- Netflix has 5-6 Billion USD free cash flow, and because they got what debt they do have under favorable terms, they are positioned to retain most of that free cash flow
- Disney, Comcast (Peacock), CBS/Viacom and other media corporations are saddled with debt, and are all losing money on their own independent streaming businesses. Likely untenable in their shareholder model
- Therefore, Netflix needs to do what it can to retain / attract subscribers, but essentially can wait until the other services have to give up due to cost
In a nutshell, Netflix is poised to play more long game, due to cost structures of their competitors.
so fair, sounds good, but it assumes the boards / leadership of these companies won't also play a long game, seeing some sort of profitability horizon is they cannibalize their existing businesses for sticky services (like streaming). I could see Disney doing this, to some extent, with their cable TV channels and movies. I'm less bullish on Comcast/NBC, CBS/Viacom or really any other media company being able to do this, simply because they don't have the "staying power" Disney does.
This also fails to account for the strength of HBO Max (very strong sub numbers)
What I don't understand is how e.g. Disney+ is losing so much money. It's Disney's content, has an enormous userbase, and somehow is bleeding billions?
That is partly the problem. You spend hundreds of millions to make blockbuster movies and then release it on Disney+ in a few months for free (or sometimes directly). That costs money. Add to that over reliance on only Disney content creates two problems:
1. You can’t have enough new content every month, subscribers therefore don’t keep the subscription year round.
2. You have to pay money to create content. Vs the ability to buy content for cheap or add it for a few months.
On top of that, Disney overseas also includes live sports in their packages which can get expensive.
On top of the... 'opportunity cost' of not licensing out content that otherwise would have went to Netflix, ABC, whoever.
If previously Disney made Daredevil and 'sold' it to Netflix for $1m (hypothetically), but now you're holding that back to stream yourself, you've got to account for that missing $1m somehow.
Depending on how org and financials are structured Disney+ may need to purchase Daredevil from the other part of Disney for $1m, which is recognising that opportunity cost.
These deals can be complex. Consider if you were going to make a movie, and were shopping it around to studios.
If Studio A was like "we'll give you a 10% cut of whatever we then license it for for streaming" and Disney was like "we're gonna stream it on our own platform for free, sorry" that's a negotiation problem for Disney. So selling internally at market rate is a good thing for relationships with external creators and partners.
yes and no. The problem is if last year they earned $1m from it by it being on Netflix. Moving it to their own streaming platform will look like a $1m less revenue.
You don't, however Disney was making this money before as they were directly licensing it to these services, so it's not just opportunity cost, but actual lost revenue when compared to previous years.
Not to be pedantic (ok a little bit), but you don't normally include any costs on your balance sheet, but you might want to include them on your income statement.
That’s not entirely true. Disney+ is partially losing money because of “transfer payments”. Disney+ has to “pay” Disney studios the market rate for the right to stream a movie. Of course the money mostly flows up to Disney. But from an accounting standpoint, Disney+ can’t say it’s profitable by getting movies for free from Disney studios and cause Disney studios to lose potential profits they could have made elsewhere.
There are also revenue share agreements that are involved with actors. That are still taken into accounts
> You can’t have enough new content every month, subscribers therefore don’t keep the subscription year round
That’s not strictly true either for kids content. You can keep recycling content to kids for years and kids will rewatch the same thing.
Disney has been making money off the same animated content for over half a century. To a first approximation, no one cares about Netflix’s back catalog.
There’s no where else to say this, but for wholesome kids entertainment, Bluey is hard to beat. Every 10 minute episode is basically a guide on how to play. Kids love it. Parents relearn how to play. It’s so charming and ridiculous. Totally worth the money.
Fair warning there is a Bluey episode where the kids push their father down steps. A day after watching one of my wards pushed someone down the steps :/
I have some beef with how Bluey depicts the parents as stooges to be toyed with and manipulated as the kids see fit, with little pushback from the parents. In the end there's generally some kind of lesson to be learned, but the parents go along with pretty much anything the kids propose.
> To a first approximation, no one cares about Netflix’s back catalog.
People would care more, if Netflix would stop cancelling everything. I'm not sure they realize how much they're killing their own backcatalog revenue by making everything a one/two season max.
If I can go on another tangent I would just like to recommend Octonauts. It is charming, funny and clever show. My 5 year old daughter loves it and she would like to have a Tweak costume.
I can't stand many kid shows, but this one even I can love. It is incredible for me how Octonauts are not pretentious, like so many "science!" shows for kids are.
I would recommend it for children also. My kids have learned a decent amount from having watched it, unlike many other shows without any real educational content.
And they keep pulling stuff down or putting stuff up. I don't need artificial scarcity, I want access, just as I want to listen to a song on Spotify when I really want to hear it without being told its no longer available with my subscription. I'm subscribing to the Disney library and most of the time half of it is unavailable.
>You can’t have enough new content every month, subscribers therefore don’t keep the subscription year round.
I suspect that, in addition to ad-supported tiers, we'll see more annual subscriptions or at least subscriptions where annual is sufficiently cheaper on a monthly basis that it's essentially an offer a lot of people can't refuse.
> I suspect that, in addition to ad-supported tiers, we'll see more annual subscriptions or at least subscriptions where annual is sufficiently cheaper on a monthly basis that it's essentially an offer a lot of people can't refuse.
I think they're already experimenting with things like that. I signed up for an annual subscription when Disney+ launched (I knew my wife and kid would love it) and when it came time to renew they offered a "Disney Drop Box" as a reward for signing up for another year. The box was a themed selection of Disney merchandise that they claimed was valued at ~$150, which is probably a stretch, but my kid loved it.
Isn't this basically what amazon does via prime membership? Apples and oranges I guess because it isn't "just" streaming, but does anyone pay this monthly?
along with maybe a broader return to serialization and longer seasons again - but this only really is valuable for shows that capture the zeitgeist, otherwise most people will just wait until the season ends and subscribe for a month to binge and move on.
"1. You can’t have enough new content every month, subscribers therefore don’t keep the subscription year round."
For our household, this is true of all streaming services. We rotate them, or subscribe for short stretches. For example, I got Paramount+ for a couple of months, watched all of the Star Trek content, and then cancelled. Amazon Prime is the exception (because free(-ish) shipping.)
I wonder to what extent the big streaming services are aware of this phenomenon and how they hope to mitigate it.
The services definitely know about this and to a large extent they build it into their model. Every subscription service has a churn model being accounted for.
The services also know that the only thing they can do about this is release enough new content to keep users engaged, or bundle the subscription with other ones.
Hear me out: what if we had like...an hour block where EVERYONE streamed one of the same 15-20 shows at the same time?
Obviously, we'd also need to have a few random catch-up blocks for older shows, maybe in the mid-afternoon. Perhaps we could even do it over the air wirelessly, with no ISPs involved.
Of all the competitors to Netflix, Pluto tv (owned by Paramount) is the most interesting.
Precisely because they built, and continue to optimize, their product around profit:user.
If they can get favorable licensing deals by broadcasting as linear programming... they do it.
If they can get good deals around on demand... they do it.
The end result seems to be that they have many more options to minimizing cost of licensing content, and therefore maximizing the amount of content they can offer a user, versus a pure-play on demand provider.
If Netflix added linear programming "channels", I'd buy their stock tomorrow.
Since I became a parent, waiting for weekly episodes to completely release and then subscribing has become immensely favorable since it turns out I can easily live without being a part of the internet discussion of whatever.
They don't even list all their old content. For example the old Donald duck cartoons, there seem to only be about 15 or so streaming. The rest are not available. Why?
I don't know about Donald Duck cartoons in particular, but I think a lot of those old cartoons are difficult to find because they contain content that the corporation fears might offend somebody. Racist (or arguably so) ethnic caricatures, extreme cartoon violence, that sort of thing.
For instance, the original version of Disney's The Three Little Pigs has the wolf disguising himself as a stereotypical Jewish merchant.
Old cartoons have been whittled down like this for decades. In 1999, Cartoon Network stopped airing anything with Speedy Gonzales because they decided he was an offensive ethnic stereotype. They ended up reversing course when they discovered that Hispanic audiences by and large liked the character.
So, pay someone with good sensitivities to watch the cartoons and decide based on notes. How expensive can that be ?
Or, integrate a feedback system and take down complained-about cartoons quickly. That's probably better since sensitivities change and some perfectly fine items today might be off-limits tomorrow.
Doing nothing is not a great option, even if it's the easiest to implement.
> So, pay someone with good sensitivities to watch the cartoons and decide based on notes.
Maybe they did, and that's why the cartoons aren't available? If you have to cut X% of a show for content, maybe they make the call to cut the show entirely and pretend it doesn't exist, just so they don't have to answer awkward questions about why so much of the show is missing.
In sales there’s a concept where you don’t just sell against competitors, you sell against doing nothing.
What’s the convincing reason for Disney to not simply do nothing? Sell me on Disney digitizing and releasing old cartoons with the salary of at least one person versus doing absolutely nothing.
You also have to sell me on that employee working on the Donald Duck smoking cigars and speaking in a Mid-Atlantic accent archive project versus working on something else. Why is that employee not instead working on The Avengers Versus Guardians of the Galaxy 2: Hulk We Groot Again!”
