[erikbe]

Tech companies are valued based on future potential and as future becomes present, that potential is replaced by a reality that is often much less grand.

Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners. Now, they have to offset investment into production with higher subscription fees which in turn reduces future potential. Netflix in 2015 is significantly more disruptive than that of 2019, which is just another HBO, and increasingly will be valued like HBO (Time Warner).

"Tech" here is actually just infrastructure; it's table stakes and not interesting at all.

[sgift]

> Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners.

I always thought it's the other way around and Netflix was in a "if life gives you lemons" situation. The content producers in 2010 (or 2005 .. don't know) didn't want to bother with digital, so they just gave it all to Netflix and that's that. Then when time came to renegotiate the existing contracts (let's say in 2015) the situation had changed: Everyone and their dog now knew that digital was great, so half of them didn't want to give Netflix anything anymore. They wanted to be a competitor and Netflix had zero leverage (e.g. Disney), the other half now had a far better understanding of the value of their digital catalogue plus was able to shop around "so, you don't want to pay us our prices? Let us talk with Amazon over here ..".

At some point Netflix had to find a way out of that situation and while "we produce our own content" may have a higher initial cost and is not what the existing audience wanted in the long term it frees Netflix from their dependency on competitors.

[PaulHoule]

If the content owners are sane at all they are going to license content on a "per seat" basis, that is, $X per sub.

If Netflix produces its own content, it is going to pay $Y to produce the content, and that quantity does not depend on the number of subs.

If the number of subs increases, eventually (subs) * $X is going to be more than $Y and in that case it makes more sense for Netflix to own rather than to rent.

Now content owners might have wanted to increase $X when they saw that Netflix was a good business, but I think the real driver behind the change was the increasing number of subs.

[Nasrudith]

The problem is that content owners have often proven abundantly insane. They use staggered release schedules while piracy allows their "saved for later" markets to rot when they could do simultaneous releases trivially.

Their release schedules often obey no ryhme or reason like "all by language, all by highest cost per unit first", etc. This is the industry that referred to VCRs, a clear new market for their freely broadcasted releases as the Boston Strangler.

[PaulHoule]

Many of the "insane" situations were rational in the past or involve a conflict between multiple parties.

For instance, there is not a lot of ownership between movie theaters and movie studios. For movie theaters, an end to theatrical windowing is seen to be an existential threat. Movie studios probably wouldn't care a lot but they sell a lot through theaters so they don't want to harm the interests of theaters.

Piracy during that window (seemingly people who want to watch a movie at home when it is not yet available at home) does seem to be popular. It staggers me how many people are connected to torrents with horrible audio and video quality (often in a language you don't know until you watch it) when they could wait a while and download a pirate Blu-Ray rip.

Windowing across countries was a big deal when it was expensive to produce film reels so it made sense to put the audio track on CDs that could be distributed separately from the film, then organize showings to minimize the number of reels.

The transition to digital in theaters helped with that but also revealed the kind of conflict their is between theaters and movie studios. The distributor pays to make the reel (and save money in digital) and the theater has to get an expensive digital projector. The costs and benefits don't match and the sides have to compromise to make it work.

It is like how movie theaters for a long time have wanted to lower ticket prices because they figure they'll make it back at the concession stand, but the studios won't hear it.

[erikbe]

Producing content does give Netflix independence, but on the flipside it also means they stand alone. Their former partners are now competitors.

[richmarr]

My understanding of this is different. Streaming services are at the mercy of the prices determined by those who own the content.

If they make lots of money, up go the licence fees.

The decision to create their own content seems like an inevitable consequence of that, and acts as a deflationary force on prices as licenced content has to compete for airtime with content commissioned by the streaming service.

[erikbe]

Producers are dependent on distributors, and distributors are dependent on producers.

Producers thought they'd improve their position by going into distribution. Distributors (Netflix) thought they'd better themselves by going into production.

Perhaps they would have been better off focusing on either producing or distributing. A distributor improves their bargaining position by growing the audience they can reach. Producer, by making better films that more people want to see.

[kiriakasis]

In this case producers have a strong upper hand. If a producer does not sell any license for a year it loses a lot of money, if netflix does not have any license for a year it loses all its audience.

[dageshi]

It won't work with Netflix's model. The flat rate pay x and watch as much as you want doesn't work for the producers, the prices they can negotiate for their content are always capped based on the fixed subscription at netflix. Given that it's much more appealing for them to launch their own service and get 100% of a smaller customer base which they can potentially grow in the future.

[erikbe]

For Netflix, it doesn't work to only show their original productions on their own platform. We will likely see them start to show their films in theaters to maximize revenue, and even offer one-time access for people to watch a film but not sign up for a subscription. What's more, they're probably going to have to turn their series into events by showing new episodes on schedule, once a week. By becoming producers, they are forced to completely abandon their old model, I believe.

