How Netflix is hoping to win television and maybe the movies

Netflix is awesome. That is the truth and anyone that differs just hasn’t had the pleasure of using the service. The on-demand video streaming service has been around for a long time, innovating as the industry changed, viewing habits evolved and the need for content became more urgent.

In the last few years Netflix has moved its DVD rental business to an online streaming site and introduced new regions to its repertoire. The service currently boasts more than 36-million subscribers in both North and South America, the Caribbean, United Kingdom, Ireland, Sweden, Denmark, Norway and Finland. That’s bigger than HBO’s reported 28.7-million subscribers.

The platform is device agnostic: it is available on mobile, gaming consoles, television and Blu-ray players and more Netflix-ready devices are being launched every year. The service is readying the world for a takeover of massive proportions.

The company currently has exclusive pay-TV deals with major and mini-major movie studios. Films featured on Watch Instantly include recent releases from Relativity Media (and its subsidiary Rogue Pictures). The company also has deals with Universal Studios, Walt Disney, Time Warner and Viacom.

The way audiences consume content is changing and the studios are noticing what Netflix has recognised for a while now. The company’s growth trajectory has shown some very impressive numbers with its stock price jumping 345% in a couple of months to US$239.55 on 20 May on revenue of US$1.02-billion for the first three months of the year. That’s impressive and perhaps television studios and networks should begin to worry.

Original content is king

In March 2011, Netflix told the world its plans to begin acquiring original content for its subscription streaming service. The first was the political drama House of Cards, which debuted on the streaming service in February 2013.

“We believe that February 1st [the date the first season of HoC was put on Netflix] will be a defining moment in the development of internet TV,” Netflix proclaimed on an earnings call in January. “For viewers, internet TV is a better experience because of the freedom and flexibility it provides, and in the case of Netflix, the lack of commercials,” the service added.

It didn’t stop there. The company ordered two seasons of Lilyhammer and a fourth season of the cult-hit sitcom, Arrested Development. The idea was to bypass the studios and create content for its audience: content that the audience wanted and the producers found compelling.

House of Cards was an instant success for the company after it managed to attract famed director David Fincher at its helm, with Academy Award winning actor Kevin Spacey headlining the cast supported by Robin Wright, the show was a sure-fire win.

Things are not slowing down for Netflix though, with another season of House of Cards on its way, the company is hoping to double its original content offering this year.

“After David Fincher directs a series for Netflix, no one else can say, ‘Well, I’m not going to direct a series for the internet’,” Netflix chief of content Ted Sarandos told the Hollywood Reporter.

“People’s tastes are wildly diverse, and I want to be able to appeal to all of those tastes and across demos [demographics].”

After coughing up around US$100-million for two seasons of House Cards, I think we can be assured that Sarandos is prepared to gamble on original content and see where it goes.

Feeding the binge habits

When Netflix premieres a show, it does it a tad differently from television networks and cable channels. It gives its subscribers every episode at once.

What House of Cards did was shock and thrill television audiences at the same time by delivering content to them exactly the way they wanted it.

As Emily Nussbaum of the New Yorker states, HoC “suggests fresh possibilities for the medium, feeding an audience that has already been trained to binge on quality TV in DVD form”.

By giving the audiences every single episode at once, the company guaranteed that people would see the show to its end without losing interest during week-long waits between episodes. It was a risky move, as sometimes fatigue is bound to set in, but it paid off. Twitter came alive with chatter over the show and everyone was binge watching.

People did the same thing for the much awaited return of the Bluth family with Arrested Development. This time it didn’t quite work out. Unlike HoC, where Netflix bought the rights to a show and retooled it, this was an existing show that enjoyed great success. Users weren’t as impressed as Netflix had hoped, which led to a drop in the company’s stock price following the release of the show.

A new model for television — welcome to product placement

Netflix doesn’t really like the traditional model that television has going for it. It doesn’t want commercial breaks nestled between scenes and it doesn’t want you to wait before you find out what happens next. So how does it make money? It can’t all come from the US$7.99 monthly subscriptions fees? No.

Welcome to the Netflix way, where gratuitous product placement is okay and pays the bills. After HoC premiered, many publishers lambasted Netflix for the not-so-subtle product placement in the show with the Los Angeles Times’ headline reading: ‘House of Cards,’ or more like house of product placement?.

Wait, is that a bad thing? That actors and producers are getting paid with Apple and BlackBerry’s money so you can watch a show with outstanding content and which competes with the best of television? Interesting.

Most television shows have similar product placement in their content but they’re not as obvious. Some shows not wanting to be seen to support certain products cover an Apple logo with a pear or blur out names (although in some instances, it is the other way around). Does Hollywood think the audience is a bunch idiots? Seriously? Because I don’t know that’s a Mac Veronica Mars is using even though she has a pear in front of it.

The products in HoC aren’t actually out-of-place: a young reporter that is constantly on her mobile, iPhone, Galaxy or whatever, tweeting is the reality we live. A House Majority Whip using a BlackBerry makes sense. These devices have permeated our lives, why does it shock us when it’s in our face as part of a make believe world?

It’s a money issue. This new model mostly, but not always, wants to bypass the studios to give shows that may not have survived the ratings a chance with audiences that want them (hint hint: Netflix bring back Firefly). A journalist is going to use an iDevice or a Samsung or BlackBerry product in a movie or show. It’s a natural fit, so why not let Apple pay for the show and all that lovely contextual advertising?

Can this model combat piracy?

The biggest threat to television is piracy. Studios are trying to figure out the best solution for the problem. Google has been asked take down Dotcom’s Mega from search results, along with thousands of other links for alleged copyright infringement, and millions of anti-piracy campaigns are launched every year. The truth is, audiences hate waiting for content and paying for it. This is a particular challenge that Netflix doesn’t need to have.

If the likes of Apple and the Google pay for shows, piracy shouldn’t be a financial issue for the company. Also it makes all of its episodes available at once which is another reason people pirate. But it is an issue. Arrested Development saw 100 000 illegal downloads 24 hours after going live.

For Netflix, it’s a case of global availability. If the company launched its original content section globally with the monthly subscription fee model that it currently uses, what are the chances users would keep pirating? Where iTunes fails with this is that it works on a per-episode model, where Netflix gives you everything for a monthly fee, and it’s still cheaper.

A future full of bingeing and products

If Netflix refines its model and signs on more shows, chances are it will make a formidable foe of big cable players such as HBO. The model that the company is currently working could also be exported to film, essentially making the next cinematic experience wherever, whenever and on whatever device the audience wants.

Chances are that more product placements and binge viewing are in our future. The way it is now, it’s a tricky business waking up in the morning because from the moment you encounter your first screen, products are being pushed at you. However is it such a terrible price to pay for content you enjoy?

Be honest, don’t you wish Netflix had the rights to Game of Thrones just so you could binge on it all at once?