The sell (though they seem to be avoiding this particular avenue) is that they have become the owners of a LOT of cultural cornerstones and can leverage that content to create something Netflix cannot:
A complete multi-generational back-catalog that is always available to stream.
Netflix’s irrevocable back-catalog can only go as far back as their first Netflix original. Everything else is licensed.
In a romantic sense the idea that a multi-generational back catalog being a profitable pursuit might feel right, but that doesn’t necessarily translate to a marketable product.
Netflix hasn’t needed much of a back catalog to out-earn the competition.
The truth is that back catalogs have the potential to be basically worthless except for a select few “best of the best” classics.
The majority of Disney back catalog content is most certainly not at the level of Snow White or Cinderella. I think about many of their package (anthology) films as a great example of near-unwatchable garbage that only has non-profit historical value.
Media companies quite literally let their back catalogs rot (like the neglect and disinvestment that led to the Universal masters fire of 20008).
While I think your points are valid, I also think that simply making “trusted archive” part of their brand is enough to justify the cost of employees watching through everything and tagging offensive content.
What I don't understand about the movie business is the cost of making them. The most important ingredient to the success of a movie is the plot. We've all seen low budget movies that made lots of money - because of the plot. Casablanca, Psycho, Blair Witch Project, Cloverfield, Primer, ...
Star Trek TOS was a very low budget affair, and produced excellent results, because they hired the best scifi writers. When they threw money at the Star Trek movies, they were all terrible.
The issue is making money. There are lots of low budget movies with good plots that don’t make money (or not a lot of it). While at the same time, they can make the 5th sequel to some shitty comic book video and almost guarantee a few hundred million in profits. Of course movies can tank, but generally they are not stupid and the accounts have it figured out.
If you're going to spent $100 million on a movie, why settle for a boring plot and pedestrian dialog?
I watched the La Brea show for a while. Lots of expensive special effects. But the dialog was just pablum. The characters each talked like they were the same person - using the same words and phrases. They behaved the same, too.
Because bad/simple dialog is way easier for the over 50% of the modern box office that isn’t the US. CGI explosions don’t need to be dubbed/subtitles in 20 or 30 different languages
I quit watching it, mainly because of the execrable dialog. When you want all the main characters to be eaten by a gru, something is wrong with the writing.
I expect the cost of a good writer is a pittance compared with the cost of the production.
> The most important ingredient to the success of a movie is the plot.
Provably false by all the bad sequels which nonetheless made more money than the original¹. If plot were that crucial, movies would consist of a person sitting down reading a book, à la The Invention of Lying². Money matters to commercial success of a film above anything else.
The Invention of Lying makes me sad. I just showed it to someone last week[1]. Great premise, the first half is genuinely funny and then it throws out the whole vibe and turns in to a very cliché critique of religion.
[1] I actually only showed them the first part so we could walk away enjoying it
All substance and no style can work, as your examples prove. But it's also possible to find examples of successful movies which were all style, no substance. For instance the first Avatar (I haven't seen the recent sequel.)
I think the economics of it is basically like, Disney spends so much on creating content that Disney+ just doesn't bring in enough money to cover cost, because users get a subscription to binge / burn thru several things in a single month and then cancel their subscription.
> You can’t have enough new content every month, subscribers therefore don’t keep the subscription year round.
Didn't Disney's CEO talk about getting to the point of having a movie release a day or something like that late last year? The quality might be questionable at that rate.
Content is expensive to produce. Disney+ is not just a streaming platform for existing Disney content, rather, Disney produce content for it. Likewise, Netflix spends most of its money on content, operating the actual platform is comparatively cheap.
Yeah, D+ is churning out an enormous volume of what would be considered prestige content at other services. All the Star Wars and Marvel shows are star-studded and larded with top-tier visual effects. And some of them aren't really getting a lot of viewers from what the rumors say.
TBH this more or less describes the problem at least for me. I'm like 3 Star Wars series behind. Catching up at this point feels more like a chore than entertainment. Forget Marvel.
I agree with this and would add (perhaps partially and naively in the hopes of some Disney executive seeing this) that I feel very little excitement at the idea of watching any more super hero / jedi movies anymore.
Somehow the branding has become severely distorted, so now these movies make me feel like the studio sees me as a barrier between them and my money.
If Disney can once again make me feel like they're producing content because it's what they love to do, and because they love how we enjoy it, then I'll go back to giving them my money.
Marvel seems like it'd be even worse since A) the storylines all intertwine, so you feel like you have "homework" to watch before seeing the latest one, and B) they're all pretty much superhero movies.
With Star Wars, creators can ignore the tired Skywalker storyline, plus there's no genre expectations tying creators down (IMO sci-fi is not a genre so much as a meta-genre or motif). At least in theory--they've been pretty reluctant to spread their wings until recently.
My gosh, I thought Andor was just a horrific bore. I literally couldn't stay awake for it. It felt like about four episodes worth of story stretched out to 12 episodes. I feel like with all the glowing reviews, people are watching it through the lens of being Star Wars universe fans, and not judging it objectively against other content.
I did enjoy the Mandalorian series because at least it had the comic relief of Grogu, if the rest was a bit of a slog.
That's a surprising take considering how little it intersects with the rest of the SW universe. There's no Jedis, no lightsabers maybe one brief space battle and barely any direct overlap with the films. You could come in cold without having seen anything else and still enjoy it. I thought it was outstanding, especially the pacing and suspense of the early episodes. The second half is a lot more action-packed and squeezes in both an epic heist and an emotional jailbreak sequence.
I thought the heist was kind of silly though; the whole strategy was just go in and strong-arm the guards, which is kind of lazy. A more clever "Star Wars-y" approach might have been to create some kind of subterfuge such that they could simply walk in and take the credits without even a challenge.
As far as the jailbreak, I had trouble getting emotionally invested in the outcome, as I found Diego Luna's character to be one-dimensional. Again, the approach was simply shoot your way out.
That's always been an issue with shared universes. I remember trying to follow X-Men in the 90s. You couldn't just read X-men, you had to read Gambit, Wolverine, &c.
Or even just a TV series you didn't watch at the time. For a traditional 1 hour drama on TV, that could be 7 seasons times 20 hours per year even absent any spinoffs. I'm unlikely to catch up on 140 hours of past content.
Add to that the fact that Disney productions feel very formulaic and redundant, and you know you're not really missing anything. Just same ingredients stirred in a different bowl each time.
Even if you are, there's the chance that the glut of the content coming out causes fatigue. I used to really look forward to new Star Wars things because it didn't come out super frequently (a new trilogy of movies every few decades, a TV show here and there), but it was enjoyable. Then they started coming out with a new movie and multiple TV shows year after year, and it just wasn't good enough to justify going out of my way to consume all of it. Marvel stuff seems the same way; I'd generally go to the movies maybe once or twice a year, so when there are half a dozen of them coming out for a single franchise within a year or two, it feels more like work than entertainment to keep up with it all. At this point, I'm not sure I'll _ever_ go to see a Star Wars movie in a theater again, which is extraordinary since even 5 or 6 years ago that would have seemed ludicrous to me.
Totally.. Disney has completely missed the fact that a big part of the pent up love of some of these franchises had to do with people having to wait their entire childhood for a new release. I went to ROTJ for my 7th birthday party. There was no more new Star Wars content till I was 22!
Now there is so much you need to pay attention or you'll miss it. People get sick of drinking out of a firehose.
What if they aren't that good in a very calculated, lowest-common-denominator way?
Any really big $$ production has to have really broad appeal to succeed. Maybe the safest way to do that is just to target some minimum threshold for ticket buying on a rainy thursday.
That's why it's so surprising imo. Disney+ has a very wide and deep catalog of pre-existing IP, and I would have imagined that most subscribers care more about that than any future original production. So it's weird to see them invest so much in new content, more so than competitors that have a much weaker, smaller catalog. Especially when the content is made exclusively for Disney+.
But I'm almost certainly completely wrong, and I'm sure they have tons of data justifying their investment in new content. I guess I'm biaised since I pay for Disney+ so that my little sister can use it, and original shows weren't important to my decision to subscribe at all.
Think it's a bit of a double edge sword. Disney+ is all Disney IP which is great for those that like it. But if you're not into Marvel or Star Wars or the kids catalogue there's not a lot there.
Yeah, this is my family. We don't have kids, but we probably wouldn't have D+ if it didn't come bundled with our Verizon bill. I don't know how everyone else is managing, but I'm suuuuuuuper burned out on superhero and star wars movies. It really feels like Disney in particular but Hollywood more generally need to branch out more and not rely so much on stamping out franchise films--they're good for an occasional flick, but there needs to be more substance on offer (if the market doesn't already agree with me on this, I suspect they will in time).
Eh, I don't really have a problem with it. I'd pay Verizon's rate even if they didn't offer D+ because the network is just so much better than the competition (I have no loyalty to Verizon; I've used AT&T, T-mobile, and US Cellular and they're worse by a considerable margin in my experience traveling around the country).
I could watch The Godfather, Goodfellas, Patton, The Shining, Barton Fink and Millers Crossing a million times without getting tired of them and if I’m just flipping channels will always stop to watch if one of them is on.
But I don’t think I’ve ever streamed any of them other than maybe to show a friend who hadn’t seen them.
Theory: When you come across a movie you love on TV, it's already in the "good bits".