[sgift]

They started to be competitors when they entered the streaming business: Hulu, Disneys new service, ..

[skywhopper]

Yes this is true, but the point is that Netflix had to enter the content production industry, or risk having no content. Netflix had dominated online streaming but once it was clear that it was a popular thing, the content owners started taking their content away. For Netflix the choice was "make our own good stuff" or just give up.

[acdha]

> Netflix is a great example. It went from having a large library because the producers were its friends, to entering production itself, and alienating its former partners.

This is the opposite of what happened: they had a large library because they were able to cut some deals in the early 2000s when streaming was a niche due to bandwidth and hardware limitations and most of their business was DVDs in the mail. That became popular and the large content owners decided that they wanted a greater cut and especially to avoid what had recently happened in music where iTunes had such a large share of the market that Apple was able to negotiate less consumer-hostile terms with the music industry.

Developing their own content is how Netflix is trying to even that up - they profit directly and it makes it harder for one of the large rights-holders to setup a competitor and lure most of their customers over.

[autokad]

I think content producers weren't going to give netflix a free lunch forever, so they had to start producing their own original content.

I dont own netflix, but I do think it's a great idea and a smart investment by them. One thing netflix does with this disruption-wise is the way they think about content.

companies like comcast (NBC) still got their heads in broadcast television style producing content, where-as netflix takes a lot of risks, and is ok if a show has a niche following, so long as they have something in their library for everyone.

edit: its sad, if content producers thought like this in the past, we'd have more episodes of firefly.

[erikbe]

You're right that they probably weren't going to be able to license all that content indefinitely, so they had to move on and create some other competitive advantage.

But then they lost the advantage they had. The subscribers they have today subscribed to the variety it had in its catalog, not Netflix Originals that have replaced it.

Netflix is an organization built around distribution, where dependability and efficiency wins. I am highly doubtful that Netflix can produce great stories, whether in movie or series format. They do take a lot of risks (and arguable they would have to because do they have leaders that understand story?) but that in itself is not an advantage. It is only an advantage if it produces better stories and we haven't seen that.

In fact, there is a company that is much, much more exciting and successful when it comes to production: Blumhouse Productions. I recommend reading up on their model.

[pbhjpbhj]

> I am highly doubtful that Netflix can produce great stories, whether in movie or series format. //

I have UK Netflix, I see no difference in the quality of the stories on Netflix and those on terrestrial TV (which costs more due to BBC license fee). The stories in the Netflix movies are as compelling as other movies IMO, though they don't have the budgets and sometimes that shows more clearly than others.

AFAICT we're looking at content producers all having their own walled-garden distribution channels; so they can keep more of the money and squeeze more cash out of consumers as an industry.

To fix this it seems we could require content producers to release to any channel if they release to one, giving a global per stream price. So, you release it to your own platform they pay X to the production arm and Y users view it; end of the year everyone else can pay you at a rate of X/Y per stream (plus an admin cost). Maybe that would homogenise streaming channels too much?

Remember copyright is an entirely UNnatural right, in theory we get to set its terms to be whatever is best for the demos.

[malloryerik]

> ... we could require content producers to release to any channel if they release to one, giving a global per stream price.

Just imagine if, in the physical rental DVD/VHS era, stores could have obtained monopoly distribution rights. Star Wars only at Blockbuster Video. Your suggestion appears worthy of serious consideration.

[dagw]

I am highly doubtful that Netflix can produce great stories

I think Netflix is banking on the fact that great is on the whole unnecessary and pretty good is good enough. Every mediocre TV show is someones favorite and if they just throw out enough different things something will stick for enough people. In the short to medium term at least they don't have to make you super engaged with their content, all they have to do is have enough OK stuff that you don't bother unsubscribing.

[kiriakasis]

> I am highly doubtful that Netflix can produce great stories

If we are talking about tv series then there is a really low bar for what is considered "great stories".

[thisisit]

> "Tech" here is actually just infrastructure; it's table stakes and not interesting at all.

Agreed. Especially when tech becomes commoditized enough that anyone can pick and run with it. And that is what has happened with Netflix. Most companies have realized that getting a streaming service is easy and are trying to get a slice of the OTT pie.

But Netflix might actually be valued less and less as time goes by. This is simply because producing content was not their forte and now that they are into content production it will take a concentrated effort to maintain both, good quality of content and a great streaming service. They will be able to pay for content production using the money from streaming but couple of mistakes and both businesses will be affected.

This similarly applies to content producers as well. Their forte was to produce great content and not the OTT service. So, they might be able to pay for their OTT division using the profits from the media division. But on a longer time frame many, if not all, streaming services will be unable to replicate the success of Netflix.

On a longer timeframe I expect Disney or someone to acquire Netflix or some companies selling their streaming services back to Netflix.

