16 May Morris Esformes Discusses Netflix and Its Role in Advancing the Film Industry
What initially started as a competitor to Blockbuster has evolved to take on the film and media industry as a whole. Netflix, a streaming platform that launched in 1998 by Reed Hastings and Marc Randolph, was initially designed as a direct-to-consumer business that sought to mail DVDs directly to your home, ultimately cutting out the middle man, at the time known as Blockbuster.
Later, in 2010, the company rolled out DVD streaming, a move that launched them into virtually every household prior to development of competitors, such as Hulu, HBO GO, and provider-specific streaming services. While its original streaming service put Netflix on top, it wasn’t too long before other streaming services would inevitably surface.
In 2012, Netflix made the decision to focus on becoming a producer of both television and movies within the film industry, a decision that keeps them competitive in their offerings with a plethora of other streaming services available. However, with provider-specific services emerging, companies such as The Walt Disney Company and Warner Bros are pulling their films from the streaming service altogether. Read Morris Esformes blog on Disney’s Venture into the Streaming Business. As Netflix continues producing content and larger production companies create their own streaming services, a budding rivalry between Netflix and Hollywood has emerged.
Netflix Strikes Gold (and competition) with Roll Out of “House of Cards”
Back in 2013, Netflix rolled out its first-ever original series “House of Cards,” which featured Kevin Spacey as U.S. Representative Francis Underwood of South Carolina, a ruthless politician that was out for revenge. The original series continued for six seasons, garnering high reviews from television critics and a 92% rating through Google reviews alone.
House of Cards was Netflix’s first attempt at altering their efforts from stand-alone streaming efforts to production as well. According to Inc.com, the roll out of “House of Cards” and Netflix’s other award-winning original series “Orange Is The New Black” were turning points for the Internet streaming service and drove the company’s colossal growth. The company invested $100 million into the first round production of House of Cards, a bet it was willing to take to further its internet streaming clout. Luckily, the show was a huge success and spurred 35 global Emmy, Derby Awards and Golden Globe wins, including Best International Actor (Kevin Spacey), Best Drama Performance (Robin Wright) and TV Program of the Year in 2015.
The reaction to House of Cards prompted other companies such as Amazon, Inc. and Google’s YouTube to invest in their own original productions to compete with the Internet streaming giant, and it was Hollywood’s first glimpse at the capabilities of streaming services to provide competitive must-watch content.
Netflix Invests in Original Content Amidst Hollywood Backlash
Not every original series on the streaming service has been wildly successful. Through a cost-benefit analysis, Netflix has axed original shows such as Friends from College, Marvel series Jessica Jones and Sense8 for underperforming. However, even with a few flops, the streaming service is dedicated to producing great viewer content. Just this year, Netflix announced that it would allocate $6 billion toward must-watch content; adjusting its focus from distribution to consumer experience.
Other streaming services are following suit. In the past two years, Amazon.com, Inc. has heavily invested in its video efforts for Amazon Prime, producing long-form films and industry hits such as “The Big Sick” and “Manchester by The Sea.” In addition, Amazon has said that in terms of television series, it’s focused on producing “Game of Thrones” like hits, rather than mediocre television series; something that Netflix has received backlash over time and time again.
This year, after producing long-form hit “Bird Box” featuring Hollywood elitist Sandra Bullock, Netflix had Hollywood ready to challenge the status quo. Bob Iger, CEO of The Walt Disney Company, announced that Disney would create its own streaming service Disney+ and pull all of its films from Netflix over the course of the year; a service discussed in my blog “Morris Esformes on Breaking Down the Disney / Fox Merger” via The Morris Esformes Blog at www.Morris-Esformes.com. But Disney’s bold move left Netflix with a quiet shrug. Within the week, Netflix announced that it had coaxed television-darling Shonda Rhimes, producer of ABC hits such as “Grey’s Anatomy” and “Scandal,” away from the traditional media landscape with a $100 million creative contract to produce television series for the streaming network; an investment that will hopefully garner additional global subscribers. Currently, the streaming service has 104 million global subscribers, not including the current free trials.
Hollywood Forced to Alter Stance in Cinematic Business
According to Ben Fritz, Wall Street Journal Reporter and Film Critic, streaming services are having a massive impact on Hollywood and disrupting all economics of television and movies in the process. Fritz explains that while Netflix and Amazon aren’t yet creating $200 million films, they are dominating the lower- and mid-budget film class, leaving only the upper echelon of films to be produced by Hollywood, a factor that may run some Hollywood production companies out of business.
It’s no secret that Hollywood production companies have been slow to adapt to the “Netflix and chill” consumer climate. However, if there’s one company to look to for guidance within Hollywood, it’s the Marvel movie production company. Marvel, which started as a comic book franchise, came out of left-field for Hollywood production companies. In the 1990s Marvel was just emerging from bankruptcy when Sony Productions bid to purchase the rights to the Spider-Man character for $25 million, at the time Marvel, looking to rid itself of debt, said it would give Sony the rights to all of its characters, including Black Panther, Captain America, Thor and Guardians of the Galaxy. Sony, uninterested in the purchase of all Marvel characters, passed on the deal. Cut to now, Disney just purchased Marvel, and all of its characters, in a $4 billion deal.
A comparable situation to the music industry, Fritz claims that Hollywood has to adapt to consumers of the digital age or they’re going to “continue to be creamed.” The music industry already adapted to consumers wanting to stream content, switch between tracks and put together their own playlists, now it’s time for Hollywood to adapt as well.
In the meantime, Ted Sarandos, the chief content officer of Netflix, is continuing his pay-to-play plan to get ahead, noting in an interview that he’s “glad Netflix has spent its way to get ahead of the pack.” While Netflix admits to carrying roughly $5 billion in long-term debt with a $70 billion market cap, Sarandos says it’s a “low debt to equity for any industry player,” leaving Hollywood to either change its ways or dissipate.
Still, The Numbers Indicate Otherwise
A recent article published by The Wall Street Journal details how Netflix is in a tough position. After paying $100 million to keep licensing for the hit television show “Friends” in 2019 the streaming service now has to deal with potentially losing their most streamed show “The Office.”
Although the streaming service has focused on original content and publicly stated that it has long expected to lose some of its licensing content, the public still seems concerned. While Netflix boasts some successful original content such as “Stranger Things,” “Orange Is The New Black,” and “Narcos,” its licensed content still makes up for 72 percent of audience streaming. According to data released by Nielsen and IMDb, eight out of ten of the shows that consumers are focused on via the Netflix streaming service are reruns, including NBCUniversal’s “Parks and Recreation,” WarnerMedia’s “Friends,” and Disney’s “Grey’s Anatomy.” It is unclear if past shows such as “Grey’s Anatomy” and “Scandal” will continue to be licensed under the Disney network since the contracting of Shonda Rhimes earlier this year.
Still, analysts are suggesting the next phase of Netflix’s growth will be difficult and will force the streaming provider into producing more original hits with little room for error. Up until this point, Netflix has continued to spend money on original shows only to cancel them after one or two seasons. In an updated climate where they’re competing with Hollywood and other service providers, they won’t be able to have such a large margin for error.