• Facebook
  • Twitter
  • Subscribe
  • RSS

Netflix’s Online Business Model: A Mistake, Or The Future Of Entertainment?

HASTINGS NETFLIX

The rise of Netflix as a source not only of movies and television shows that were previously either unavailable or only available on DVD, but also a source of original programming such as House of Cards and Orange Is The New Black has led to the rise of the phenomenon of binge watching. Since Netflix releases new seasons of its original shows all at once, mostly recently the second season of OITNB which was released last week, its possible for a subscriber to watch the show however they wish. You can watch one show at a time at whatever pace you wish, kind of like the way traditional television shows are released, you can watch a few at time, or you can watch them all at once in a sleep-deprived weekend-long marathon. It’s the last option which has become the cultural phenomenon, its seems, especially this past February when the second season of House of Cards was released at the start of what was, at least for most people who work in Washington, D.C., a three day weekend.

Obviously, the binge watching option wouldn’t be possible if Netflix released new episodes over a longer period, and Jazz Shaw thinks they may be missing out on something by not doing that:

[T]here does seem to be a clear disadvantage, though it may not relate directly to immediate revenue. One of the chief drivers for movies and television programs is word of mouth. You need to generate buzz and get people talking if you want to get large numbers of viewers. It’s a commodity that no amount of advertising dollars can match. And the television shows that really generate this buzz do it week after week. One of the first shows that comes to mind currently is Game of Thrones. It’s a huge success for HBO, and every Monday morning I wind up talking to people about what happened on this week’s episode. Later in the week, speculation often crops up over what will or won’t happen next, who will get killed off or how Tyrion is going to get his butt out of a jam this week.

That sort of continual speculation leads to huge in-person and online fan bases spreading the word and attracting new viewers. Fan forums crop up where strangers from around the world can debate, praise or curse the show in posts which go on for hundreds or thousands of comments. And this is precisely what’s missing with Orange is the New Black, Lilyhammer and the other shows mentioned above. People binge watch the entire season as fast as they can and then it’s done. They may go into the office and chat about it for a few days, but after that, what’s left to say? The show is over for at least a long span of months or perhaps permanently.

Matt Lewis had similar thoughts last year when Netflix released the long delayed new season of Arrested Development:

Netflix has decided to release their original series’ all-at-once. This encourages binge watching, which I enjoy. But it also serves to undercut the buzz they might otherwise garner as viewers anticipate the release of new episodes each week. As a consequence, their original shows debut to much fanfare, but then fail to sustain the type of ongoing commentary that, say, HBO’s Girls, elicits each week.

Had Netflix release the episodes on a weekly basis, reviewers and cultural critics might have held out hope for the show to fix its problems. In this case, that’s not an option. The verdict seems to be that the only reason to see this is for the sake of nostalgia.

The new model also creates some challenges for anyone who wants to write about a show. Aside from the problem of spoiling episodes, it’s hard to write about any given episodes if you haven’t watched all of the episodes (because someone will always point out a plot twist two episodes later that seems to undercut your point). Having not yet watched the entirety of season four, I am entering in dangerous territory with this critique. So if you disagree, let me know (I know you will.)

The best answer to the question of why Netflix follows the “release everything at once” strategy, of course, is that they have made some determination that this is model that best suits their business interests. Unlike traditional television, even pay networks like HBO and Showtime, Netflix doesn’t have to worry about a particular shows ratings from week to week. Instead, the numbers that matters most to them is subscribers. The more subscribers they have, the more revenue their bringing in. There are no advertisers to please. There isn’t the same kind of competition for nightly viewers that even networks like HBO no doubt pay attention to on a regular basis. Given all of that, there’s no reason for Netflix to play the “come back next week” game the way traditional networks do. Instead, one of the benefits that it offers to subscribers is the ability to watch these new series on their own schedule, and it really doesn’t matter if that happens all at once or a little bit at a time.