[notduncansmith]

Tech is no longer a differentiator in many enterprises, but most small-medium businesses are still barely utilizing what the tech world has made. For example, smooth and useful tech integration is a major differentiator in industries like hospitality, healthcare, logistics, PDR, etc. Mobile/tablet point-of-sale has exploded and enabled a wave of lifestyle entrepreneurs to accept card payment. Smartphone ubiquity has made it much easier to transact with people in your area and abroad, and to help organizations collaborate internally. Still, many people scratch the surface of these capabilities, because their existing low-tech approach has been working for them. With this comes the opportunity to differentiate with solid tech.

[erikbe]

You're right. Many industries still haven't digitalized, and there, adopting "tech" gives a temporary advantage. But it's really just one infrastructure replacing another. It's a hurdle to get over, not a lasting advantage. Tech is commoditized just like it commoditizes other industries.

[keiferski]

Netflix’s original content has been lackluster, in my opinion. I would not be surprised if their long-term future potential drops dramatically in the nearer future.

[thanatropism]

Netflix has about as many original great shows as I remember HBO having 10-15 years ago: two to three a year. They just produce A LOT of stuff, and for people with a habit to consume TV four times a week, it runs out.

They have the advantage of being able to use consumer viewing patterns to optimize their new shows, but then the seams are too often visible. Often the shows with better plots suffer from bad acting too. The best of their shows are the ones they seem to have bought as an entire proposition, like "1983" and "Suburra".

[mlthoughts2018]

> “They have the advantage of being able to use consumer viewing patterns to optimize their new show”

From a cultural or art critical point of view, this is a negative though. Movies end up being made to appeal to lowest common denominator tastes or themes for a broad audience.

The recent movie Bird Box is a great example. Total garbage, derivative movie, clumsy, contrived villains, manufactured tension with no actual plot driving any of it. Yet became somewhat of a viral hit.

If this is what Netflix’s data lets them optimize towards, count me out.

[thanatropism]

It is.

I must have expressed myself really badly, since people are reading the opposite of what I intended.

Netflix bet the farm on computer-generated plots, which is partly how they have such an immense quantity of content - yet the badness shines through. OTOH the handful of decent shows they have are all fully fledged concepts that they bought.

Like most people I really have to rethink the value-per-$ of this proposition, but if Netflix just erased all the crap maybe 10 up-to-snuff and 2 to 3 really good shows a year would remain. Worth paying what it is? If every new show was like "1983" or "Fauda"...

[tome]

"Computer-generated plots"? What? That's bizarre. Tell me more!

[jerf]

Netflix isn't outsourcing all of it's script work to computers literally, of course, but they can definitely do "People like historical drama... people like boats... let's do a historical drama on a boat!" sorts of things, which may not literally be coming straight out of a computer, but it might as well be.

When my kids were younger, my wife and I used to joke about some of the kids shows that way, too... "kids like dinosaurs... kids like trains... Dinosaur Train!" If you don't have kids or aren't in the US or something... I'm not just making up a joke: https://en.wikipedia.org/wiki/Dinosaur_Train

[dasmoth]

Ken Liu wrote an enjoyable short story ("Real Artists") about exactly that. Just looked it up and it was published in 2011. One of those unusual bits of SF that becomes, if anything, more credible over time.

[brazzy]

I think that was hyperbole for "plots that are to some degree based on datamining Netflix' amazingly detailed knowledge of people's viewing habits".

[taurath]

> From a cultural or art critical point of view, this is a negative though

And keep in mind, this isn’t actually an advantage they have - scroll through any channel list and you’ll find a TON of crapware tv entirely designed to hook the lowest common denominator for as cheap as possible. That is reality TV. Yes they have fewer barriers to entry for promotion vs having to get it onto a tv schedule, but data points overall just select for optimization along one or two axes (cost, viewership numbers being the most frequent).

Shark week is an example of a viral hit - it’s not that Netflix makes more because they have more genre data.

[erikbe]

It's highly questionable that you can produce _great_ shows based on data.

You can't just go to a producer and tell them, make something about Japan, because it's trending, and use these two actors because they're the most popular at the moment. Creatives don't work based on directives.

[thanatropism]

Which is why the best shows Netflix has tend to be full fledged pitches that they acquired. Compare "Great News" to "The Kominsky Method" or that utterly-unwatchable-beyond-the-second-episode Australian dystopian political show with the Polish dystopian political show "1983".

[erikbe]

It probably will. Compare their challenge before - paying to acquire users with a huge content library - to what they have to do now - pay to acquire users with a content library that does not really exist, that they have to pay to build out. I can't imagine how they can manage this financial burden, not to mention actually producing good stories, and recognizable IP.

[Waterluvian]

Interesting perspective. I've felt that Netflix has gotten better. I've certainly been enjoying it more as it makes lots of enjoyable shows and films.