In my last post I was critical of Netflix’s recent policy changes regarding pricing and consumer privacy. This week I want to give a big shout out to the flick rental giant. A recent decision by Netflix as to how they would distribute original programming content was a thoughtful, consumer-oriented decision that deserves praise. As noted in my earlier post, the home entertainment market is highly competitive and Netflix, like other premium services, is not immune to that competition. More and more of Netflix’s customers (in part due to their ill-advised pricing policy change) have elected to receive only the streaming video service from Netflix. As such, they are competing with other content providers at the set top box such as cable and premium cable (including pay-per-view), Hulu, YouTube, etc.
Part of Netflix’s plan was to create quality original programming that could compete with the likes of that which is shown on AMC, HBO and Showtime. Their first outing is called House of Cards, a drama that explores corrupt politics and its relationship with the press, and stars an impressive cast led by Kevin Spacey and Robin Wright. What is most significant about House of Cards, however, is the manner in which Netlflix has chosen to release the show. Rather than following the traditional pattern of releasing a new one-hour episode once a week over a thirteen week season cycle, Netflix decided release the entire thirteen-episode first season at the same time. By doing so, Netflix has allowed its subscribers the power to choose when and how to watch the series, either a little at a time or in a single thirteen hour sitting. Netflix subscribers already have the flexibility to choose the device on which to view their programming.
Why is this significant? While it is not exactly the same thing, it is an indication that we may be moving a step closer towards what some (including me) have argued for years: the notion of simultaneous release. I believe, as do others, that the value is in the intellectual property of the programming, not the means by which or the time frame within it is seen. Stated more simply, viewers, now more than ever, want to view content when or where they choose and on whichever device or devices they prefer.
Simultaneous release (also referred to as closing of the “video window”) has been opposed for years by the major motion picture studios. The smaller, independent studios have advocated for it. Historically, movies have been released first in theatres, followed next by a DVD/Blu-Ray release. After a period of exclusivity (usually several months), the movie is released through pay-per-view television and then through the premium cable networks. Only after all of those markets have been exploited are films aired on free television. This staggered release schedule has provided each distribution channel with an exclusive “video window” in which to profit from the movie. The staggered release schedule has been beneficial not just to theatre owners: it has also been claimed to have enhanced pay-per-view and later video sales. The large studios have insisted that without it, they simply could not make profits on their films.
Contrary to this traditional “video window” approach, small, independent film distributors and studios like the notion of simultaneous release because the movies they distribute have much smaller marketing budgets. With simultaneous release, they can spend the marketing budget in a single marketing campaign, rather than separate campaigns for each video window. These independents argue that simultaneous release is the only way that they can compete with the large studios and distributors.
While there certainly are merits to both sides’ arguments, it seems that consumers ultimately will dictate how and when films are distributed. Some people absolutely prefer the “movie theatre experience.” Movie theatres, which have huge investments in infrastructure, depend on ancillary revenues such as concessions to make their profits. The downside, of course, is that the theatre operators decide when the movies will be shown and inflate the prices of these concessions. Other people prefer to watch films, at their leisure, on crystal clear large HD televisions. Still others want even more flexibility to watch on their computers, tablets and even smartphones. They value the convenience over the picture quality.
So who is right? The answer is simple: they are all right. That is the point here. The value in the creative work is the work itself, not the delivery mechanism for it. Marc Cuban, the colorful billionaire owner of the Dallas Mavericks basketball team, as well as Landmark Theatres, and Magnolia Pictures, and the chairman of the HDTV cable network AXS TV, long has advocated for simultaneous release to maximize the potential revenue on every film.
The concept of dictating the time and format of viewing has not been limited to movies. Television also has insisted on the “you will watch the episodes as we decide to release them” approach for first run shows. They depend on advertising and need programming over a longer time period in which to sell that advertising. However, they also will need to adjust to the reality of television audiences: the viewership for traditional network programming is shrinking rapidly as more and more people, especially younger people, choose to get their entertainment in different ways, especially via the internet. Just look at how many people DVR programs and have their own “mini-marathons” during which they will watch an entire season after the fact. The numbers don’t lie. As traditional viewership continues to slide, advertisers will follow where people are, not where the television networks would like for them to be.
This same thing has happened in the music industry. When it switched from analog vinyl recordings to digital CDs in the 1980s, the industry had to invest in manufacturing and distribution facilities for this new technology. When the iPod and other mp3 players came around, this new technology disrupted the status quo. While record companies kept on pushing for people to buy CDs and found online and other digital distribution of music, consumers did what they always do: they chose the preferred manner of accessing that music. As a result, the music industry had a devastating 10 year period of sagging sales. That industry finally appears to have learned what is should have figured out years ago: that the value was in the music, not in the manner in which it was delivered. While audiophiles may continue to embrace the higher fidelity of CDs and the warmth of vinyl recordings, most people have chosen the convenience of being able to carry around 1000 songs in a device the size of a stick of chewing gum, even if the sound quality of an mp3 playing through ear buds is not nearly as good.
As a subscription service and a provider of its own original content, Netflix is not subject to the same “video window” pressures that are felt by the studios or the television networks. However, in my view, it is just a matter of time before the networks and studios recognize that in order to extract the maximum value in their investment, they will have to deliver their intellectual property according to what consumers want.
