THB #237: Netflix in Realityland™

Change is exciting. Exhilarating. Intoxicating.

And then there is this…

What is this? This is how Netflix is trying to enforce its anti-password-sharing effort in South and Central America. By taking away existing subscriber rights and, some would say, a core tenant of change that streaming represented.

If you can only watch a streamer in your home, how different is it, really, from the legacy TV experience?

Mind you, I don’t begrudge Netflix this choice or this effort. I get it.

Money is the enemy of Wonderland.

There have long been ideas about the future of free and the long tail and “information wants to be free” that make sense. Others, not so much.

Netflix was built - starting with the DVDs - on the idea that information wants to be cheap. The film and television industry made their content so cheap and so convenient that Netflix was able to turn it on itself and win big, twice. In its first incarnation, it followed the industry and cheap DVD distribution. In its second incarnation, it led the industry, though it was actually following what YouTube was doing for free.

The initial quality was so poor that the content owners were thrilled to be getting paid for it to be exploited. In 2009, YouTube launched 1080p service. In 2010, YouTube increased the length of videos you could post from 10 minutes maximum to 15 minutes for the first time. Some of us were allowed to post longer videos at the end of 2010 and before too long, it became widely available. My first 30 minute-plus interview posted on December 29, 2010.

Also in 2010, Netflix started paying “real money” to content owners, setting the bar at $100 million a year for Relativity and The Weinstein Company. (This came right after a period of union strikes and near-strikes over streaming, with the AMPTP claiming there was no money in it… within 6 months, there was a lot of money in it.)

Netflix quickly realized that they were in a race with their own success. And within 2 years, the then-very-expensive House of Cards was ordered.

A decade passed. And now, House of Cards looks insanely inexpensive by the new standards of hour-long prices. The outrageous $4 million an hour has become an $8 million an hour norm with many high-profile shoes now into 8-figure hours and a couple over $20 million an hour.

Meanwhile, the streaming proposition spread. The iPad launched in 2010. Other tablets followed. Watch it on your phone, on your iPad, on your computer, on your TV.

JUMP CUT: It’s 2022 and Netflix has lost about 70% of its stock value in the last year. Many of us would say that the new level of valuation is where it should have always been. But regardless, it has to sting.

Going into tomorrow’s Q3 Earnings Release, Netflix is leaning into the password sharing crackdown (as seen above) and advertising, which they released the first details of last week to thundering indifference.

Why didn’t anyone get excited about the ad tier? Because it is the crappiest possible version of Netflix, thus limiting the threat of cannibalism… and popularity. Offer the 4k, 4-user version of Netflix, with ads, for $12 and watch the stampede.

But the harsh reality is that the domestic 110 million household idea from the cable era is pretty much dead because of the efficiencies of streaming, even if the majority is still signed up for cable or satellite. Is 90 million the maximum? Is it 80 million? Or 100 million? impossible to know, but I lean lower than higher.

But what intriques me is that both of the legs Netflix is leaning on for the moment - both still pre-launch here in America - are steps backwards towards what legacy television has been.

Or as a friend on Twitter wrote, “It’s not Netflix. It’s TV.”

Again, I want to emphasize, I am not mocking Netflix here or calling it to task. The evolution of content engagement includes the unexpected consequences of Netflix and the entire industry chasing real and permanent change.

The other thing that Netflix is selling, but not really leaning on, is the theatrical window… something that all of its competitors (except Apple) have to manage. It’s not a choice, whichever way they lean.

I’ve already written about why the alleged breakthrough of Glass Onion being on 600 screens for 7 days is not a major change from what Netflix has done in recent years and how the The Penske Trade and other Sucker Fish Media sold this is an event even though the only movement was AMC and Regal also taking on 200 4-walled, non-premium screens for a week.

What is frustrating - and probably for Netflix too - is that Glass Onion is their most commercial film this year and probably will be their most commercial offering until Cunning Linguist, the 3rd film in the Knives Out trilogy. It’s not like they are going to see this as an experiment and then roll something out with a theatrical marketing budget and a 4-week, 2500-screen window next spring or summer.

That doesn’t mean that can’t do that. But it is clearly another big step from where they are and where they have been. If ever there was a sure-bet opportunity for Netflix to release a movie worldwide, do $400 million+ on a $135 million marketing spend, and then push a big fat theatrical hit to Netflix streaming by Martin Luther King Jr Day, just after Oscar nominations, this was it.

But they aren’t taking the shot… yet another sign that they aren’t really ready to be aggressive in new ways.

We know. It’s scary. The legacy industry gave you over a decade head start in streaming because they were scared of upsetting their own successful apple cart (excuse the fruit reference that could be taken as a pun).

I liek Netflix. Their business is solid. They have a lot of subs and a lot of revenue and the threat is not immediate. Anyone suggesting that there is going to be a significant exodus of subscribers anytime soon is selling you this on the way to the bridge you just wrote a check to buy.

But after being The Leader for so long… after such a successful reboot to streaming and then to being an original content model… after becoming as standard as a broadcast network throughout America and in much of the world…

Maturity.

Hair in places it wasn’t before. Can’t eat cheeseburgers at 2 am without feeling it the next day. The cute person taking your order at Starbucks calls you “sir” or “ma’am.”

Being the adult in the room has its privileges. And it’s liabilities.

I will cover your Quarterly tomorrow… but I know going in that there is almost no chance that anything major will happen beyond projections. We are in the moment before the major evolution of advertising into streaming, not just at Netflix, but everywhere. It has started, but not for long enough to change the dynamics of this quarter’s numbers at any of the streaming companies.

And I am sympathetic to your growing pains… because they mean you are growing. But you are also hanging on a little too tightly for your own good, just as I wrote for years about all the legacy companies being unwilling to make the leap to streaming and when they did, to be aggressive enough to make it a powerful change.

Fortune favors the bold.

But it’s hard to be bold and careful at the same time.

Until tomorrow…