Instead, Netflix, like Amazon Instant Video, is aiming for any entirely different model of “television” — and I’m not even sure that’s the right word anymore — viewing where what you watch isn’t connected to the time of day, the time of year, or even where you happen to be any any given time of the day. Want to watch a few episodes ofMad Men, or an entire season of The West Wing? No problem, it’s right there waiting for you. You can get your Frank Underwood fix all at once, or spread out on a weekly basis if you want. Thanks to Netflix and Amazon, viewers are no longer at the mercy of network schedules, time zones, or remembering to program the DVR. It’s possible, as Shaw and Lewis point out, that they are losing out on some of that buzz generation that a weekly series brings, but they’ve decided that they want to move in a direction that doesn’t require that kind of publicity.  It represents a small portion of “television” viewing today, but it’s only likely to expand in the future. While we may never actually see the end of the scripted network drama, it seems inevitable that viewing habits are going to change even more than they already have, and the more traditional networks are going to change the way that they present their programming as well. Netflix and Amazon are simply on the leading edge of that new trend.

There is, perhaps, something that we’ll be losing with this new type of programming, and Jazz and Matt both hit on it with their discussion about the way in which shows like Game of Thrones generate publicity for the show online on a weekly basis. It used to be the case that television viewing was, in some sense, a communal exercise. Especially in the days before cable became a big thing, most Americans were watching the same things on the same networks at basically the same time. That’s the kind of programming model that created mega-hit shows like M*A*S*H, All In The Family, Cheers, and The Cosby Show as well as miniseries like Roots as well as a whole host of national news events from the Kennedy Assassination to 9/11. Those days are gone, though. The M*A*S*H finale in 1982 had 105 million views, for example. The Friendsfinale in 2004 had just under 52.5 million viewers. (Source) More recent finales had even fewer viewers, like The Office’s 5.69 million viewers, or How I Met Your Mother’s12.69 million viewers. By comparison, Game Of Thrones is averaging  just 6.5 million viewers per episode in its current season.

There was something to be said for the days when we were all watching basically the same things. These were shared cultural experiences that helped define the eras that they were a part of, from I Love Lucy to Ed Sullivan’s Toast Of The Town, to Archie Bunker, Hawkeye, and Alex P. Keaton. That’s where the water cooler talk that Jazz Shaw refers to comes from. Today, it’s a lot harder to have those consersations because we’re no longer watching basically the same stuff. That world is gone, though, and there’s no bringing it back. We’re all watching different things now, and Netflix and Amazon are simply following that trend.

Related Posts:

About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Ron Beasley says:

    I have often waited for all or most of a literary series to be released before I read it and then binge read so it”s not surprising I do the same with TV shows. I have discontinued Netflix but have Amazon Prime which has a good library. I binge watched Downton Abbey last weekend, the first 3 seasons were free but I had to purchase the fourth.

    Like or Dislike: Thumb up 0 Thumb down 0

  2. stonetools says:

    That’s where the water cooler talk that Jazz Shaw refers to comes from

    I think that most of the watercooler conversation has moved online. People will follow their shows communally in real time on Twitter (the #Tony Awards generated hundreds of Tweets). People tweet their immediate reactions , then often follow up with more considered reactions on online forums.
    To understand how people can communally enjoy a TV series now, just go over to Westeros.org. For over a decade thousands of people had been following the books online at Westoros and other forums, obsessing over plot twist and character. When the Tv series came out, a whole new bunch of people joined, some even posting youTube reviews of each episode.Mad Men and Scandal also have their forums and hordes of followers, all discussing everything from Don Draper’s latest outfit to whether Olivia will finally ditch Fitz.
    These ongoing online discussions means that “these “shared communal experiences”” are still happening-they are just happening in a different way

    Like or Dislike: Thumb up 2 Thumb down 0

  3. James Pearce says:

    I don’t think the “all at once” model is going to hurt Netflix that much, to be honest. There is not more money to be made dribbling it out. They aren’t the networks, relying on advertising dollars. The “binge-watching” model has more implications for the water cooler than the corporate bottom line.

    Netflix’s problem is and remains content providers and their rates.

    I’ve been taking advantage of Vudu’s “disc to digital” program for a while now. My Vudu library is now as large (although perhaps not as varied) as Netflix’s streaming options, and I don’t have to negotiate rights with anyone.

    If Netflix is to have a future in streaming video, they’ll have to make their own content.

    Like or Dislike: Thumb up 2 Thumb down 0

  4. stonetools says:

    @James Pearce:

    They are doing that, and doing quite well with it. Check out House of Cards and Orange Is the New Black.
    I’ll look into Vudu, though.

    Like or Dislike: Thumb up 0 Thumb down 0

  5. Matt Bernius says:

    The really brilliant business anthropologist Grant McCracken just completed a fascinating study for Netflix where, among other things, he suggested that thinking about it as “binge” watching is a mistake. What people tend to consume is all very high quality TV (i.e. Breaking Bad, Game of Thrones, House of Cards, etc). It’s more “feasting” than “binging.”