Where as on streaming you have find it, sit through 2 or 3 studio logos, and then 5-15 minutes of exposition that even in most good movies isn't that good.
Disney+ is also very disappointing on that back catalog. There are Disney cartoons that I watched as a kid and would love to show to my kids. I can find them on YouTube, apparently badly copied from VHS tapes. I can't find them on Disney+, or only find a "modern" remake that's outright cringy :/
Yeah I think there’s a big Marvel and Star Wars fatigue factor that isn’t talked about enough. Only the hardest of the hardcore fans can keep up with all that stuff. Regular people and casual fans pretty much only see the big blockbuster movies and maybe watch the Mandalorian to see what all the baby Yoda memes are all about.
I think you underestimate how much they hand out Disney+. For example, Verizon has a deal with Disney to give out free Disney+ with many plans. Comcast, I think, was also offering me free Disney+ access. This must eat into margins on some level while keeping the subscriber number up - there's no way that Verizon/Comcast are paying full price for that free subscription (in most cases, it's only a year free).
Contrast that with HBO Max that has never had a sale of any kind except for a single free trial week.
I also think that people underestimate the cost of serving streaming entertainment. It's very compute- and data-intensive. If you architect your systems badly, which I assume Disney did, you will be paying a LOT of money for this service.
Is it possible that Disney (Walt Disney Co) makes more money by providing its content via Disney+ rather than in theatres/via other streaming platforms? So while Disney+ itself might be losing money, Disney as a whole is benefiting.
Disney+ doesn't just get all its content "for free" even though Disney owns it all.
A company as big as Disney has to be able to look at its different subsidiaries and analyse how they're performing individually. So maybe Walt Disney Animation Studio spends money making movies and earns money selling the rights to those movies, and so Disney+ gets exclusive access to streaming rights, but it still has to pay for them.
I can watch Disney shows for a month, cancel for 4 months, and then come back and maybe have enough content for another month. We're talking one or two movies and a TV show. It's simply not enough.
Disney+ is also a very specific fan-oriented service. Don't like Star Wars or comic books? Not a child? Good luck finding something worth watching that isn't a documentary.
I don't know any detail on Disney's debt, but worth noting that a lot of "Disney's content" is stuff they just bought. E.g. they bought ESPN, the Marvel Cinematic Universe, etc. These are massive multi-billion purchases. Breaking even on the content purchases is hard work.
Disney's content library only appeals to very specific demographics. Mostly just kids and the Avengers/Star Wars crowd. Netflix has something for literally everyone.
I don't know if it's the same in the states, but here in Canada we get Stars with it as well, which is a huge bunch of Fox stuff, including It's Always Sunny in Philadelphia and American Horror Story, so it's a little more varied than you're making it out to be.
I have a pet theory, many families use D+ as a second streaming service mostly for the family content. Because of this there's no real concern about "profile contamination". So multiple profiles aren't needed for individuals who live in the same household. The profiles end up being used to share the account with other households.
A grandparents single account is used in the households of all their grandchildren.
I have a feeling it might be that they don't have enough established TV shows. But this is the problem of pretty much everyone but Netflix, and this will most likely change in the next 2-3 years.
HBO Max is great, but it's tied to a terrible management/company anchor. Rumor is now they are going to drop the trusted HBO brand smh.
Netflix is well positioned, but a player like Disney is also setup to acquire other streamers as they fall over from cost structure issues. I think we're about to see mass consolidation.
Finally, I'm kind of sad that I think the content 'golden era' is likely coming to a close. Cheap money and the fighting for subs led to more money being spent on content relative to what subs paid than at any other point in history. If nothing new was ever made again, I think the list my wife and I already have to watch is longer than time we have left living.
Its been very hit or miss for me with HBO Max originals. HBO (they do brand them differently) originals are still stellar, for the most part.
If the new Velma show is any indicator of what HBO Max wants to do as run of the mill content though, I'm wondering how long it'll hold up as a premium streaming service.
Warner didn't even unlock their entire backlog of Looney Toons cartoons on their own streaming service, which would bolster its brand and make it more sticky
Agree. Sticking a bunch of questionable content under the HBO brand (which Max is certainly piggy-backing on) is more proof of the incompetent management.
Even though I benefit, I think it was also dumb for them to give away HBO to any AT&T subscribers (maybe internet only?). HBO was something I used to pay for.
FWIW my understanding is that WB withholding the Looney Tunes backlog is entirely due to the fact that there's a lot of problematic (e.g. racist, sexist) material in there that they're understandably worried about. I completely agree with you otherwise.
Disney+ got around this problem by just adding disclaimers to the content. They did this for all their questionable content, and if people reported it (IE they missed something) they were quick to add it.
It seems Disney+ isn't scarred by this at all (it definitely doesn't dominate the public conversation around it), so perhaps there is a lead in here?
"In June 2020, it was announced that the U.S. versions of the ride would be receiving a new theme based on Disney's 2009 film The Princess and the Frog.[2][3] The new ride, which will be titled Tiana's Bayou Adventure, is scheduled to open at Disneyland and Magic Kingdom in late 2024"
There is racist content made by Disney that is not available on Disney+.
The stuff that WB removed from HBO Max is more comparable to Song of the South (which is completely unavailable) than to Dumbo (which has disclaimers).
This would hold more water if they weren't also trying to vault or bury a bunch of their other animated content, and sell off their back catalog for easy money.
> HBO Max is great, but it's tied to a terrible management/company anchor. Rumor is now they are going to drop the trusted HBO brand smh.
The Kool-Aid right now seems to be WBD is pure evil but from my perspective they're making smart and necessary moves precisely to avoid what the OP article is predicting.
And say what you will about Discovery, their frugality or their content, but at least they're a media company. I will still take that any day over a telco, especially AT&T who has done the most "evil" historically of any telco.
It's quite funny to see so many people donning rose-tinted glasses for the short-lived AT&T era. As I remember it at the time, you had near-weekly articles lambasting AT&T higher-ups as being out-of-touch baffoons. A revolving door of executives. Existential dread over resolving debt. (Sound familiar?) Pretty much the only consumer goodwill came from Project Popcorn, and that made Jason Kilar persona non grata in Hollywood.
You can't please everyone, least of all when Wall Street gets involved. I think WBD will be fine, they traded under $10 last week which is insane to me considering their assets and what I believe their trajectory to be in 3-5 years' time. And people like DC and Cartoon Network. People like Euphoria and The White Lotus. And people seem to really like trashy reality shows. HBO Max will be fine.
PS- On the rumored topic of HBO Max changing its name to just "Max," it's a good call. Tying the HBO name to a service which is only 50% HBO at best did not make sense at the time and still doesn't make sense today. "HBO" and "Home Box Office" mean nothing internationally, either. Save the "trusted HBO name" for the prestige content which actually deserves it.
At this point, I think HBO Max has become known enough that just calling it "Max" won't cause tidal waves of confusion, and will correct their original naming mistake for the service. Plus, it's cleaner[1]. Yes please.
This decision would be enough to cancel my HBO subscription, but apparently it's bundled into our cable package so I don't directly pay for it anyway.
HBO has broken the core contract of branded services (i.e. you get access to everything they make), making the value of a subscription much more difficult to understand. I can go back and watch 7 seasons of Arli$$ from 1996, but not the West World episodes released last year?
I will say I am curious how they plan to market a service where you can't use recent hits in your advertising, because they are no longer available...
No one is going on a spending spree right now. But, if someone asked me after consolidation who would be the last ones standing, it would be Netflix and Disney.
I agree with you 100% on that. I just disagree that Disney is well positioned to take part in consolidation. They might be able to pull off some content licensing like Netflix used to do. But right now, the only thing holding Disney afloat is the parks. And they've certainly upset some fans to make that statement true.
Industry experts (including insiders at Disney) note that breakeven was approximately 1.5 billion (the 2 billion came from Cameron), accounting for marketing expenses, the theaters' share of ticket sales, and the fact that the bloated number includes the entire filming costs for Avatar 3 and a quarter of Avatar 4.
So Avatar 2 has earned Disney a profit of at least $250m and it still has several more weeks without any competition. And Avatar 3 will have a far lower break-even point.
I switched from Netflix to Prime a year or so ago, and a few months ago to HBO Max, and they're all basically the same: a handful of good movies and series I haven't seen, some more mediocre but watchable stuff, and a lot that doesn't interest me or is just awful. I get that they want to serve as large an audience as they can get, but it doesn't keep me on their platform. The only plus of HBO Max is their low price for a 1 year multi-screen subscription.
>- Netflix has 5-6 Billion USD free cash flow, and because they got what debt they do have under favorable terms, they are positioned to retain most of that free cash flow
This is a bit off. They had 1.6 billion in FCF in 2022 & project 3 billion for 2023:
That said, to me Netflix feels like it is lagging. Not enough to really hurt subscriber numbers yet. But feels like it's stuck in a local minima of A/B testing. Like they've driven me to the line of canceling. Which is good for them because I haven't yet but risky because Netflix is more a habit/default for me these days. Pretty close to canceling and not sure what would draw me back if I did.
They lost me this year. I had been a subscriber for 12 years.
Between the ads and the complete inability to let a show run more than 2 seasons unless it's a global hit... I'm no longer interested.
