the level of new content we’re used to continue on as the new medium takes over is by making the new medium more like the old one.

The “Netflix Model” is, unfortunately, likely a model that worked best when it was born into the old media environment where few of the entertainment powers that be saw value in it and it could draw huge amounts of content from the old school content providers. If you both splinter the system and pull viewers away from the old school medium, you have to generate the revenue to cover the new content creation in the only viable ways- ad revenue and increased subscription fees.

Well, they might not have to, but they will. That major obstacle for buyer friendly fixes I mentioned getting to above? This is it. I actually touched on it above though.

Netflix itself was a new media, new technology creation. That’s what its creators intended it to be. The problem with most of the other streaming services out there is that’s not who runs their companies. As with Time Warner, they see the biggest bang for their buck still being the old school model. They’re still so invested in that model that they’re willing to buy into the new model just to slow it down and reduce its level of attractiveness.

Eventually the newer streaming services will take over, but, at least for now and the foreseeable future, they’re likely being run by companies that see them as secondary profit to be made additional to their cable and dish networks and not primary profit to be made in place of their cable and dish networks. Their primary concern likely isn’t higher streaming customer satisfaction, but rather making more money on their content by owning a Netflix style of service than they would licensing the same content to a Netflix style of business.

For the various older entertainment companies that exist now, for the old guard that run them, the Golden Goose is still the old medium. They’re not going to willingly kill their own Golden Goose. If they feel they can’t adequately protect the Golden Goose by shaving away some of the offerings services like Netflix or Hulu can provide, they will, as Time Warner and Comcast have done, look into ways of hiking fees on internet service or limiting such service in areas where they’re still essentially the only option in town.

Right now is still a pretty good era for the cord cutters and the binging junkies, but we all better enjoy it while it lasts. Looking at how the landscape is changing, I don’t think the Netflix model as we’ve known it will remain viable. I don’t think many with the old guard mentality still in charge at the current media giants will actually let it remain viable over the short term. It will probably become something closer to what we all wish it could be some time down the road. The simple fact of the march of technology will push it there eventually, but I have bad feeling the transition period is going to be longer and rougher than most of us care to think it will be.

Jerry Chandler is a serious horror geek with a lifelong love of trying to find books and movies that can scare the spit out of him. When not watching and reading horror, he can sometimes be found helping to make horror with his filmmaking family in NC, Adrenalin Productions. He loves Halloween slightly more than Christmas, and almost as much as Dragon Con. When not writing here, he can be found at his other homes on the web by looking at his own blog, his Twitter, and his Facebook.

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