It seems that a day doesn’t go by without one trade website or another talking about traditional media company launching a “Netflix competitor”. This epic, and excellent, analysis by Mumbrella’s Nic Christensen has a great summary for anyone who has been asleep for the last two years. It seems, at times, as if Netflix is viewed as the single biggest threat to the traditional media industry. This opinion was summed up recently by Rupert Murdoch, who said:
As an industry, we need a competitor – a serious competitor – to Netflix and Amazon.
Whilst there is no doubt that both companies, Amazon in particular, are fierce competitors nor that online video/IPTV is a serious business opportunity, focussing on them as if they are the biggest threat the industry faces misses, I think, two points. Firstly, the last few weeks have shown that both businesses are actually more traditional than they may previously have seemed. Last month saw Netflix’s stock fall after it released disappointing numbers. As Ben Thompson pointed out in his analysis of the results:
Netflix seems to be very highly elastic. In other words, there is a very strong correlation between price and subscriber numbers. This limits the upside of the stock.
Netflix is hit-dependent…In other words, Netflix can temporarily goose gains by releasing must-see shows, but it can’t sustain them.
Amazon has also had a bad few weeks. Or rather months. Since January it’s stock has lost 1/3 of its value. If we turn to analysis from Ben Thompson again, he highlights one of the problems with Amazon’s recent strategy – its investment in content (costing an estimated at $1 billion in 2014) is a distraction from its core business, ecommerce.
So, both companies are investing huge amounts of content (something that should be applauded) and are at risk if this doesn’t pay off. The news that HBO may be considering selling internet access to its content direct to consumers suggests that both may be at real risk and highlights the similarities between their businesses; it’s just that one has historically used cable & satellite to deliver shows to viewers.
With that in mind, which industry is it exactly that needs a competitor to two businesses that seem, to me at least, to be part of the content industry? Maybe the cable networks, but then that would mean they would need to stop getting such a big chunk of their (flat-lining) revenues from companies like Netflix & Amazon. And House of Cards probably wouldn’t have been made (and subsequently rebroadcast on Foxtel). As Kevin Spacey put it so eloquently:
If you watch a TV show on your iPad is it no longer a TV show? The device and length are irrelevant … For kids growing up now there’s no difference watching Avatar on an iPad or watching YouTube on a TV and watching Game Of Thrones on their computer. It’s all content. It’s all story.
The second point that gets missed when Netflix (and Amazon) are posed as existential threats to the media industry is that they aren’t the real enemy. If your business involves making money from content, whether through advertising or charging for it, then the enemy is piracy.
Just as the people who criticise the likes of Spotify for the music industry’s travails are blaming the wrong thing, so is anyone who believes that Netflix or the like are threats to the TV industry; they’re not, they’re just the next evolution of the TV industry. The enemies of Murdoch’s businesses are all the people who would rather illegally download a show than pay for it.
Not the search engines that people use to find the illegal streaming sites. Not the services that charge people to watch content. No, the people who have decided that stealing is an acceptable lifestyle choice, often because they don’t want to pay the (relatively high, in Australia at least) cost of cable TV where many of these types of shows are available, are the real enemy.
Foxtel have obviously recognised this and have reduced their prices as a result (trying to sue consumers into submission won’t work, as the music industry discovered about a decade ago). The questions now are how much how many people will be willing to pay. If Netflix does launch here, there will be 4 or 5 major streaming services, each likely to be priced at about $10 a month.
This means people might need to pay up to $50 a month just on streaming services to (legally) access content. Or, about as much as a basic Foxtel package is already. Seeing as only 30% of people do that now, why does anyone think people are suddenly going to start doing it in the next year or so? It certainly won’t be because of (pretty bad) branding.
There are probably a set number of people who will pay for content and all of these services competing against each other will ultimately do little to combat piracy. If the whole industry were to come together, by which I mean the whole industry, then they probably could. Or when a couple of these services have failed, and the others can pick up their content rights.
So, probably the latter.