    @James Pearce:

    If Netflix is to have a future in streaming video, they’ll have to make their own content.

    Which is what they are doing — and so far being quite successful at it. Beyond Arrested Development, House of Cards, and Orange is the New Black, Netflix has partnered with Marvel/Disney to create five new exclusive series set in the Marvel Universe.

    So far, Amazon’s development efforts have largely failed. Though they’ve got the money to eventually fix their model.

    Which gets to Ron’s:

    I have discontinued Netflix but have Amazon Prime which has a good library. I binge watched Downton Abbey last weekend, the first 3 seasons were free but I had to purchase the fourth.

    This is the biggest threat to Netflix. Amazon’s business is selling Prime accounts and media goods. They offer streaming video as a loss leader to drive media sales. That makes them an incredibly dangerous competitor.

    As will be Google and Apple, who both offer media streaming to sell their primary businesses: information (Google) and hardware (Apple).

    Like or Dislike: Thumb up 1 Thumb down 0

  6. wr says:

    It’s nice to see Jazz Shaw take a break from proving he knows nothing about politics to prove that he knows even less about the entertainment industry.

    Like or Dislike: Thumb up 2 Thumb down 3

  7. James Joyner says:

    I don’t “binge watch” in the sense of watching an entire season in a weekend—although my late wife and I did that sort of thing occasionally pre-kids—but do enjoy waiting for a season–or even a series– to be over with so that I can watch them in a relatively compressed time period. It’s far, far more enjoyable than the old-style model of dribbling out 26 episodes over the course of six or seven months.

    The opposite of that is the Mad Men model, which gives us tiny binges of shows followed by inordinate wait in between mini-seasons. I despise that with a passion.

    Like or Dislike: Thumb up 8 Thumb down 0

  8. george says:

    @Ron Beasley:

    I have often waited for all or most of a literary series to be released before I read it and then binge read so it”s not surprising I do the same with TV shows.

    Same. Sometimes I didn’t even have to wait long – Lord of the Rings and Dumas’s Musketeer’s series for instance were conveniently finished before I was born. As was, come to think of it, Alice in Wonderland and the Narnia series.

    I actually prefer the release at once approach.

    Like or Dislike: Thumb up 1 Thumb down 0

  9. wr says:

    @Matt Bernius: “So far, Amazon’s development efforts have largely failed.”

    By what standard? True, their shows haven’t gotten the press that Netflix has, but of their first batch Alpha House was renewed for a second season, and they’ve picked up several dramas to series. I didn’t think much of the pilots, but apparently other people did. And they’ve brought in top-flight showrunners for a bunch of shows based on Marvel characters made under the Marvel auspices — not a terrible bit of development there.

    So how are they failing?

    Like or Dislike: Thumb up 0 Thumb down 0

  10. James Pearce says:

    @stonetools:

    Check out House of Cards and Orange Is the New Black.

    Hell, bud, I even liked Hemlock Grove. (Although I have yet to gorge on the new season of Orange.)

    Of course, that’s just the series stuff. The other day I watched some new and exclusive Trailer Park Boys stuff on Netflix. Indeed, it’s thanks to Netflix (and a Canadian ex-girlfriend) that I was even exposed to Trailer Park Boys in the first place.

    Their documentary section? A haven for independent producers.

    I would think the last thing Netflix would want to be is the graveyard of all these dead shows that have big audiences and big licensing costs to go with it.

    As for Vudu, I highly recommend it for anyone who already has a substantial DVD collection. Not every movie is “eligible” for “Disc to Digital” but a lot of good ones are.

    @Matt Bernius:

    So far, Amazon’s development efforts have largely failed. Though they’ve got the money to eventually fix their model.

    I think much of this has to do with their decision to go with the “pilot” model.

    They’re not selling advertising on a broadcast, so it makes no sense whatsoever to go with the “pilot” model. We’re not auditioning for a time slot here, after all.

    They offer streaming video as a loss leader to drive media sales. That makes them an incredibly dangerous competitor.

    Indeed, I wouldn’t be surprised to see Amazon buy Netflix at some point. Not to pick up their streaming video business, which is hardly unique these days, but for their catalog of “Netflix originals.”

    Which brings me back to the point that Netflix’s long term future is in original content, just as it was for HBO and pretty much every other cable network.

