Netflix
How Netflix’s Content Strategy Works, Even When It Doesn’t
To me, the most fascinating part of Netflix’s earnings release for the past quarter [PDF] is the section on original programming:
One way to think of originals is in terms of brand halo. If we are able to generate critical success for our originals, it will elevate our consumer brand and drive incremental members to the service. That took HBO nearly a decade to accomplish, so we don’t expect overnight results. The breadth of media coverage we already get, though, for the highly anticipated new season of “Arrested Development”, as well as for “Lilyhammer” and “House of Cards”, has been great.
In marketing, this kind of press coverage is sometimes called “earned media.” In particular, original programming ideally gets Netflix media coverage both in places that always cover the company and in places that never did before.
Another way to think of originals is vertical integration; can we remove enough inefficiency from the show launch process that we can acquire content more cheaply through licensing shows directly rather than going through distributors who have already launched a show? Our on-demand and personalized platform means that we don’t have to assemble a mass audience at say, 8pm on Sunday, to watch the first episode. Instead, we can give producers the opportunity to deliver us great serialized shows and we can cost-efficiently build demand over time, with members discovering these new franchises much in the same way they’ve discovered and come to love shows like “Mad Men” and “Breaking Bad.” In this regard, we are happy to report that in terms of cost per viewing hour, which is how we evaluate content efficiency, “Lilyhammer” so far performs in line with similar premium exclusive content that we currently license.
As Nav and Robin point out, “cost per viewing hour” is both really fascinating and really pointless. (Maybe it’s fascinating because it’s pointless.)
You could say, “who cares how much people WATCH any particular show?” It doesn’t make you any extra money. What matters is whether that content makes people fork over their cash each month — if a family gets or keeps their Netflix subscription precisely because they can watch new seasons of Arrested Development or the whole back catalog of Mad Men.
But that’s almost impossible to measure. And these are edge cases, to say the least. More people aren’t going to make this decision hinge entirely on a single piece of content, or even a whole passel of it, like Starz’s. It’s an aggregate thing — you want to feel like you’re getting value out of the service. And cost per viewing hour doesn’t seem like a bad way of doing that.
It’s definitely a good way for Netflix, which doesn’t have unlimited resources, to think about how it’s going to spend its money. (Maybe it spent too much money on Mad Men.) Netflix wants programs that are beloved, not beliked. And if it can get them for less than HBO is spending for the same kind of content, that’s even better.
Finally, a third way to think about originals is as a hedge, in case, say, FX chooses not to license us prior seasons of their next hit as good as “Sons of Anarchy”. FX in this case would seek to monetize prior seasons of their next hit in parallel to how HBO does, in other words, only on “FX GO”. As long as we can better monetize prior seasons, through both scale and technology, than anyone else, then this scenario is not likely, except from a premium TV competitor like HBO that is strategically motivated to impede our growth.
Oh ho ho, Netflix, you wascally wabbit.
Hmm, you want to try to do your own thing and syndicate yourself online? Good luck with that. It’d be a shame if it turned out you weren’t able to make any money doing that.
Netflix can go to networks and say “we can make more money from your old content than you’ll ever make yourself.” It can go to creators of new shows, and say “we can make you money online, forever, and FX can’t do that.” Networks that don’t have HBO scale have extra reasons to play nice with Netflix.
As we build our capability in originals, we will have some advantages relative to our competitors. Namely, we have extensive user viewing history and ratings data to allow us to better understand potential appeal of future programs, as well as a very broad and already segmented audience. At the same time, we don’t face the same pressure as linear or ad-supported online networks to deliver ratings. Finally, we should be able to use our size and international scale to bring the best original and exclusive content from anywhere in the world to anywhere in the world. This is a real advantage over our regional competitors.
Two constant themes in all my tech writing come together here:
- Global, global, global;
- Whoever knows customers best wins.
It’s a good day for Netflix. I don’t know exactly what the stock market is up to, or how it will react in the long run, but it feels like Reed Hastings knows what he’s doing again.
Disclosure: Robin Sloan owns one share of Netflix stock.
