OK - read these articles, it won't take long.
The Economics of Netflix's $100 million show
HBO to Consider expanding HBO Go Beyond Cable Subscribers
House of Cards: Netflix's experiment in binging pays off
Now read the following and answer these questions in a new blog post:
- Describe the business models of these two companies - how do they make money?
- How are these business models becoming more similar?
- What are some good examples of Netflix and HBO's actions to develop online audiences?
- What are some good examples of how audience behaviour is changing in the online age?
In the online age film and TV distribution and exhibition
become increasingly blurred.
Already the best in moving image drama has left the big
screen and migrated to TV... Mad Men, Boardwalk Empire, The Wire, The Killing,
Game of Thrones are all good examples of how TV seems a more natural place for
the long story arcs and in-depth character development of drama – compared with
the 2-3 hour cinema experience.
The best way of looking at this is through several articles
which together represent a useful case study for the exam.
The Economics of Netflix’s $100 million show (House of Cards)
· The article starts by saying Netflix recently
announced (Feb 2013) they were, for the fisrt time, investing in new content.
It is important to understand that one of the things that has made Netflix
different from TV network broadcasters in the past is that all they have done
is make TV and films owned by other organisations available for streaming
through their service... customers pay them, and they pay the owners of said
content (eg Disney, BBC etc)
·
·
The next part of the article goes into some
serious maths based on US data – what it basically says is that it will take
half a million new subscribers to pay for an investment of $100 million – but with
over 33 million subscribers currently that is reasonable to expect...
especially when you take into consideration the idea that many of HBO’s subscribers
pay $7 per month just to receive one or two favourite shows.
·
·
It goes on to suggest that if Netflix continues
with its current business model it would eventually go out of business. This
because the cost of the rights to TV and film content is going up – its going
up faster than they are finding new subscribers.
·
·
A good example is that Netflix pays $1million
per episode for the streaming rights to AMC’s Mad Men... which can be viewed,
recorded and streamed on AMC’s (an American TV channel) normal schedule – so audiences
are not so willing to pay another subscription for something they already have.
·
·
“Exclusivity is king!” – What Netflix is doing
in order to draw in new subscribers – remember they need ½ million just to
break even on one season of this new show – is create their own super-popular
TV drama that customers won’t be able to get on any other channel. In order to
get people hooked on it they offered the first episode to non-subscribers.
HBO to Consider Expanding HBO Go beyond cable subscribers
·
This article, published 21 March 2013, describes
HBO’s recent announcement that its online service HBO Go might open up to
everyone, rather than those who have already paid for the cable channel.
·
·
The article goes on to say HBO Go is accessible from
various portable devices (iPhones, iPads etc) but at the moment only to the
cable subscribers.
·
·
It is then suggested that HBO Go – as an online
only subscription service – costing less than the full cable TV subscription
may encourage audiences away from illegal downloading and into cost-effective
(and fully legal) streaming of content.
·
·
The example they give is Game of Thrones – which
is currently the most pirated TV show in the world... in 2012 the season 2 finale achieved 4.2 million
viewers on the cable TV broadcast. But each episode was also downloaded on
average 4.28 million times. More people were viewing the show through unpaid
downloads via bit Torrent etc than paying subscribers.
House of Cards: Netflix's experiment in binging pays off
· The main point of this article is to discuss
Netflix’s strategy of releasing all 13 episodes of House of Cards at once.... A
TV channel would draw it out over 13 weeks.
·
· What’s interesting is that this highlights an
important change in viewing habits of audiences called ‘binge viewing’. It’s
not that new – been around since DVD box sets. Normal TV wisdom states that it
is better to have a week in between each new episode to allow audience
discussion and hype via the social networks... but Netflix chose not to do
this.
·
· Here’s an example: “figures suggest a significant
portion of fans “binged” on the entire series in the first weekend it was
available.” – in other words they watched all 13
episodes in one weekend.
What can we summarise from these 3 articles?...
Streaming services such as
Netflix started out strong, but now have rising costs for content and need to
change their business model to compete.
Investment in good original
content will bring profits, but must remain exclusive to the service in order
to keep subscription numbers up.
HBO must diversify to meet
with the demands of an audience who are used to web-only cheap or free services
and to try to combat piracy.
Ultimately Netflix is
becoming a bit more like HBO and HBO is becoming a bit more like Netflix.
Viewing habits of audiences
are changing. Not only from ‘time-shifting’ – watching things when you want to
instead of when they are scheduled – but also in terms of binge-viewing.
Making all 13 episodes
available at once catered for the binge-viewers but alienated those who like to
discuss developments online.