    Like or Dislike: Thumb up 2 Thumb down 0

  11. Just 'nutha' ig'rant cracker says:

    This type of binge watching is fairly common in Korea on holiday weekends. Over Chuseok, for example, the entire season 14 of CSI was aired in 8 hour blocks. The same network then proceeded to re-air the entire thing three days a week in two hour blocks, the first hour showing the second show of the previous day.

    That said, the average Korean claims to watch television about 5-10 hours a week and even I watch less TV here than I did in the states. I suspect that part of it is that my work day in the office here starts at 9 am and runs to 7 or 7:30. I don’t work hard, but I don’t leave until my final class is over at 6 pm, if then.

    Like or Dislike: Thumb up 0 Thumb down 0

  12. Matt Bernius says:

    @wr:
    You definitely will have a different perspective being inside the business.

    That said, want to push back on a few points:

    By what standard? True, their shows haven’t gotten the press that Netflix has, but of their first batch Alpha House was renewed for a second season, and they’ve picked up several dramas to series. I didn’t think much of the pilots, but apparently other people did.

    Amazon is famously secretive about it’s data. My guess however is that Alpha House was renewed in part so they would have a renewal. But beyond that, there is little evidence that people are signing up for Prime to access the original content (versus Netflix where this has clearly been a driver). Hell, there’s little evidence that people are signing up for Prime for the video — it’s a key bonus, but not the key feature (yet).

    Without a doubt, that can change. But it’s pretty evident that Amazon has yet to hit on the right formula.

    All that said, as I wrote above, the key difference between them and Netflix is that Amazon’s model allows for a lot more exploration. Netflix can’t afford to have many of their series fail (to @James Pearce’s point, Hemlock Grove is the closest they’ve come).

    Amazon’s chosen a far more experimental/shotgun model. It hasn’t paid off for them yet. But that doesn’t mean it will in the future.

    And they’ve brought in top-flight showrunners for a bunch of shows based on Marvel characters made under the Marvel auspices — not a terrible bit of development there.

    Ok, just confirmed to be sure, *Netflix* inked the Marvel deal — not Amazon. Unless there’s been an another announcement since then (which Google doesn’t know about). Apparently Marvel did pitch Amazon, but a deal was not worked out:
    http://variety.com/2013/digital/news/disney-also-pitched-marvel-series-to-amazon-hulu-and-pay-tv-providers-1200940501/

    Like or Dislike: Thumb up 0 Thumb down 0

  13. Grewgills says:

    @wr:

    So how are they failing?

    If they were succeeding we would have heard of them. That is rather definitional when talking about media success isn’t it?

    Like or Dislike: Thumb up 3 Thumb down 0

  14. Console says:

    True Detective was one of the best new dramas on TV this year. Is anyone still talking about it at the watercooler? Is there still tons of articles being written about the Yellow King? Would there be any real difference if HBO had dropped all the episodes at once? We’re trying to pump up “week to week” build up, when the reality is that a 10 month layoff is just as problematic as a 12 month layoff.

    These seasons don’t last long enough to depend on week to week word of mouth. Especially not the seasons of these serialized prestige TV dramas. The social media presence (forums, tumblrs. etc.), the critical acclaim, the accessibility of the show when its off-air… these things matter much more than week to week analysis.

    Like or Dislike: Thumb up 3 Thumb down 0

  15. anjin-san says:

    The Amazon streaming app that came with my new TV is so crappy I watch quite a bit less of their content than I might otherwise. The only thing I can figure is that they want to push their set top boxes, so a good free app, such as the one Netflix has, is out.

    Like or Dislike: Thumb up 1 Thumb down 0

  16. James Joyner says:

    @anjin-san: Oddly, I watch both Amazon and Netflix via my BluRay player and find Amazon’s interface far superior to Netflix’s. For one thing, the former loads much, much faster than the latter. For another, the former always has icons where I put them whereas Netflix puts things randomly where it wants to. And Netflix’s annoying “feature” of displaying the shows and movies I’ve already watched with no ability to delete is just bizarre.

    Like or Dislike: Thumb up 2 Thumb down 0

  17. JWH says:

    One other problem By putting out a whole season at once, producers lose the ability to adapt their show on the fly. If a particular character or plot line doesn’t work well, a conventional TV series can write out the character or change things up by mid-season, whether through reshoots, editing, or simply rewriting a future episode. If something like that happens in the “release the whole season” model, then a program can’t be fixed until its second season.