The Western 101, via Netflix Watch Instantly
I love Westerns. My allegiance to the genre has long been known on the Snarkmatrix. (I refer you to the comment threads on Exhibit A or Exhibit B.) So I am excited that people are excited by Joel and Ethan Coen’s new Western, True Grit.
And jeez, I hope I get a few hours by myself in the next week or so to see this movie. Parenting is a serious drag on your ability to partake of the cinema, which is one reason I’ve become such a devotée of Netflix Watch Instantly. I didn’t even get to catch the restored Metropolis when it came to town, and I had only A) waited months for it and B) written a chapter of my dissertation about its director. So I don’t know if True Grit is as good as everyone says it is. What I do know, what I know the hell out of, are Westerns, and Netflix. If you don’t know Westerns, that’s fine. So long as you’ve got a Netflix subscription and streaming internet, I’ve got your back.
You probably know that True Grit (2010) is an adaptation of the same Charles Portis novel (True Grit) that was previously adapted into a movie [True Grit (1969)] that won John Wayne a Best Actor Oscar for his portrayal of the eyepatched marshal Rooster Cogburn. It’s not a remake, you’ve heard entoned, it’s a more-faithful adaptation of the novel.
Fine. Who cares? At a certain point, remakes and adaptations stop being remakes and adaptations. Does anyone care that His Girl Friday was a gender-swapping adaptation of The Front Page, a terrific Ben Hecht and Charles McArthur play which had already been made into a movie in 1931, and which was made into a movie again in 1974 with Billy Wilder directing and Walter Matthau and Jack Lemmon playing the Cary Grant and Rosalind Russell roles?
Okay, I do. But besides me, not really. Because His Girl Friday obliterated The Front Page in our movie-watching conciousness, even though the latter is the prototype of every fast-talking newspaper comedy from, shit, His Girl Friday to the Coen Brothers’ The Hudsucker Proxy. It’s been over forty years since True Grit (1969). It’s a good movie, but if you haven’t seen it, don’t sweat it too much.
You should, however, be sweating the Western. Because not least among their virtues is that Joel and Ethan Coen care and care deeply about genre. Virtually all of their movies are a loving pastiche of one genre form or another, whether playful (like Hudsucker’s newspaper comedy or The Big Lebowski’s skewed take on the hardboiled detective), not so playful (No Country For Old Men) or both somehow at once (Miller’s Crossing, Fargo). And the Western is fickle. You’ve got to contend with books, movies, radio, and TV, all with their own assumptions, all alternating giddy hats-and-badges-and-guns-and-horses entertainment and stone-serious edge-of-civilization Greek-tragedy-meets-American-origin-stories primal rites.
I’ll save you some time, though, by giving you just twelve links, briefly annotated.
Read the rest of this entry »
Here’s another analogy
Publishers trying to sell ad space inside their books is like the producers of a TV show selling the commercials that air during the show, or the director of a film picking the previews that appear before the movie starts.
I mean, maybe there are some interesting, creative things you could do with that on a case-by-case basis, that would really add something to the total experience. And product placement (in books, TV, or movies) is something else altogether, because it needs to be incorporated into the narrative flow. But there’s a reason why we have TV networks, movie studios, and theater programmers. They’re really good at these things. In fact, some of them, like Nick Jr, are really good at marketing and incorporating ads in books and DVDs, too. So are Apple and Amazon. People on the creative side aren’t. (And yes, I’m including book publishers in the “creative” camp.)
If anything, even as traditional broadcast television might be beginning a slow decline, we’re seeing the metastasis of the television network model. Netflix, particularly since Watch Instantly, is more like HBO than it’s like Blockbuster. People talk about it the same way; “ooh, did you see that they’re showing all three Die Hards on Netflix?” Someone pointed out recently that Netflix has started producing their own original content. Zach Galifinakis had a comedy special released on DVD exclusively to Netflix. You could say the same thing about Hulu, which is trying to figure out whether it should be Showtime or Fox.
Amazon and Apple are like TV networks too, and not just for video. They’re the channels you tune to to get what you want. The difference is that in the digital age, content frequently appears in more than one place. But 1) that’s usually NOT true for what Apple sells, and Amazon’s been pushing for more exclusive deals too.
