Tech Briefing - Netflix

For those of us who, well, exist, Netflix is not something that needs to be explained. It’s how we watch Movies and TV shows. 

For years, though, the streaming giant that has, today, revolutionized the entertainment industry was merely a novelty -- a way for the meticulous to streamline and simplify stay at home movie nights. Carve out a few minutes of your day on Wednesday, click a few buttons on your computer, have a movie in your mailbox by Friday. Within a few years, Netflix successfully cornered the physical video-rental market, sending Blockbuster and Hollywood Video -- once profitable companies who scoffed at the concept of having DVDs sent to you via mail -- into a downward spiral that culminated in both of their filing for the 'bad' kind of bankruptcy (Chapter 7 -- except Blockbuster sidestepped the liquidation process through a hail-mary deal with Dish Network).

When Reed Hastings launched Netflix back in 1997 -- he didn't have his sights set on obsoleting an industry (and destroying two hundred-million dollar companies in the process) -- his goal was, and still is, to revolutionize and disrupt entertainment. He wanted to bring one of the first industries to cash in on technology, in entertainment, up to speed with the digital age. Hollywood will be the first, albeit the most salesman-like, to admit that the studios are not built to keep speed with today's innovation curve. For years, studios have run via antiquated, legacy processes that leak inefficiencies from its poorly patched over seams. It was only a matter of time before someone realized that the customers of the industry, the ones who ultimately determine how the industry will spend its money, are hungry to consume TV and Movies the same way they do everything else -- via their devices. Netflix was the first to open these floodgates, and, since they introduced streaming in 2007, studios have been either playing catch up by thinking up ways to compete with Netflix, or thinking up ways they can ensure Netflix doesn't impact its core businesses -- production and distribution -- and thus its core revenue.

Fortunately for the studios, for many years, it seemed like Netflix was only going to impact the rental companies. Netflix being there actually helped them. By allowing customers to have content at their fingertips at all times, Netflix gave the studios a new vehicle for their films to find niche audiences. Netflix also materialized the renaissance of television that HBO ushered in nearly 20 years ago with The Sopranos, and its ensuing stream of film-grade television series. The ability to have a series on Netflix, as evidenced by the Flix-induced colossal popularity of shows like Breaking Bad,  gave financial justification to the investment it would take to produce a series with the quality of resources studios do for feature films.

Kevin Spacey (L), Robin Wright, and Netflix CEO Reed Hastings (R)

At some point, it's hard to tell when, Netflix got wise to the fact that its platform had become a cash cow for nearly every network, and it reacted by making the landmark decision to produce its first piece of original content: House of Cards. To many consumers, this decision was surprising and unwelcome, but the proof was in the pudding, as the series proved to be an enormous critical success -- due in large part by its A-List leading man (Kevin Spacey) and director (David Fincher - The Social Network, Gone Girl). HOC opened the door -- not just for Netflix, but all streaming services (Amazon, Hulu, etc.) -- to produce original content. The obvious threat here, now, is directly to the studios. Although HOC was a TV show, this was evidence that they had the resources and infrastructure to undercut the entire industry's robust process by packaging every piece of it -- from pre-production to distribution -- in one place.

Since the 2013 release of HOC Netflix has released over 100 more original productions, including a handful of feature films (most notably Beasts of No Nation). None of them have been released in theaters. The conundrum, though, is that the film industry -- from the perspective of revenue -- has been growing rather consistently, and is projected to continue to do so (by accounting firm PWC) through at least 2019.

US Film Industry Total Revenue - Actual and Projected (2010 - 2019)

So, then, what should the studios do? Stop releasing films in theaters? The answer, at least in the short term, is absolutely not. global box office, not just industry revenue, has been steadily climbing, too, and shows no signs of slowing down. And, the lone streaming service that has seen some tangible success in feature film production, Amazon, has done so primarily because its chosen to expose audiences to its films via theaters before allowing them to stream on their devices (this has been true for the class of films that studios are worried about streaming services taking away from theaters, like this years heralded Manchester by the Sea).

While Netflix has certainly revolutionized entertainment for good, and will likely have a more substantial impact on the film industry than we've seen, it doesn't appear like it will do away with theaters any time soon, so, in that respect, it seems like the studios have little to fear.

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Sources:

Variety

Fortune

TV.com