THE INTERNET NEEDS TO BE FREE
FLOCK OF BIRDS Photo by Fré Sonneveld
That’s not a statement about pricing, it’s a statement about democracy.
This is what is commonly referred to as “Net Neutrality.”
The following blog post keeps evolving since its original posting in 2010, because the concept of “Net Neutrality” (or the attempt at a more popular term, “The Open Internet“) is vibrant.
UPDATE AS OF APRIL 23, 2014
I guess it’s time to say goodbye to the many independent online film distribution companies who offer streaming and downloading of independent movies. The F.C.C., in a complete turn-around on the principles of Net Neutrality, just announced that they are abandoning the principle that Internet users should have equal ability to see any content they choose. The F.C.C. plans to allow Comcast, Verizon FiOS, etc., to negotiate separately with each content company – the BIG, WEALTHY, EXCLUSIVE companies like Netflix, Amazon, Disney, Google – to have them pay for good video delivery.
Aside from the democracy of the Internet, that does not look good for the competition of small distributors, nor for indie filmmakers themselves, whose voice will not be allowed on those company’s libraries of titles.
See “F.C.C., in ‘Net Neutrality’ Turnaround, Plans to Allow Fast Lane”
This subject is currently getting louder. By the end of March, 2014, it heated up in a war of words.
DEAD CAR Photo by Kristian Karlsson
If you remember that there once was a glimmer of hope for more sustainable financing for innovative small business (and, for my concern, an indie film industry) through “Equity Crowdfunding” as demanded by the JOBS Act of 2012, the fact is that it’s not going to happen. It’s already far past the Act’s imposed deadlines because the concept is anathema to the entrenched and self-interested bureaucracy.
May 26th was a uniquely exciting (and perhaps exhausting) day for TV lovers. At midnight, Netflix released a brand new season of Arrested Development – more than seven years after the show was cancelled by Fox. The show’s return represents a key component of Netflix’s emerging original content strategy and is the fourth show released by the over-the-top streaming service this year (at a total cost of more than $150M). As such, I thought it would be a good opportunity to pause and evaluate the economics of this strategy and hypothesize what success might look like. In doing so, we can also better understand the role of original content (is it intended to drive net adds, reduce churn, stabilize content costs etc.) and the impact of their controversial decision to release entire seasons at once. This will also tell us about Netflix’s future and management’s POV on this future.
The Value of Netflix to the Consumer
Though inexpensive on the whole, Netflix’s service does not offer materially cheaper entertainment than that of traditional cable TV, costing approximately $0.0024/minute versus cable’s $0.0035/minute.
This is interesting for two reasons
1. Despite being commercial-free and infinitely more flexible than live linear TV (in terms of time, content and screen), Netflix is unable to command a price premium for its entertainment service
2. Average time spent watching Netflix per user is up more than 10% year-over-year. However, with prices still $7.99 a month, Netflix has not benefited from this increase in customer value (directly, at least, as it would improve word-of-mouth and perceived value). Increases in both the quality and size of its content library content quality is no doubt a major driver for increased usage, but this has contributed to a 16% increase in quarterly licensing costs ($1.355B in Q1 2013).
This matters because it means Netflix may have limited means to raise prices – and when it does, they will still lag customer value growth. As the instant decapitation of Qwickster demonstrated (among many other lessons), Netflix’s customers really do control the relationship.
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It is a great time to be a lover of television. Content, for one, has never been better. Not only have many declared today the “New Golden Age of Television”, some such as Vanity Fair’s James Wolcott, have gone as far to ask questions such as if “anyone thinks The Artist (which had recently won the Academy Award for Best Picture) is better than Mad Men?”. The rise of digital distribution and portable, media-focused devices has also fundamentally increased potential “demand” for this content. The ability to watch content whenever (and wherever) we want means that we can watch more shows than was realistically possible when we were tethered to 2-3 hours of “appointment TV” per night (and we could watch only one show per primetime slot). Not only does this save older shows, such as The Sopranos, from irrelevancy after airing, it opens up the creative medium. Hyper-serialized shows such as LOST and Game of Thrones would not be possible without the ability for viewers to easily catch-up on a missed episode (or “marathon” past seasons). Digital-only distribution (such as Netflix’s House of Cards) has further freed creatives to pick scene lengths or runtimes based on the needs of the story, rather than the need to cut to a commercial break every 4-7 minutes or fill out an hour-long timeslot.
Market behavior clearly illustrates the New Golden Age hypothesis. Movie stars are increasingly moving to the TV screen (from Ewan McGregor or Zooey Deschanel) and many TV stars are bigger celebrities than most movie actors (such as Kim Kardashian, regrettably). TV budgets have also exploded. Game of Thrones costs upwards of $60 million for a 10-episode season and many hour-long dramas at the Big Four broadcasters can cost $40-75 million per season ($2-4M/episode). Content has also become an increasingly important differentiator for cable networks such as HBO and AMC, which traditionally focused on films and one-off specials, but are now defined by and dependent on hits such as Girls and The Walking Dead.
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There has been a battle going on in Hollywood for a while now that threatens to upset one of the premises of the entire film industry. You might think it must be about digital disruption, but it’s not. Is it about 3D? No. Maybe it’s about lack of creativity in an industry swollen with sequels, prequels, and comic book heroes. Nope. Is it about Steven Spielberg’s prediction that a few mega-flops will likely destroy Hollywood? Nope.
It’s all about who will get coffee for the producers. The unpaid intern.
If you have a driving passion to break into the industry (and who doesn’t? You wouldn’t be reading my blog if you didn’t.), there are few ways to do it. The Number One best, most reliable, undeniably greatest way to break into Hollywood? Become an unpaid intern.
(It used to be “work in the mailroom at an agency,” but that’s no longer true. Who sends MAIL anymore??) Continue reading
When looking at what I’ve termed “The Blended Screens” — the destruction of all the different ways that used to define what we were watching (it was a “movie” because it was shot on film and shown in a movie theater; it was a “TV Show” because it was shot on tape and broadcast by a TV station; it was “Home Video” because it was burned to VHS tape or DVD or Blu-Ray and shown on a machine in the living room; it was a “Web Series” because it was carried over the Internet and watched on a computer; etc., etc., etc.) — it becomes clear to me that THIS IS THE SECOND ‘GOLDEN AGE OF TELEVISION.’ Continue reading
I was at a seminar this week that purported to be about the new EQUITY CROWDFUNDING, but sadly, the panel was populated by finance professionals whose disdain for those of us who are not “high end, high net worth” made the panel useless.
These types of professional fundraisers, coming from the status quo investment community, are not willing to acknowledge that the true value of EQUITY CROWDFUNDING is the escape from the expense, time and headache of pursuing Reg D exemptions and PPMs (“Private Placement Memorandums”). They collect monstrous fees to create those, so they have no respect for those who pursue crowdfunding as an entry to the financial world. Continue reading
Online piracy became a phenomenon about a decade ago with music—triggered by smaller files via MP3 and faster downloads via broadband.
The record companies jumped on it with the “big stick” approach to the problem, tossing consumer piracy to their Legal Departments, which led to lawsuits that destroyed the companies’ credibility and goodwill. Handing the problem to Legal Departments proved the old saying, “To a hammer, every problem looks like a nail.”