I've had a kid - and my viewing habits have changed. I can't always watch a show right when it drops. The reality of my life is that I have other things going on, and I rarely have 10+ hours of uninterrupted time.
But now... by the point I have time to watch a show, more often than not Netflix has already announced its cancellation, and I have zero interest in a catalog of dead shows. None. Nadda.
My take is that Netflix is hot fucking garbage at determining the quality of their own shows, and that really - they don't have the creative side down at all. It's too much focus on the stats, and timelines that are too short.
Some of the most widely watched shows in history had fairly lackluster first seasons (see: Parks & Rec, The Office, Friends). Netflix is busy killing off everything that's not a sizzle in the pan. But those flare up and burn out. They need the slow burn shows that grow into their own - and they've ruthlessly slaughtered them all because the numbers aren't great at first.
I dont have a kid, but between work, chores, and other hobbies, I can only have 1 or 2 hours a day to watch anything. I can only slot a movie or a single episode within that time frame. Also, it’s something I do together with my partner so we always pick something that suits us both. And our backlog is getting bigger as we are adding older movies.
The cancellation of 1899 was a big blow for me. It’s the kind of show you can’t really binge watch as it requires focus to really follow what’s going on. And I think it would have grown its audience organically over time.
> complete inability to let a show run more than 2 seasons unless it's a global hit
It just needs to be a slight success. If the show is cheap to make they'll keep it running forever. The only things that seem to get canceled are expensive or complete failures. I'd be interested if you have any examples that this doesn't ring true for.
> My take is that Netflix is hot fucking garbage at determining the quality of their own shows, and that really - they don't have the creative side down at all. It's too much focus on the stats, and timelines that are too short.
Most TV shows are canceled very few keep going forever.
> Some of the most widely watched shows in history had fairly lackluster first seasons (see: Parks & Rec, The Office, Friends).
Go look at the viewership of those even at the start they were good enough and cheap enough for a second season. Shows almost never grow after the first season. This idea that so many shows just need to get there legs under them is bullshit.
> Most TV shows are canceled very few keep going forever.
I don't expect them to go forever - I expect them to END. Ending is a (hugely) different proposition than being canceled.
A show that wraps up the plot (even if not executed particularly well) is a-ok.
A show that starts a story and then dies is not.
One of them has value in watching, one is a complete waste of time.
I also don't really care how they work out the budget - A show getting a mini-series as the final season because they don't want to invest in a full one? Fine - just resolve the fucking plot.
Personally - I don't even care if the show is only one season (or two) as long as it wraps up. What I do mind - quite a bit - is the start of a story that we know will never end.
If netflix wants to be so axe-happy, that's fine. Buy freaking mini-series and wrap them in a season.
Or set a more strict budget if the creators want to run multiple seasons.
My whole point about them being garbage at this is that I don't really care all that much how the wrap their shows. I just want a story to consume.
Personally - I really think production budgets are set far too high in an attempt to make them global hits, and it's really, really not panning out for them.
> This also fails to account for the strength of HBO Max (very strong sub numbers)
It's important to note that those numbers are very juiced. For example, my HBOMax comes for free with my AT&T internet (still). I've never paid them a dime directly. When they first started they were basically giving away accounts like crazy to get growth. I think they also gave free accounts to their cable subscribers.
So while their numbers look really big on paper they aren't getting a lot of income from those subscribers.
ATT’s grandfathered mobile plans including HBO Max are a ripoff ever since they sold it to Discovery. You effectively are paying ~$15+$5 per line per month for 1 account of HBO Max compared to the current ATT plans offered to customer.
I have 6 lines on my ATT Unlimited Premium Plan (the most expensive retail plan), and the monthly cost dropped by $60 by removing HBO max and switching to the new plans.
It is probably cheaper just to buy directly at HBOMax.com
See the “new” ATT prices, all without HBO Max (couple years old now maybe?)
This may be the case with the mobile plans, but I get HBO Max with my AT&T fiber service, and short of going to a lower speed tier, I do not see any cheaper plan I can switch to without HBO Max.
Netflix comes free with T-Mobile Magenta plans, I think Comcast includes some sort of premium Peacock subscription. I don't know that AT&T bundling it would be much different than the other services bundling, would it?
I think the difference might be that to leverage the Netflix through T-Mobile you have to actively sign up for Netflix or switch to T-Mobile being the payment processor. Where as with the AT&T/HBOMax deal, you just login to HBOMax with your AT&T credential.
Interestingly, we're not on Magenta but one of the earlier plans so the OnUs benefit is for the HD teir of Netflix. As I said above, T-Mobile becomes the payment processor on the account so when I upgraded to 4K my T-Mobile bill went up a couple bucks to account for the difference.
The tech part of streaming no longer matters and Netflix is in serious trouble due to their lack of quality content.
I'm no fan of Disney, but you have to give it to Bob Iger. He just paid out the nose to buy every piece of valuable IP: Pixar, Lucasfilm, Marvel, Fox, even Jim Henson.
The amount of content they now own is insane. Everything from Sunny in Philadelphia to the Muppet show to Alien to Avatar to The Simpsons to Starwars. It's nuts... you can't throw a dead cat in Hollywood without hitting Disney IP.
Meanwhile Netflix makes something worth streaming every year or two, if that.
> Netflix is in serious trouble due to their lack of quality content.
People say this often, but I have never seen it manifested in a viewership chart. Just using Nielsen data as an example, Netflix absolutely dominates the Top 10 chart, with 7/10 of the programs:
The subscriber count continues to grow, so it seems like the content is fine. Or at least not so bad that people are unsubscribing.
It seems to me that Netflix still has the most generally appealing content. Yeah Disney has some of the biggest names, but unless you 1. have young kids or 2. are a huge, not burnt-out Star Wars or Marvel fan, Disney+ is a pretty poor service. Most of the other services fall somewhere else in the middle of that spectrum.
> Netflix is in serious trouble due to their lack of quality content.
I feel the opposite. Marvel's content are getting really tiring now. Superheroes with superior technologies choosing primitive societal and political structures really turned me off. Not enough great action flicks, or binge-worthy dramas like Oz and Strange Things. Not enough international hit shows. Not enough old catalogs.
I agree with you, but don't underestimate how many people just want to leave The Office or something similar running in the background for hours and are willing to pay Netflix for that.
The bear case for Netflix is once again the “DropBox problem”. Streaming services is becoming a feature not a product.
When Disney creates a movie. It can monetize the movie across its entire “flywheel” - movie theatres, video on demand, licensing to third parties, toys, theme parks etc.
It’s streaming content has already made a billion in the box office before it ever hits streaming. Streaming is additive.
Netflix paid millions of dollars just for the rights to the “Knives Out” sequel for instance only to make a pittance in limited release and then go to streaming.
The same is true for the other players.
That’s not even to mention Apple, Amazon and Google who are playing a completely different game.
I've talked with several of my friends about this. EVERYONE was universally willing to pay Netflix their monthly sub when all the studios just sold their content to Netflix.
NO ONE has subscribed to all of Disney+, Apple+, Paramount+, Peacock, etc. in the new everyone-built-their-own-netflix era.
They're all either making do with less content or sailing the high seas mateys yo ho. In many cases they've even DROPPED Netflix.
I don't see how the current over a dozen streaming media provider status quo stands for much longer. Some (many?) are going to have to fail before everyone gets pissed off and goes elsewhere for their entertainment.
I don't know how big a factor this is, but note that some of those have bundling deals with other services. For people that happen to use those other services this can as a side effect greatly reduce the annoyance of the things one wants to watch being spread over different non-free services.
I have Hulu as part of my Spotify subscription.
I have Peacock Premium as part of Xfinity internet.
I have Paramount+ as part of Walmart+.
I have Amazon Prime Video as part of Amazon Prime.
Some T-Mobile plans include Netflix and Apple TV+.
“Therefore, Netflix needs to do what it can to retain / attract subscribers, but essentially can wait until the other services have to give up due to cost”
Much as they did with Blockbuster as he described in the article, correct?
Bob Iger addressed this on the a16z podcast a few weeks back.
He said 2 things really:
* he thinks that content will beat out distribution every single time. And Disney has content Netflix doesn't and cannot get (think of Disneys huge catalogue and IP collections)
* he said when he went to the board and proposed that they (a) give up a huge revenue stream and (b) spend a tonne of money building their own streaming service, he expected it to be a hard battle. He thought it would be very hard to convince investors to look at anything beyond the effect on the next quarter financials. Instead, once they heard the case, they demanded he actually go faster, spend more and be more aggressive. He said (I have not checked) that when they announced the move, the stock price went UP...
Personally I think he made a pretty good case that content distributors were basically commodities and were priced as such (you get low margins). Bit content creators/owners were in a non-competitive position and so had much higher margins and better long term prospects.
I guess in a way, we are back to "Netflix has to become HBO before HBO can become Netflix". Can Netflix use it's huge cash pile to build/acquire enough content to become Disney-like before Disney can build enough infrastructure/customer base to be Netflix?
Seems like the logical endgame is Netflix buying up and aggregating these legacy content producer/channels, possibly piecemeal. There are too many walled gardens right now and they will likely into 3 or 4 key players (say Netflix, HBO and Disney) with everyone else getting gobbled up.
Then everyone has 3 channels on their TVs and we start the explode/aggregate cycle again, just like what happens to banks and telcos.
