8/23/2018 by
With a business model untethered from opening weekend box office and high variable P&A spend, the streamer has established the foundation necessary to revolutionize the model of creating and distributing original feature films.
Tectonic shifts in large industries do not announce their arrival with an earthquake. Instead, they begin quietly, with a low grumble. Facebook began as an online social directory for Ivy League students; it now dominates the digital advertising market. Amazon started modestly, selling books on the internet; today it sells everything to everyone. A similar phenomenon is taking place in the film industry. Slowly, but relentlessly, Netflix is building what will become the world’s largest, and most valuable, movie business.
To many, that prediction will seem sensational and absurd. After all, Netflix’s film output to date has generally underwhelmed critics, and aside from a few summer rom-com hits, has failed to reach the zeitgeist in the same way as its television programming.
But when a business does something new, there is often too much focus on what it looks like today, rather than what it can become. With ubiquitous global internet distribution, and a business model untethered from opening weekend box office and high variable P&A spend, Netflix has established the foundation necessary to revolutionize the model of creating and distributing original feature films.
Of course, a strong business model means little if the business is not motivated by a higher purpose. It is here that Netflix enjoys the qualitative edge that will elevate its film business above all prospective competitors. This is because Netflix’s film business is driven by two simple, but power ideas: 1) provide consumers with a better movie-viewing experience; 2) provide all consumers access to great movies.
As a business, movies thrive when consumers receive a great movie-going experience. Theaters seek to delight consumers with spectacular sight and sound, comfortable seating, and tasty treats. But delivering a wonderful consumer experience is broader than large screens, reclining chairs and popcorn. A sublime consumer experience must satisfy the full scope of physical and psychological needs of the customer by accommodating modern behaviors and expectations. It is here that the theater experience cannot compete with Netflix.
In movie theaters, customers cannot check their Instragram, cannot respond to texts, cannot chat with friends and are unable to go to the bathroom without fear of missing a key plot point. In contrast, Netflix movie-watchers can discuss scenes with friends, post to social media and pause the film to take a bathroom break. These actions may repulse movie purists, but they liberate consumers with total control. And once a consumer has tasted total control, competing experiences that suppress impulses, and levy penalties on instinctive behavior, begin to feel repressive and suffocating. Over time, consumer affection, time and money will migrate to the movie provider that delivers the most control.
Equally important to the success of Netflix’s growing film initiative is a commitment to expand access to movies to all people. Access to movies is often taken for granted by people that can easily afford to go to the movies, have enough free time to go to the movies or live near a movie theater. Access is also taken for granted by people who are accustomed to finding films to watch that suit their tastes and sensibilities. The degree of privilege that a person enjoys plays a big part in determining the level of access that the person has to movies.
By making its original films available globally to all customers at no added financial or emotional cost, Netflix is affirming a commitment to make movies more accessible, regardless of geography or socioeconomic standing. While critics and peers sneer at some of the movies that Netflix has chosen to distribute, Netflix’s commitment to serve a broad range of tastes ensures that its films will reach more people.
Netflix’s competitors do not share Netflix’s commitment to expanding access. Amazon does not have an unwavering commitment to provide access to movies to all consumers, otherwise it would make its original films available on their Prime Video service, rather than window them, a strategy that caters to talent, not consumers. Not one major movie studio has taken the leap on direct film distribution, or day-and-date releases.
The studios have avoided doing so, not because they believe in the sanctity of the big-screen experience, but because they don’t want to upset their established business models and anger Wall Street. Netflix is the only movie business that sees the value in pricing and programming its product to drive maximum access to movies; that is the movie business of the future.
Ben Weiss is chief investment officer at 8th & Jackson Capital Management.
https://www.hollywoodreporter.com/news/why-netflix-may-build-worlds-valuable-movie-business-guest-column-1136961
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