Maybe it’s time to switch that fire truck red login page into a shade of black and blue.
After a half-decade of nearly unbroken media exaltation and financial success (let’s pause here, though, to remember the [not] dearly departed Qwikster), Netflix has seemingly had the worst week of its reign as the face of online streaming. While the past month did bring word of a couple of high-profile nostalgic gets – the fast-talking Gilmore gals and ‘90s megatron Friends – that kept the HuffPost and BuzzFeed contingent giddy, an Enola Gay appeared over the horizon with some serious metaphorical payload.
The world of internet streaming went nuclear this past week thanks to Netflix nemesis HBO. The Time Warner-owned network revealed its plans to free their popular HBOGo platform from its cable chains sometime in 2015, remaking it into a standalone internet service available for purchase WITH NO CABLE SUBSCRIPTION NEEDED. In less than a year, cord-cutters, cord-nevers and the cost-conscious will all be able to get their fill of avowed Lincoln drivers and greatest shows on television without having to begrudgingly cover the costs of Sundance TV and ESPN. And the way media consumption has evolved, why wouldn’t HBO do this? A network as nimble, forward-looking and iconoclastic as HBO has enough cachet to trade some of their aura of exclusivity for a seat at the online buffet. HBO’s opening salvo, however, became a really big deal when the slow and steady, older-skewing, over-the-airwaves behemoth CBS unveiled their own streaming service CBS All Access the next day. CBS isn’t hip. It’s already the most watched network on free, available-to-all-Americans network TV and has been for a while now. Realistically, CBS has never cared about being hip. Les Moonves only cares about making money. And yet they still felt the need to go digital as well. Television as we know it is dead. Long live the internet.
So where does that leave the OG of the online television revolution now? Will a smelly cat be enough? To his credit, Netflix CEO Reed Hastings has publicly embraced the changing landscape saying during an earnings webcast earlier this spring,
“There are multiple networks out there. It’s a very much not a zero-sum game and we are building this ecosystem together that’s about Internet video and the more players there are in Internet video, the bigger that ecosystem gets.”
Wall Street really doesn’t agree, sending Netflix shares down sharply on the double blow of the HBO/CBS news and less than expected subscriber growth.
For once in their lives, it’s likely that the Wharton grads got something right.
Up until now, Netflix’s success was pinned on a few key factors. 1) It created a whole new market-segment in entertainment. 2) It was a one-stop shop you could get to from the comfort of one’s own couch. 3) A relatively cheap monthly fee got you tons of content (not A-list content at first, but the enough cult-classics and old favorites to satisfy the average subscriber). As Netflix grew, though, a couple of things started to happen. On one side, people began to clamor for titles they, you know, actually wanted to watch. New and shiny things preferably not form the B-side of the 90s and early Aughts. On the other side, content owners who previously just wanted whatever extra money they could get for their old stuff began to understand the true worth of on-demand viewing. They wanted a bigger piece of the action. Subsequently, Netflix watched its costs spiral upwards ($3 billion in licensing obligations in 2014) just to renew existing agreements, not to mention garnering any new content for its service. The internet pie may be big, but not everyone was going to give away their pieces quite so easily anymore.
Despite always being a generally good aggregator of content considering (and despite of) its outsider origins, Netflix has never had top of the line shows and movies in their catalogue. The B+ stuff they actually could strike deals for came at a heavy cost. With a capital B. And some content (such as the HBO back catalogue) was always frustratingly out of reach for Netflix and subscribers alike. Now, with major content generating players like HBO and CBS breaking into the online game, it is only a matter of time before the likes of AMC and NBC follow. If AMC has its own service, will they allow the next Breaking Bad to appear on Netflix soon after the season airs? Or, as is most likely the case, will that exclusive 3 year window go to some new AMC online platform? The answer is already being written. When The Simpsons syndication rights came up last year, and South Park this year, what may have been slam dunk back catalogue pickups for Netflix 5 years ago went to Fox and Hulu respectively. The chefs have begun to take their dishes from the Netflix buffet to open their own restaurants.
In Netflix’s defense, they haven’t sat around twiddling their thumbs while their kingdom crumbles around them. The service has expanded aggressively into international markets to increase the subscriber base. Germany, Belgium, Luxembourg and Switzerland are a few of the countries being brought into the fold this year. The company has also tested out price increases for its service to keep revenue up and Wall Street happy. A $1 price increase for new accounts went into effect in spring to help defray the aforementioned costs. And despite the rising costs, Netflix still has been able to strike deals to bring whole series runs to their library like the aforementioned Friends and Gilmore Girls.
But most importantly and visibly, Netflix has already pivoted the way HBO did, in the opposite direction by moving away from just delivery into the content game themselves. House of Cards, Orange Is the New Black, new seasons of existing properties like The Killing and Arrested Development were carefully curated to bring new subscribers to Netflix without having to give other greedy companies a cut. By spending the money previously used on licensing to create their own shows, Netflix could afford to skip out on some recent opportunities to buy as it had developed its own hits and Emmy-nominated entertainment. Bringing all 500+ episodes of The Simpsons becomes somewhat less important when people are subscribing not for nostalgic reasons, but to watch the au courant Orange.
But therein lies the problem, does it not? Instead of just being a novel delivery apparatus that prints money, sitting back and reveling in its cool factor, Netflix has become something new. Or has it? The company is now invested in spending its own money to create, distribute and own programming. None of the new programming has been syndicated yet (giving Netflix an outside source of income outside of raising prices) And for every House of Cards, there will inevitably be a Hemlock Grove. Does this kind of entertainment model sound familiar to you? While HBO and the rest jump the cable moat and head for a computer, phone or tablet near you, to survive, Netflix is turning into something that it never started out to be: a cable network.