> - Therefore, Netflix needs to do what it can to retain / attract subscribers, but essentially can wait until the other services have to give up due to cost
Good summary. Worth noting as well that he spends a lot of time in the article drawing the historical parallel to Blockbuster. The lesson is that Netflix has been in this situation before, of waiting for its competition to punch themselves out.
Personally, I think it's impossible to really predict the future for stuff like this, but it's an interesting read.
I don't understand why every single company needs to maintain their own. And there's more than what's listed of course, Paramount, Hulu, and whatever that new one is with Lifetime.
It seems like at some point they'd rally behind whoever has the best interface and willing to accept deals - probably Hulu. Just charge for access to the content and forget about doing your own CDN and app dealings?
I don't think the media companies are capable of cooperating on a platform like that.
You mention Hulu which I think is a great example of that model failing. Hulu was originally a intended to be that kind of platform, and has at times included investment from ABC, NBC, FOX, and Time Warner. Now Disney owns a majority share in it and it's a brand under Disney's streaming services, and I think would like to just fold it into Disney+, but they'd need to make some sort of deal with Comcast for their minority share.
What about the state of affairs in emerging markets, which are likely going to be bigger revenue source than US/Europe in the not too distant future?
Also what about (live) sports coverage? Does Netflix have a strategy there? For many subscribers it is appealing if their streaming service carries sports coverage.
ARPU could be smaller but the user volumes would be much higher. In absolute terms it could be a significant portion of revenue. Netflix perhaps is not doing as well in these markets, presently.
There are reports that Netflix is doing badly in India, for example, which is a massive potential market.
Is HBO max that big? I only hear about it from time to time, it feels very English-language. I have 2 netflix subs I share between my Chinese and French family and I admit Disney+ has a huge advantage for kids stuff I couldnt get anywhere else, so they'll likely last.
Unclear what the perception of HBO is outside the US, but HBO is historically _the_ prestige television brand, and now they have a pretty good catalog of stuff that wasn't originally on HBO as well. It seems like Warner is hell-bent on ruining HBO Max though.
Netflix is valued as tech but it’s no longer tech. Once you recalibrate that you can easily see where the company is headed. It’s not going to be pretty. They relied on the Koreans (among others) for cheap shows but that’s not going to last long.
Unlike netflix, Disney+ has a good incentive to never become profitable. It pays enormous licensing fees to its parent company. This means the profits flows to there, and they don't pay a cent of taxes.
Now you are going to say, but doesn't "The Walt Disney Company", the parent of Disney+, then pay all the taxes?
No, because this company is located in Delaware, which means it's virtually exempt of taxes as long as it makes only money from activities outside of Delaware. Which is does, since it's only selling IP to other companies, like the entity managing Disney+ which has it's headquarters in California.
I think Netflix is better served getting exclusive rights to top IP that differentiates them from others. They don't have many memorable brands that people would buy a T-Shirt for.
Like a $5B deal for exclusive streaming rights to all Nintendo IP (think live action Zelda, animated Mario Kart series for kids, Metroid series for adults, etc).
That would now mean buying out WarnerMedia Discovery Group which just merged, and WarnerMedia was the owner of HBO before that. AT&T was forced to divest at least.
Never the less, that would be a massive acquisition, they carry alot of debt.
Indeed. Feels like vast majority of the TV worth watching is HBO. I value my time so I'd rather have access to a few HBO series / year than an endless sea of A/B dross.
The first time I've seen a well written critique of activist investors like Carl Icahn. He certainly scuttled any chance that Blockbuster had of succeeding. He's often right about small details when it comes to traditional companies and where to cut costs (as are many activist investors), but this story reads like he sabotaged Blockbuster when it had an actual substantial and viable chance to compete. I had not heard this story before, I always assumed Blockbuster was just too dumb to compete, but it wasn't the case at all. And, interesting if people like Hastings knew the forces at play in his competitors, and as Strategery points out, can play the long game when they know their competitors can't. Terrific article, as usual.
"Activist investors" engage in what will be considered a crime in the near future, which is purchasing shares to obtain board ownership -> take in obscene amounts of debt for stock buybacks -> dump shares and let the company fall into bankruptcy. I prefer their original name "corporate raiders".
How is this allowed? If companies by same activist investors regularly go into bankruptcy, the creditors must be able to point that out and get some restrictions placed in their favor, no?
Blockbuster had plans to deliver streaming content in 1999. They partnered with an innovative energy company that wanted to get into the broadband business:
Now that is a name I never would've expected to see next to Blockbuster's. I also had no idea that Blockbuster was that close to launching a streaming service; like a lot of other people, I guess I always assumed they just were overconfident and thus too slow to catch up.
Netflix would go on to offer to buy Blockbuster Online; Antioco turned the company down, assuming he could get a better price once Netflix’s growth turned upside down. Carl Icahn, though, who owned a major chunk of Blockbuster and had long feuded with Antioco, finally convinced him to resign that very same quarter; Antioco’s replacement took money away from Total Access and funneled it back to the stores, and Netflix escaped (Hastings would later tell Shane Evangelist, the head of Blockbuster Online, that Blockbuster had Netflix in checkmate). Blockbuster went bankrupt two years later.
OK, it was probably a mistake to cut back on "Total Access", but that takes on a deckchair character considering the whole firm was bankrupt in two years! That isn't a convincing support for previous management. ISTM the best decision for shareholders would have been to take the Netflix deal?
> Blockbuster ... started with Blockbuster Online, an entity that was completely separate from Blockbuster’s retail business for reasons of both technology and culture...a test version went live on July 15, 2004 — the same day as Netflix’s quarterly earnings call
Blockbuster really snatched defeat from the jaws of victory. The corporate incentives had become completely backward. As we commonly see time and again in oldline companoes like GE, Sears, Google, Boeing...
One thing that wasn't mentioned was that Netflix has a monstrously large catalogue at the time, and the user ratings and content recommendations made their offering extremely sticky.
Switching to Blockbuster's competing service was a bit painful because you'd lose all your movie ratings, often stretching back years to the DVD-by-mail era.
While Blockbuster could acquire brand new streaming subscribers by pricing their product similarly to Netflix, it was really tough for them to poach existing Netflix subscribers.
Most of us weren't Netflix customers yet at the time this was going on.
Whatever the case I was an active in-store Blockbuster customer at the time their stuff started to launch and I never had an inkling they were doing anything online.
It was only a couple years later I remember trying the Netflix DVDs in the mail service. I don't remember actually subscribing till I moved into my current house in 2010. When we moved in there was no video rental store in town.
2004 was a long time ago! I remember 100% I was still going to the neighborhood Blockbuster in 2004.
> I was an active in-store Blockbuster customer at the time their stuff started to launch and I never had an inkling they were doing anything online.
In a comment in this thread, jonfw mentioned that Blockbuster was a franchise business, which I hadn't known. That would explain why the physical shops wouldn't advertise an online alternative -- it would have been a direct competitor.
This is explained the first time Blockbuster's streaming service is mentioned in the article, in the third paragraph, but perhaps could've been more explicit:
> Blockbuster Online, an entity that was completely separate from Blockbuster’s retail business for reasons of both technology and culture: Blockbuster’s stores were not even connected to the Internet, and store managers and franchisees hated having an online service cannibalize their sales.
How much influence did franchisees have on the corporate decision making?
I can definitely see how, as a franchisee, I would rather ride the brick and mortar video rental business into the ground rather than try and transition the business, given that a retail franchise is a dead end either way
I don't think Google belongs in that list of "oldline" companies... GE, Sears, and Boeing are all over 100 years old, and made/shipped actual physical products. Regardless of whether Google's internal incentives are backwards, they are certainly not a stalwart manufacturer. Google is in the business of selling ads, but they keep trying to branch out into selling products/services. Heh, I'd say the fact that they haven't really succeeded in that (aside from maybe Android) is empirical evidence that they are not an oldline company!
The was a long series of articles posted on HN about a decade ago about how Blockbuster fell. TL;DR: Netflix didn't kill Blockbuster, Blockbuster killed itself with a revolving door of those in charge all trying the same simple, obvious and wrong solution to its problems.
Netflix only lost to Blockbuster because Blockbuster didn't believe in online anything strongly enough to properly fund it. Blockbuster had the better network and better penetration, and even had equally good technology. But corporate didn't want to fund them to hire the next set of engineers they needed.
Blockbuster would have won if their board had been just slightly more forward looking. And Netflix knew it.
Isn't this the Sears case again? They were the veteran incumbent with a mountain of experience in the industry, but turning a corporate ship on a dime seems to be impossible.
I guess that manifests as a form of "corporate didn't believe in..." or "didn't invest in the engineering" as you say.
You can keep the shareholder calls easy for now by just keeping costs low and praying. If you suddenly add a new high cost department that isn't going to be pulling in revenue for 12+ months, those calls are going to get harder, and you need to have the clout with your investors to convince them it's the right more. If you're a hired CEO who's done nothing but tweak logistics and optimize inventory, then they aren't going to trust that you are making the correct move when it comes to completely changing customer acquisition and product delivery.
It was worse than that though. They had already built a second ship pointed in the right direction, it just needed a little bit of extra fuel. They had already innovated.