    IMO, it might be smarter to realease quarter seasons or half-seasons, or even to release a month (4-5 episodes) at a time.

    Like or Dislike: Thumb up 2 Thumb down 0

  18. wr says:

    @Matt Bernius: Sorry about the Marvel confusion — yes, you’re absolutely right. But the rest of your analysis seems to be based solely on your gut feeling. There is simply no data either to support or refute your assertionas, particularly about Alpha House.

    As for Mr. Grewgills saying that if they were succeeding, “we” would have heard of them — this isn’t 1983. Duck Dynasty was a big success, but until those clowns blew up in the press I’d never heard of them. Pharrell is a giant in the music business; until “Happy” I, along with millions of other people, were completely ignorant of his existence. (Okay, maybe until “Blurred LInes.” I don’t know who you are or what socioeconomict bracket you fall into, but I suspect it doesn’t encompass all of them…

    Like or Dislike: Thumb up 0 Thumb down 0

  19. Matt Bernius says:

    @wr:

    But the rest of your analysis seems to be based solely on your gut feeling. There is simply no data either to support or refute your assertionas, particularly about Alpha House.

    You’re partially correct – part of it is based on gut. But part of it is also based on following Amazon for years on the publishing and hardware sides of the business.

    As I said, Amazon is extremely secretive in terms of its data (something that has driven publishers up the walls for years).

    That said, I think the *lack* of news is a sign of underperformance. Amazon is extremely good at self publicity (see the Drone experiment). The *lack* of publicity of it’s original video content indicates underperformance (at least in the minds of Amazon). Otherwise they would be using any success to loudly drive eyeballs (as they have in the past).

    Seriously, when Amazon has a hit, we’re going to know about it.

    I appreciate your Duck Dynasty point, and it’s entirely possible that Amazon is currently breaking even on its offerings. But, frankly I doubt it — though Amazon’s model on driver products (like the Kindle) has never been to break-even.

    To that point, Amazon is also *much* better at PR than A&E. The fact that after an initial PR push, very little has been done to promote their original video offerings (especially in the face of all the publicity Netflix has received) says A LOT.

    I’d suggest that Amazon reaching out to top-flight showrunners is further proof that they realized that their current model *isn’t* working. To me that sounds like they are shifting direction and going more in a netflix direction. To that point, I expect that we’ll finally be talking about an Amazon “Breakout” hit within the next two years.

    Like or Dislike: Thumb up 2 Thumb down 0

  20. stonetools says:

    @Matt Bernius:

    As will be Google and Apple, who both offer media streaming to sell their primary businesses: information (Google) and hardware (Apple).

    I could see both Apple and Google going into the video streaming business. I expect Apple to offer a video streaming option quite soon , to go with the music streaming service they likely have in the pipeline. They already have the infrastructure with iTunes-all they need are licensing agreements. They and Google will also be looking for original content.
    I foresee a golden time ahead for those who can produce original TV content.

    Like or Dislike: Thumb up 0 Thumb down 0

  21. Grewgills says:

    @wr:

    As for Mr. Grewgills saying that if they were succeeding, “we” would have heard of them — this isn’t 1983. Duck Dynasty was a big success, but until those clowns blew up in the press I’d never heard of them.

    Duck Dynasty was in the trades well before the blow up and if you’d stepped into a Walmart you would’ve heard of them or at least seen them. I know a number of people that have Amazon prime for reasons other than streaming and haven’t heard a peep about their original programming from any of them. In contrast I have heard many people online and off talking about Netflix originals as well as Hulu originals not to mentions A&E, HBO, and even History Channel originals. I have heard a lot about Amazon but only had a vague notion that they even had original programming. That speaks to them being considerably less successful than all of the relevant competition, or they are far less adept at publicity than everything else I have seen about them would indicate.

    Like or Dislike: Thumb up 0 Thumb down 0

  22. Matt Bernius says:

    @Grewgills:

    In contrast I have heard many people online and off talking about Netflix originals as well as Hulu originals

    Just a note, most Hulu “originals”, last I checked, are all foreign TV series that they bought exclusive rights for. Not to take away from the quality of that content, but it’s they are not programs that Hulu has specifically overseen the production of.

    But I totally agree with your broader point.

    Like or Dislike: Thumb up 0 Thumb down 0