Twitter, too, isn’t microblogging or an archive of content — it’s a broadcast channel that carries its own water-cooler. And in blogs, Gawker (which already actually is a media network, including Gawker TV) is redesigning itself for bigger screens. highlighting “must-see” content to catch casual drop-in readers, a synthesis of blogs, magazines, and television
So that’s the new world: no more dot-coms, no more blogs, no more revolutionary retailers.* Instead, it’s all channels. We TiVo a handful of favorites and let ourselves flick through the rest.
* Obviously, all of these things will continue to exist and thrive. It’s just these are no longer the only metaphors/terms of art we have to talk about these emerging powers.
What’s next for TV?
In a post yesterday, I offhandedly referred to “giving up TV.” But like giving up Facebook, very few of us have actually given up TV. What’s happened instead is that (like with Facebook), TV has become a problem.
Sure — historically, TV has probably lost whatever monopoly it had on our total cognitive-surplus, staring-at-screen time. It also may have lost a fair degree of its cognitive priority. For instance, when I recently needed to cut some money from my monthly household budget, I dropped my cable TV, switched the internet to DSL, and kept my phone’s data plan — not the decision I would have made three years ago.
But I probably watch more TV than ever now. It’s just coming in the form of DVDs, video games and Netflix streaming on my Wii, and catching up via Hulu, The Daily Show, etc. on my computer. But — wait. See what I just did there? I just ran together everything I do on the big, stationary screen that sits in my living room (called a television) and the short-to-medium form video originally broadcast for that screen, but which I can’t watch there (called television). And both big, stationary screens that we watch from 6–10 feet away and short-to-medium form broadcast video seem to have a pretty firm lock on our psyches and social practice. They’re powerful, versatile, and fun.
One of the things I loved from the Steve Jobs/Bill Gates joint appearance at D5 a few years ago — a really illuminating talk that I periodically return to, that holds up well and has new resonances now — is how they analyze the natural form factors for digital media. And it sort of divides pretty cleanly, with Jobs (big hit then: iPhone) focusing more on smaller forms and Gates (big hit then: XBox) on bigger ones. Gates, I think, doesn’t get enough credit for his vision here:
Walt: What’s your device in five years that you rely on the most?
Bill: I don’t think you’ll have one device. I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that.
Kara: Light.
Bill: Yeah. I mean, I believe in the tablet form factor. I think you’ll have voice. I think you’ll have ink. You’ll have some way of having a hardware keyboard and some settings for that. And then you’ll have the device that fits in your pocket, which the whole notion of how much function should you combine in there, you know, there’s navigation computers, there’s media, there’s phone. Technology is letting us put more things in there, but then again, you really want to tune it so people know what they expect. So there’s quite a bit of experimentation in that pocket-size device. But I think those are natural form factors and that we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.
Kara: And then at home, you’d have a setup that they all plug into?
Bill: Well, home, you’ll have your living room, which is your 10-foot experience, and that’s connected up to the Internet and there you’ll have gaming and entertainment and there’s a lot of experimentation in terms of what content looks like in that world. And then in your den, you’ll have something a lot like you have at your desk at work. You know, the view is that every horizontal and vertical surface will have a projector so you can put information, you know, your desk can be a surface that you can sit and manipulate things.
That idea of “the 10-foot experience” is really powerful to me — even though my living room and TV set are clearly a lot smaller than Bill Gates’s. And the whole point of it is that it’s heterogeneous and versatile — not just in terms of the kinds of machines and platforms that run on them, but in terms of the use of the space itself.
And here’s Jobs, equally visionary, if not more so. (Apologies again for the long blockquote, I like the banter.)
Walt: So what’s your five-year outlook at the devices you’ll carry?
Steve: You know, it’s interesting. The PC has proved to be very resilient because, as Bill said earlier, I mean, the death of the PC has been predicted every few years.
Walt: And here when you’re saying PC, you mean personal computer in general, not just Windows PCs?
Steve: I mean, personal computer in general.
Walt: Yeah, OK.