Sears was already in the wrong place at that time because not just was it incapable of turning on a dime, it already had corporate raiders inside it turning over every couch for leftover dimes. It was already getting chopped up and shopped for parts by the time the internet arrived.
If you didn't have the Sears Catalog you had the JC Penney catalog. They both dropped the ball, probably by watching each other to see who blinked first.
I'm convinced that what killed Google+ was their slow rollout, which was an absolutely bone-headed move that I'm really surprised a company like Google would make.
Google+ was a social network. For a social network to have any value, you need your friends to be on it as well. By making it invite-only and throttling how many people could join, they guaranteed that most of your friends weren't there and COULDN'T be there. There were so many memes being made of Google+ being described as this amazing party you got invited to, only to get there and find there's nobody there.
GMail being invite-only at first wasn't a problem because using GMail didn't require everybody you sent/received e-mails to/from to be on GMail as well.
Yes. It seems like they learned the wrong lesson from both Gmail as well as Facebook.
With Gmail, the invite-only rollout had the effect of making the service seem exclusive and valuable. I remember getting my invite from a friend and being “let into the club”. (I didn’t take it that seriously, but the feeling of being “in” was still kinda there). And as you note, email still works across providers, so no network effects were harmed.
Facebook also had early exclusivity, but it was entire cohort schools at once! If I was allowed to create a FB account, that meant all my classmates were also being admitted to the club.
G+ didn’t start with any natural cohorts, so being rolled out slowly just guaranteed that initial experiences were tumbleweeds and disappointment.
Then again, Facebook did a slow rollout - first it was just for American college students, then (if memory serves) it was rolled out internationally for colleges and universities outside the US, then finally it was available everyone.
This helped build word-of-mouth. While a social network has value, so does an exclusive nightclub with a long queue around the block to get in.
I've no idea, but I wonder if this was the thinking behind Google+. Build up a demand with artificial exclusivity, so you build buzz (maybe "buzz" is the wrong word, given Google's other dead project of that name). This approach also helps you from the technical side - easier to deal with scaling and other teething issues when you have a few users at once rather than the mad rush.
At the end though it was probably the wrong decision - people were already on Facebook so they just shrugged and forgot Google+ existed.
I wonder if it would have been possible to ‘bribe’ blockbuster executives into making such decisions. As much as Blockbuster was prepared to pay them to do their jobs I’m sure Netflix would have offered them more to not do their jobs. An indirect/legal way to do this would simply be to poach talent away with good offers, easy to do when you’re poised for substantial growth.
Sort of an aside question, but the article praises Hastings ability to execute:
> To say that Hastings excelled at execution is a dramatic understatement; indeed, the speed with which the company rolled out its advertising product in 2022[...] is a testament that Hastings’ imprint on the company’s ability to execute remains.
Is there a place where one could read details on what made him so great at execution?
I can tell you as a former employee what I think it was. Reed was a developer, and in fact made software to make other developers more productive. He still thinks with that mindset internally.
The entire culture at Netflix is built around enabling engineers to do what they think is the best thing. This in turn attracts engineers who like that kind of environment. I would gladly work with any of my former Netflix coworkers again in a heartbeat.
The way this manifests is the mantra "context not control". From Reed on down, management's job is to tell the people that work for them "this is what we want to accomplish as a company/team/group". It is then up to those people to set the agenda.
So I'd say Reed's execution is that he is great at making sure the right people get hired and the culture remains one of high performance, attracting talented engineers who want to work somewhere where making big changes is accepted.
I wasn't there for the ads rollout, but I suspect it went something like Reed saying, "The time has come for us to roll out ads, we need the extra revenue". Then everyone down the line said, "this is how our department will contribute to that". Then the engineers said, "this is what needs to change" and just made it happen and no one got in their way. They have excellent developer tools that enable rapid prototyping and deployment, so while the engineers were building the ad tools, the content team was hiring the best ad exec they could find, who was very interested in the challenge of building an ad organization from scratch, and then everyone probably got out of their way.
I say this because I was there for streaming, and it went very similarly. Reed (and the other execs) agreed that the technology had now caught up to his vision, and it was time to stream over the internet. So the engineers built it while the content team was created to start licensing content. Then some of the engineers said, "we could do this a lot faster and eventually worldwide if we hitch our wagon to this new AWS thing". And so management got out of the way and said "if that's what you think is best, we will support that". And so they started building on AWS, and hired a bunch of people who expertise in building on AWS (that was how I got in) and the rest is history. We kept hiring great engineers and saying "if we do it this way it will be a better experience for the customers" and for us internal teams, our customers were other engineers, so we made the best internal tools we could to enable developers.
> "we could do this a lot faster and eventually worldwide if we hitch our wagon to this new AWS thing"
Standard reminder, this was for all the non-content delivery parts of Netflix. They have always and continue to run their own CDN in-house, and don't use AWS for that part. It also took almost 8 years to fully transition to AWS:
https://ayushhsinghh.medium.com/case-study-how-netflix-is-us...
That article is full of inaccuracies FYI. It took six years, not eight, and 95% of the transition was done in four years.
Also, Netflix didn't always have its own CDN. We used Level3, Limelight, and Akamai to deliver video from 2010 until about 2012/13. And content is still stored in AWS. It's all rendered there and all the original copies are stored there.
You are correct though that Netflix never delivered video bits to users via AWS, because it was cost prohibitive.
* Netflix Culture (originated and articulated by Reed): latest version at jobs.netflix.com/culture
* No Rules Rules (book he co-wrote). In essence it is about how the aspirational / North Star culture maps to the day to day experiences of people who work there
I don’t know if it has anything to do with his business acumen, but he was a pretty talented software developer. I originally knew of him from the Purify memory debugger.
Even if Netflix is profitable, and makes money on streaming. Considering it's market cap of $160B with today's rise of ~6% and compared to others like Disney at $192B, and AT&T at $140B, and Viacom at $14B. It seems Netflix is viewed at some tech premium that existed in the early part of the decade. Considering now almost every competitor has their own streaming service, there isn't any tech advantage. Maybe a data advantage in that they know what works and what doesn't, but a lot of that is also public knowledge kind of. But, this seems overvalued right now.
In my opinion, Netflix got 2 things right:
1) Streaming model with hits. (Becoming HBO)
2) Streaming internationally. (Where hits in one region can become global hits like Squid Game)
And now they are trying to "Become TV" with all the wide spectrum of content that Cable TV offers. This means continuing spend, while competition will exist. And basically involves revenue growth in the form of advertising, which is the traditional model of TV. They are not going to grow revenue as fast in terms of subscribers because they are almost completely penetrated in the US, and international subscribers will have lower revenues associated with cheaper offerings. In other words, they really don't have a special lever of growth ahead that distinguishes them from the competition. And Amazon and Apple are continuing to spend money, and hire talent in their offerings.
I think the point is that their competitors are in streaming now but won't be in the long term because it is costing them too much money. When that happens they will go back to licensing their content to Netflix.
> Antioco’s replacement took money away from Total Access and funneled it back to the stores, and Netflix escaped (Hastings would later tell Shane Evangelist, the head of Blockbuster Online, that Blockbuster had Netflix in checkmate). Blockbuster went bankrupt two years later.
That's fascinating because I always wondered why Blockbuster got rid of Total Access. It was so much better than Netflix at the time because you could also rent games and not have to wait for anything. It wouldn't have mattered long term obviously but for about 8 more years or so they could have driven Netflix out of business using the capital investment in brick and mortar stores they made over the previous 30+ years. But they totally blew it - wow!
This article said none of Netflix's competitors had positive cash flow. Well, at least Disney did. Disney+ is unlikely to have positive cash flow, but the Walt Disney company has a cash cow in parks and other media assets. This Stratechery article seems to conveniently ignore that unlike Netflix, other streaming services have revenue-generating assets to fund the streaming war.
It cost Disney $400 million to make the Avatar sequel and probably that amount for marketing. Yet it already has made $2 billion in box office. Netflix spent $200 million on the Gray Man. How much did the movie bring to Netflix? Disney and Warner Bros have incredible franchises. What does Netflix have in comparison?
I also don't see any mention on the fact that while competitors are increasing content spend, Netflix is doing the opposite. If it's the new content, rather than the old stuff, that attracts subscribers, should the fact that Netflix is decreasing content spend be a concern?
If Netflix's future is about creativity and content quality, why should we believe that Netflix will be better at creating quality content in the future than they have so far? What data shows that subscribers come back because Netflix content is the best? Or is it because they have the biggest catalogue? And what does it say about decreasing content spend when Netflix is stretched across markets?
I don't dispute Reed's achievements, but citing the launch of the ads tier is a bit premature and strange. Reed, for years, pushed back against the idea of an ads-supported plan. He only changed his mind only when he had to. Yes, Netflix launched the ads operations in a few months' time, but we haven't got any concrete data on it.
> Three months later Netflix cut prices and referred to Amazon’s assumed imminent entry to the space; Netflix’s stock slid again.
I never understood why Netflix would continue to become one of the largest AWS customers after Amazon entered the space. Will someone please enlighten me?
