Just a few years ago, media executives thought theatrical releases didn’t benefit their streaming services. Now, many of them think the opposite.
For much of the past decade, Hollywood executives striving to catch Netflix started believing that the only way to increase the subscriber numbers for their own streaming services was either by significantly narrowing the time between a film’s theatrical release and its appearance on streaming or by putting both out simultaneously.
But the industry has now largely come to a very different conclusion: The key to making a movie a streaming success and attracting new subscribers is to first release it in theaters.
Especially since the pandemic, this “user obsession” has driven tech-minded folks at streamers to demand that movies be released day-and-date on streaming services. “Consumer preferences” — that people should be able to watch anything whenever they want, wherever they way — dogmatically drove this agenda.
But beyond customers asking for it in surveys, there’s no evidence that this makes business sense or actually caters to the customer. The theatrical hype machine and word of mouth is part of wanting to watch something in the first place. I wrote about this in 2017 when Disney first hinted at day-and-date. No amount of streaming marketing can buy theatrical’s inherent offering: placing a movie into thousands of multiplexes across America. It’s like instantly scaling an experiential event into 5000 cities. Why pass that up?
Now imagine you’re Disney or Universal and you actually rely not just on streaming (like the example in this article, Amazon’s original “Red One”) but need to be able to sell derivative merch, products, games and parks tickets for years into the future. You need a red carpet and a theatrical release to launch the multi-year momentum required for that kind of lasting IP.
Media companies face some challenges but bundling is a solution—not a problem.
I thought about this when reading this recent Deadline op-ed which argued that streaming bundles replicate the flaws of cable again.
As streaming bundles proliferate, competition among them will drive innovation and affordability. I think bundles can be outrageously accretive and we’re just at the beginning. Although there are many more, three reasons they are superior come to mind for me: personalization, bundle innovation and advertising realignment.
Personalization increases engagement with smaller libraries
Machine learning and AI enable bundles with smaller libraries to create more engagement. By tailoring recommendations to user preferences, smaller libraries can bubble up the most relevant content from deep in their catalog, ensuring viewers needs are met without as many options under the surface. In the old cable model, we had access to hundreds of channels but only tuned in to a handful and only a fraction of the media cos’ libraries could even air at a time. When streamers begin (actually, truly) relying on personalized homepages and merchandising, they will be able to cater to viewers’ interests with less content. And even start green lighting against those signals. That means I could meet my family’s needs by subbing to a sports, movies and kids bundle with less total content — but as much (or more) viewing hours for me as a consumer. Why would people pay less wallet-share for this?
Innovative bundles cater to consumers (and contribute $$$)
As media companies rushed DTC, they began foregoing other windows to consolidate audience. This is only the beginning of streaming; media cos will inevitably evolve to find windows again. If bundles proliferate, they can begin to cater to different consumer needs, each supporting a new window. Consumer needs can span interest, price point and even cross-industry businesses– hardly any of these are fully explored. Niche bundles are already a thing (Shudder, Crunchyroll, Hallmark) and many more are obvious: kids, sports, news, short form. That’s without any real innovation yet. For instance, a “low-latency live + gambling” bundle could command a window for some sports. What other industries outside of streaming could be integrated into a bundle? Health tech, GenAI, consumer products, gaming… Niche bundles offer a way to monetize underrepresented audience segments while spreading risk across a diverse portfolio of content, ensuring more stable revenue streams for media companies.
Streaming advertising will eventually re-align with viewership
It may take more time, but advertising dollars will come back to TV as the marketplace becomes more efficient. The piece makes an argument that TV was bloated with ads in the late 2010s and Google/Facebook have captured ad demand. Advertising dollars follow viewership, and while viewing habits have shifted, the total audience remains constant — eyeballs don’t disappear, they go somewhere. Indeed, people are watching less linear TV… but that viewing has shifted to streaming TV. Some leisure time has gone toward gaming and social media; but streaming TV + linear TV still commands the majority of entertainment time spent across all age groups. Even though ads are being bought through Goog/FB/Amazon, this doesn’t mean viewership resides on Google search and facebook.com. Amazon is a great example where their ad growth is in Prime Video… which is a bundle that’s ad-supported. These are platforms that ultimately sell (or will sell) those CTV eyeballs. For competition and consumers’-sake, expect them to optimize frequency, encourage dynamic creative and innovate new formats. As market efficiency returns to TV advertising, those dollars will return to media companies.
Netflix is killin it and I continue to be bullish on their future. There’s one corner of the business I’m afraid they’re being just a little too pensive about: mobile.