Steve: And, you know, there was the age of productivity, if you will, you know, the spreadsheets and word processors and that kind of got the whole industry moving. And it kind of plateaued for a while and was getting a little stale and then the Internet came along and everybody needed more powerful computers to get on the Internet, browsers came along, and it was this whole Internet age that came along, access to the Internet. And then some number of years ago, you could start to see that the PC that was taken for granted, things had kind of plateaued a little bit, innovation-wise, at least. And then I think this whole notion of the PC–we called it the digital hub, but you can call it anything you want, sort of the multimedia center of the house, started to take off with digital cameras and digital camcorders and sharing things over the Internet and kind of needing a repository for all that stuff and it was reborn again as sort of the hub of your digital life.
And you can sort of see that there’s something starting again. It’s not clear exactly what it is, but it will be the PC maybe used a little more tightly coupled with some back-end Internet services and some things like that. And, of course, PCs are going mobile in an ever greater degree.
So I think the PC is going to continue. This general purpose device is going to continue to be with us and morph with us, whether it’s a tablet or a notebook or, you know, a big curved desktop that you have at your house or whatever it might be. So I think that’ll be something that most people have, at least in this society. In others, maybe not, but certainly in this one.
But then there’s an explosion that’s starting to happen in what you call post-PC devices, right? You can call the iPod one of them. There’s a lot of things that are not…
Walt: You can get into trouble for using that term. I want you to know that.
Steve: What?
Walt: I’m kidding. Post-PC devices.
Steve: Why?
Walt: People write letters to the editor, they complain about it. Anyway, go ahead.
Steve: Okay. Well, anyway, I think there’s just a category of devices that aren’t as general purpose, that are really more focused on specific functions, whether they’re phones or iPods or Zunes or what have you. And I think that category of devices is going to continue to be very innovative and we’re going to see lots of them.
Kara: Give me an example of what that would be.
Steve: Well, an iPod as a post-PC…
Kara: Well, yeah.
Steve: A phone as a post-PC device.
Walt: Is the iPhone and some of these other smart phones–and I know you believe that the iPhone is much better than these other smart phones at the moment, but are these things–aren’t they really just computers in a different form factor? I mean, when we use the word phone, it sounds like…
Steve: We’re getting to the point where everything’s a computer in a different form factor. So what, right? So what if it’s built with a computer inside it? It doesn’t matter. It’s, what is it? How do you use it? You know, how does the consumer approach it? And so who cares what’s inside it anymore?
And that sort of seems to be where we stand right now when it comes to TV: caught between all of the different services and hardware devices competing for that 10-foot experience and the emergent category of these post-PC, video-capable handheld devices — tablets, phones, game consoles, plus the screen of your laptop/desktop PC in the middle.
There are a couple of things from Jobs’s appearance at this year’s conference, D8, that follow up on this exchange. The first, which was better publicized, was Jobs’s comparison of post-PCs like the iPhone and iPad and traditional laptop and desktop PCs to cars and trucks, respectively. The analogy being — just as in the early 1900s, most cars were initially trucks, then smaller cars emerged that were better tailored for urban and suburban living, smaller, post-PC devices like the iPad weren’t going to eliminate traditional PCs, but would gradually replace them as the dominant form of consumer computing. It’s a powerful, provocative idea; 2007 Jobs was clearly more skeptical towards it, more inclined to think that the PC was going to morph into something else.
The other is Jobs’s discussion of the balkanization of the television business — that is, the business of getting content to those screens, not the content providers as such: the multiplicity of settop boxes and lack of genuinely national providers or international standards that prevented any company, from Apple to Google to TiVo, however technologically sophisticated, from rolling out a clear go-to-market strategy. This, I think, does seem to explain why, despite all of the local innovations in DVRs, net-connected game consoles, streaming content, and so forth, TV still seems to be forever putting the pieces together.
Last, finally, is the whole consumption/production imbroglio that similarly washed over the iPad. Is the TV space “merely” a space for consumption? Is that a bad thing? Or could there be new/emergent ways to create/contribute/share/connect there, too?
What do you think? What’s next for TV?