Switching cloud providers at Netflix's scale is an enormous multi-year technical undertaking, plus they would be exposed to the risk of two cloud providers instead of one while in transition, plus there are a lot of unknowns in switching providers at that scale which have all been ironed out over the years at AWS, and which could negatively impact customer perception of their product. Plus, as one of the showcase examples of cloud computing success that AWS loves to refer to, I'm sure that Netflix has some sweetheart deals that are difficult to compete with. It would take many many years for "dollars diverted from our competitor" to come close to "dollars spent executing the transition", even with the assumption that a successful transition is possible.
Amazon doesn’t really compete with Netflix. Prime Video is there as a marginal benefit to keep customers paying for Prime, which in turn keeps them shopping at Amazon. The Prime catalog frequently changes to the point that a third or even half of my bookmarks are either pay-to-rent or just not available at all.
To be fair, by now Netflix is rotating a lot, too. By now I'm surprised if a movie or series I'm recommended actually is on Netflix. It's not on Amazon Prime level yet, but it's not that far off, at least in my experience.
I wouldn’t dismiss pay-to-rent and the additional subscription channels. If you’re not averse to those, Prime is still the best one-stop besides Netflix.
The same reason Apple buys iPhone displays from Samsung and has a search deal with Google. Companies can directly compete with each other while simultaneously having partnerships and signing win-win deals. Happens in business all the time.
Is it just me or Disney+ does not have as engaging and comprehensive content as Netflix? I feel it's so easy to run out of the existing catalog on Disney+, and boy the newly added are single-dimension: superhero this and Star Wars that, plus a few great animations. I understand that there are other content. It's just that they seemed so so that I don't even remember which ones I watched. On the other hand, on Netflix one can find shows of different genres, many of which are binge-worthy. One can also find rotating old catalogs, many of which are worth rewatching.
You might not be the right market (or at least, the marketplace might be different for your demographic).
I'm a parent, and for me, and all my parent friends, Disney+ is the streaming service that generates the most value in our households. Along with all the old/nostalgic Disney animated films, they generate and acquire a lot of the "in" content for kids (Bluey, Mickey Mouse Kids House, etc.)
Before my kids, Disney+ would have been the first streaming service to make the cut. But now, it'll be the last.
> Along with all the old/nostalgic Disney animated films, they generate and acquire a lot of the "in" content for kids (Bluey, Mickey Mouse Kids House, etc.)
True for my family too! It's just that my kids already cycle through most, if not all, of the content they want to watch.
Something I don't understand is why Disney and others need to have their own streaming service.
Why Netflix can't sit down with Disney and merge the two streaming services. Disney is amazing at making content, so is Netflix at the moment.
They could take a look at the present, their market cap, debt and so on and structure a solution that would:
1. Make Netflix the best streaming service with the best content, also best variety as it would have all of Disney
2. Fix the negative cashflow from Disney and its streaming service AND give them a good amount of control of Netflix, and its profits
I doubt Amazon or Apple would be able to compete against Netflix in that sense. Their content is also good, but hard to compare against a Netflix+Disney combo. They would easily eat a lot subscribers from the competition.
Also, business-wise, it would make a lot of sense for Disney. They wouldn't need to support their crappy app or do any engineering work at all, because they aren't anywhere as close as Netflix in that sense, and they will need at least a decade to get where Netflix is, maybe never, as they don't seem to be able to know how to run a technology company AT ALL.
Also users would be happier and thankful again, as they don't need to pay for so many services. Right now it is a fucking pain in the ass.
There are mergers and consolidations to come, that's for sure, but it would make no sense for Disney to do a deal with Netflix.
Netflix is a pure play. Disney+ is part of a somewhat integrated business: streaming, theatre, toys, theme parks, cruises each advertise and reinforce each other. Everything they do is a cross sell. And though I don't personally enjoy most of their output, I see it as generally very high quality.
During COVID things got out of whack, with streaming being a significant, high-growth source of revenue while in-person revenue streams languished.
The right way to think of Disney streaming is (ultimately) a low cost way to scoop up residual revenues. They put a film in theatres and can do hundreds of millions, and even billions in revenue. Then stick it on streaming (marginal cost for subscribers and Disney: essentially $0). Take it off streaming, sell disks. Put back on streaming. Repeat.
The thing Disney and Netflix have in common is high quality software and deployment, head and shoulders above anyone else. But that's about it.
- That Netflix has a infrastructure competitive advantage. That probably used to be true with microservices, chaos monkey, and all that. But while a big streaming platform isn't something a couple engineers throw together in a weekend, it's a pretty well understood problem. It's content that attracts subscribers.
And that content doesn't really have economies of scale. Having twice as much good content probably costs about twice as much which means you ned to charge about twice as much which doesn't offer a compelling advantage over just having two separate subscriptions.
Netflix's infrastructure advantage was/is in Open Connect. They work with ISP's and ship servers that locally cache terabytes of content as close as possible to the customer to reduce bandwidth costs for themselves and ISP's. Nowadays with higher and cheaper bandwidth there are many CDN's that have similar arrangements with large and small ISP's that Netflix's advantage is not as significant anymore. But even today Netflix's streaming experience is noticeably superior, just not enough for it to be a selling point anymore.
In regards to content scaling, that seems right on the face of it. But, Netflix had been pushing the idea of "Amortization of Content" in that content once created has an extremely long lifecycle, and essentially a long tail. As people will always watch older content. And a lot of times people would miss it, and things start trending later on. However, quality of content matters. If you're spending money on poor quality content. People won't watch it once, let alone multiple times across time. I feel that's what Netflix had been doing lately. And lost their competitive edge, as competitors increased the quality of their shows.
People do watch at least certain types of older content. They watch movies from the earlier part of last century.
But I'm not sure how much money is in there, especially for a subscriber service--which mostly justifies licensing costs by retaining or gaining subscribers.
I'd also observe that Netflix has allowed their back disc catalog to deteriorate. Which suggests a fairly comprehensive back catalog doesn't necessarily pay the bills.
Yeah the author suggests as such..."it turns out, though, that Netflix gets and keeps customers with new shows that people talk about, while most of its old content is ignored", again lies the difficulty in churning out new hits with new IP.
Are they? They're certainly good at buying IP that people like, and now they own a big back-catalogue of beloved franchises. But the vast majority of content they pump out these days is mediocre at best. They own so much that if you want to go to a theatre to watch a movie, your pickings are essentially all owned by Disney. They generally make money but it's because they bought everything.
I can definitely think of more Netflix originals that I've enjoyed in recent years than offerings from Disney's zero-risk, safe, predictable gray goo.
They've "thrived" because of what I just said - Disney has a near monopoly on blockbuster movies that come through theatres, but that doesn't mean it's good content people want to watch, they just don't give anyone much of an option.
I don't think their model would work if they just dumped all their content on Netflix. If it's not working with Disney+, why would it work in another service that's the same thing with a different name? People have plenty of options of content to stream that aren't from Disney, so their status doesn't mean anything in that space.
Also it's not "great partnerships," it's monopolistic purchases that allowed them to buy their way to their current position. And even with the well-beloved IPs they acquired, they still manage to fumble things. Look how badly they messed up that Star Wars trilogy. They're not good at making content.
I think what you're describing could be a white-label Netflix. Essentially a different UI skin, branding and content library but served by Netflix's tech stack, etc.
Its probably more likely any consolidation would happen with the smaller players (NBC, CBS) doing this with Netflix rather than Disney.
It's also interesting to note that while Netflix may not yet have a white label arm, others do. Vimeo pivoted from trying to compete with YouTube to being a white label streaming service and there are several "powered by Vimeo" if you look under the hood. YouTube themselves offers some "gray label" services (Google is too proud of the brand to entirely wash it from such services).
Most interesting to this particular discussion is that Disney themselves have a white label platform at this point. Disney Streaming powers Disney+ and others at Disney, started as the pure white label platform from BAMTech (which Disney acquired), has merged in some of the platform used by Hulu as well (and Hulu had some white label deals beforehand, to my understanding) and is still the white label powering things like MLB and NHL streaming services (which both used to have small amounts of ownership in BAMTech, but now Disney is sole owner).
If Netflix were to build a white label platform today, they'd already have Disney as competition.
I've wondered how it would work if Netflix implemented something like Amazon Prime Video Channels and let distributors offer content as additional/separate subscriptions in the Netflix UI.
Like, Netflix's UI has some annoyances, but it would be so much better if I could access all my streaming content in one central place instead of having to manage a dozen different shitty services, all with their own separate accounts, apps, watch lists, etc. and their own idiosyncratic quirks and buggy (or outright missing) features.
Well this is already sort of the case. But instead of Netflix it's Hulu. Hulu was the sort of agnostic platform that included live TV and needed to be able to VOD all the shows available on live TV networks. Now, you bundle Hulu + ESPN + Disney. Until every company wanted their own streaming service, Hulu was where you could find broad network content. And they even have commercials, so it worked great by classical TV metrics.
The issue is, Hulu created content is meh. Hulu's UI is meh. And Hulu doesn't aggregate ESPN+ and Disney+ in a single pane. And now everyone wants to own their own cut of the streaming service pie. So there was a push for this type of service that saw the incumbents rallying together against Netflix. For whatever reason that wasn't good enough for them, so the idea that now they will just partner with Netflix seems unlikely.
> And Hulu doesn't aggregate ESPN+ and Disney+ in a single pane.
My Hulu shows aggregated ESPN+ in the "Live TV" category (which does show up on the Home Hub as well). It's quite obvious to me because that and HBO (incidentally) are the only "Live TV" I pay for so all I see in the Live TV section at all are ESPN+ and HBO.