This year, they’ve launched some of their first short-form programming and some new native portrait features in their mobile apps. But I’m afraid this won’t stop other mobile competitors — Google and Facebook — from locking them out of this critical piece of the entertainment pie. Now is the time for them to begin spending in the mobile content space and here’s how they should begin.
Why mobile is critical to Netflix
Let’s start with why Netflix should care.
There’s an obvious massive market of short form video consumption, well-proven by YouTube and Facebook. 34% of global internet video traffic is shortform. So, when Netflix says they’re competing with all forms of entertainment, this seems like an obvious adjacent area to pick up some additional engagement — whereas interactive, live and sports are much more of a moonshot.
But I think all of that frames this as a business expansion opportunity when I actually think this is a threat to Netflix’s stranglehold on the streaming market. Have a look at this graph, which explains the userflow of new subscribers to the service.
When this slide first broke, a lot of emphasis was put on the fact that after 6 months, 70% of Netflix subscribers were watching on a big TV. What stands out to me is that 10% are STILL watching on a mobile phone. Just 1 month in, more than 15% are still struggling to watch long form TV shows and movies on a tiny mobile screen. And right from the getgo, a full THIRD of Netflix’s new users start on a mobile device.
We are in a mobile world and who cares that people watch more content on their mobile phones — people TRANSACT more on their mobile phones. Enough people subscribe to Netflix straight through iOS that they’re trying to bypass Apple altogether — another sign of just how many folks sign up on mobile. Given that Netflix’s model is dependent on one giant transaction at the top of the funnel (their subscription), many more of their new customers are entering their ecosystem through mobile phones. And this user flows shows just how long it takes that mobile customer to begin finding big-screen-TV-type-value in their subscription. Were Netflix to actually provide valuable mobile content during that couple-month transition, they’d reduce churn among new users. (Still another strategy would be a freemium model of mobile-only content to lure users through the paywall when they realize the app’s value on another screen.)
What Netflix is already trying in mobile
Netflix is not completely blind to this. They’ve launched a few new short-form originals and mobile products this year. For those trying to reverse-engineer their mobile content strategy, here’s a recap of their short form content:
The Comedy Lineup (15 minutes) – Mini stand-up comedy specials
Explained (14-18 minutes) – Newsmagazine (Vox)
Follow This (16-18 minutes) – Newsmagazine (Buzzfeed)
Comedians in Cars Getting Coffee (12-25 minute) – Celebrity interviews with Jerry Seinfeld
Marching Orders (12 minutes) – Docuseries
Cooking on High (14 minutes) – Competition reality
In the scheme of Netflix’s $6 billion content spend, I’d call this an extremely modest beginning — it’s really just a test. It’s heavy on news and unscripted, there are no filmmakers, high-value talents or standout IPs. I estimate their 2018 spend on short form around $20MM at most. To make a meaningful move into mobile, they’ll need to spend 5-10x that.
How Netflix could form a mobile content strategy
It’s clear that Netflix needs to get into the mobile content game ASAP. But how? So many short form content platforms from go90 to Watchable have flamed out because of a lack of distribution.
Broadly, I’d approach this similarly to the rest of Netflix’s business:
START FAST with a mountain of inexpensive mobile content that’s easy and fast to launch.
PIVOT TO PREMIUM – Use the analytics gathered from starting fast to inform a mobile Originals strategy and finance exclusive new series.
Why this two-part strategy always works is the subject of a whole other blog post. But Netflix is in a unique position to build a war chest of start-fast mobile content at a low cost-per minute without sacrificing their premium values. Step one of fast/easy/quick mobile content — pretty obvious — is licensing. Now is a fantastic time to cheaply license premium mobile content. Every mobile content studio is clamoring to work with Netflix which earns them outrageous leverage. Plus, many of them were gifted back go90 or other mobile series that they have no place to distribute. The second source of start-fast content is probably less obvious: the content they already have. Netflix outright owns a lot of their shows and by getting creative, they’ll find a new life if they’re re-cut for a shorter runtime or carefully cropped for a vertical screen.
When audiences coalesce around their start-fast mobile content, they can decide where it makes sense to pivot to premium, maintain licenses or trim back.
In sum, I think mobile is a crucial growth area for Netflix and a place they have some natural competitive advantages. They could quickly turn a source of churn into a new source of revenue and expansion. I predict they’ll make some dedicated moves in this space but it’s going to take a larger commitment to realize the potential mobile content has in Netflix’s future.