Disney+ aggregation isn't there in Hulu, but the opposite is definitely already happening: a bunch of Hulu shows are now aggregated in Disney+ for me. Though the border between "aggregated there" and "slowly moving there" is quite blurry as Disney does seem keen to move towards Disney+ as the final brand left standing and eventually killing the Hulu brand. This is already the case in most of the world (Star+ which was the Indian sub-continent Hulu equivalent that Disney also outright bought is a "hub" in Disney+ rather than the other way around, despite predating Disney+ by several years just like Hulu; incidentally Disney did integrate a Star+ hub into Hulu in the US if you were curious what some of that content looks like), so it does seem inevitable in the US eventually Hulu will be eaten by Disney+.
(The one weird twist to that being how protective Disney as a brand has been of their family friendly part of their brand image in the US and in their merger of Fox and Hulu they found it useful to treat the Hulu brand as "Disney After Dark" and avoid some of the "family friendly" issues in the first few months of Disney+ while they added parental controls and other family focused tools after the US launch date. Disney will get to unwind the concept that they need a "Disney After Dark" that their own PR created in the first place in order to eventually merge Hulu into that plus in Disney+.)
Thanks for the update on that. I went back and checked and you're correct ESPN+ is there for Live TV. I just also happen to pay for Hulu Live, so it gets a bit buried. But it is in fact there.
I then went and checked Disney+ and you're also correct. Some of the Hulu content is now on that app. But yeah, its almost like completely random content was moved over, so it seems like its just easier to go to Hulu for now. But it's been clear for a while that Hulu is dying slowly.
For a while it seemed like Hulu was the path to killing Netflix but that floundered out years ago. And now everyone has their own service, so it seems very unlikely its worth trying to rebuild off Hulu at all. We'll see how Disney deals with the more adult/dark content on their platform but that seems like a better problem to solve than having 3 different platforms for streaming stuff. I do wonder if they will care at all about live streaming though; it costs a lot of money and idk how good the margins are.
Yeah, my Hulu account dates back to an early Beta key from a friend then working at GE Appliances, and I've maintained an active subscription on my Hulu account through more years than my Netflix account, so there's an interesting sense of nostalgia/loss in assuming the Hulu brand will be dead soon and even if it manages to remain a zombie brand for a while (if for no other reason than the "After Dark" problem), the Disney era of Hulu which started just a few months back when Comcast sold their last shares of Hulu to Disney is already a different Hulu from the Hulu that once thought it could be a multi-provider aggregator platform to truly rival the cable companies. (Not that Disney killed that vision, Comcast did their part to kill that vision when they bought majority ownership from GE along with NBC Universal.)
I wonder if the time isn't ripe for a kind of "meta" service.
Essentially, one group provides the content, branding, some kind of licensing data structure describing date ranges and countries, and so on. An abstracted look and feel. Another service spits out the app and has the streaming infrastructure.
The apps produced would have the benefit of reaching many, many platforms and so deduplicate a lot of the work getting something to work on a Roku, or a Firestick or a Chromecast. This could open up the door to a lot of smaller groups and allow them to focus on obtaining, curating, and producing content, their specialty.
Netflix could be that platform. Of course, they would have to be their own clients first, learning how to abstract the Netflix app, going over their databases and adding columns to various tables, marking all of their content as ContentID = 1 or something. Once they got through that exercise, they could reach out to the smaller providers who are struggling.
This is kinda like what Amazon does with their channels, which is a bit clunky in various ways, but on the whole I don't hate the model. (besides the fact that the increasing fragmentation of content means I have to have a dozen subscriptions).
What I really want is some sort of meta "subscription manager" where I could mark what I'm currently watching and what I always want access to, and it could manage cancelling and uncancelling the various subscriptions that I have. Even better if it could just give me access to everything through a unified interface. I would pay for this - I think it could save a lot of money.
What I've been doing recently is whenever I sign up for a new thing, I just immediately cancel. That way when I hit the end of the month and I'm not using Peacock or Shudder or whatever other bench team service, I just won't have it any more. If I need it again, rinse and repeat.
Currently the only subscriptions I'm maintaining long-term are HBO and Disney. Disney will probably be a long-runner as long as my kids still want to use it for Bluey and the odd movie. HBO has their classic shows like The Sopranos and Deadwood, plus the Adult Swim catalogue, so they land in a good value spot for me too.
1) On the talk of saturation Netflix had somewhere around 230 mil subscribers last year. In theory the addressable market should be adults ~20 and up so somewhere around 5 bil. So not even close to saturation. Discounting say half of that imagine how much better the service could be with 10x the current subscriber base. They talk about increasing subscription price... At 10x you could half the subscription price and still increase content spending 5x which would be pretty incredible.
2) The article talks about old content not holding value as expected. I think a lot of this has to do with the near complete failure to invest in rewatchable content. They were clearly aware the value of shows like The Office and Friends in terms of rewatchability. Off the top of my head I can't even think of an attempt at original content in that lane from Netflix (Licensing and extra seasons of Arrested Development is the only thing that comes to mind). To be fair though utterly bizarrely nearly every service has failed at this kind of content for the past 5 years or so.
3) The lack of global hits is very strange. I was trying to lookup high budget tv productions in foreign countries and not sure if it is just a lack of data or they don't exist. I would think even if there is a cultural bias around kinds of shows people watch just in terms of production quality western shows would still be globally dominant. Are there any examples of international shows with 20 mil per episode budgets?
This one is definitely strange to me looking back on what I would have estimated for the world of streaming a decade ago. I would have expected a much more expected shared culture in terms of what is watched worldwide. Instead it seems if anything we have become increasingly isolated. It's crazy to think Netflix isn't even active in a country the size of China for example. I would have thought by now technology would lead to shows with viewerships counted in the billions not millions. Squid Game is apparently Netflix's most popular show ever but even that from brief research has under 200 mil views which in the context of total population still makes it incredibly unpopular. I.e. if you take 100 random humans and put them in a room almost none of them have seen it. I wonder if we will ever reach a point where anything is actually globally popular.
- Average person lives in a household of 4.9 people[1], which means market size isn't 5 bil but closer to 1 bil
- Plus, the household needs broadband internet, which rules out vast swaths of the world today, brining down addressable market further
- Many of the hundreds of millions of households not signed up are in markets like India, where the price is like 20% of the price in the USA or Europe; so a 100% increase in membership might only mean a 33% increase in revenue
- Further, if you capture the Indian and Nigerian and Indonesian markets, sure you have more revenue (say +33%) to spend on more content, but a lot of that content will need to be Indian content and Nigerian content and Indonesian content, so the actual increase in content spend relevant to you will much much less than 33%
In conclusion, I think a +500% increase in spend on content you're interested in is not a plausible outcome of everyone on Earth signing up for Netflix. It's probably an order of magnitude less, like +50%.
> what’s really interesting is there aren’t that many global hits, meaning that everyone in the world watches the same thing. Squid Game was very rare in that way. And Wednesday looks like one of those too, very rare in that way.
I have to wonder what the problem is. I've watched more foreign-language shows in the last 3 years than in the rest of my 51 years combined thanks to shows on Netflix, HBO Max, Apple TV+, etc. I'd love to see more of them, but they aren't surfacing in my searches and recommendations very frequently. I'd really like more variety in show selections. They don't even have to be big hits like Squid Games or Lupin. I'd be interested in any show that's good regardless of whether it's been a blockbuster hit.
On something like Hulu, there are tons of shows that mostly fall into Police/Medical procedural, Office-like sitcom, or Friends-like sitcom. Those are fine, and some are even pretty decent, but I'm really tired of those formats. Seeing shows about other cultures has been fascinating. And just having other types of stories is nice, too.
One extremely minor grammatical quibble— the first “not” in this sentence in the final paragraph of the article, renders the sentence confusing. It should be removed.
“It’s impossible to not dive into the history of Netflix and not come away with a deep appreciation for everything Hastings accomplished.”
Curious now - what percentage of global content is netflix seeing in Japan or Mexico, vs local content?
I think that would be an interesting metric for all sorts of other influences, political, social etc. Essentially defining the landscape of balkanisation of the internet ...
Why does everyone think Disney lost because of steaming....they lost because of politics....the steaming was the easiest target to hit...not the cause...lmao
- Netflix has 5-6 Billion USD free cash flow, and because they got what debt they do have under favorable terms, they are positioned to retain most of that free cash flow
- Disney, Comcast (Peacock), CBS/Viacom and other media corporations are saddled with debt, and are all losing money on their own independent streaming businesses. Likely untenable in their shareholder model
- Therefore, Netflix needs to do what it can to retain / attract subscribers, but essentially can wait until the other services have to give up due to cost
In a nutshell, Netflix is poised to play more long game, due to cost structures of their competitors.
so fair, sounds good, but it assumes the boards / leadership of these companies won't also play a long game, seeing some sort of profitability horizon is they cannibalize their existing businesses for sticky services (like streaming). I could see Disney doing this, to some extent, with their cable TV channels and movies. I'm less bullish on Comcast/NBC, CBS/Viacom or really any other media company being able to do this, simply because they don't have the "staying power" Disney does.
This also fails to account for the strength of HBO Max (very strong sub numbers)