Movie Studios May Be About To Learn That Netflix Has The Leverage

from the over-and-over-and-over-again dept

Tue, Mar 24th 2009 11:33am — Mike Masnick

You know how movies studios keep making the same movie over and over and over again with just slight changes? It seems that the entertainment industry simply has a problem recognizing that doing the same thing repeatedly won't lead to different outcomes. In particular, the entertainment companies continue to think that because they own the content, that they somehow have leverage against the new generation of distributors -- missing out on the fact that it was always the distribution side of things that gave them the leverage, rather than the content itself. That is, they're overvaluing the content and undervaluing the services that make that content useful. That's why the record labels were unable to realize that they handed Apple tremendous power over digital music sales. It's why the record labels still don't seem to realize that they need YouTube more than YouTube needs them.

Now it's the movie studios' turn.

Jeff Nolan points out that the movie studios are apparently pissed off at Netflix, saying that they're trying to renegotiate deals on tougher terms. As Nolan points out, those studios may discover they have a lot less leverage than they think. If a studio pulls its movies from Netflix, those studios may find that it hurts them a lot more than it hurts Netflix, which has increasingly built a dominant position in the movie distribution space. Yet, of course, because these firms overvalue the content, they don't seem to be able to see this coming, despite all the foreshadowing...

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Filed Under: leverage, movie studios
Companies: netflix

37 Comments

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:Lobo Santo, 24 Mar 2009 @ 11:52am

Foreshadowing
Ya know when you're watching a horror movie, and your shouting at the bimbo on the screen "Don't go in there, you'll die!!" . . . ?

That's just how it works. To those not playing the game, it's obvious. If you happen to be worked into the script, you're probly screwed.

Just my 2 pesos.
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Weird Harold's former #5 fan, 24 Mar 2009 @ 11:59am

Yeah, I want to first find out which studio produced a movie (like I really care - I just want to watch the stupid thing) and then find their specific streaming site to watch said movie - after I pay their individual streaming subscription fee, of course.

One sentence in the comments for the original piece sums up the entire problem with the studio's idea perfectly -
NO ONE in the entire world wakes up and says “I feel like watching a Paramount movie today” and then will go the Paramount section of a retail store.
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Yakko Warner, 24 Mar 2009 @ 12:05pm

I've seen this play.
This act ends with the studio pulling its content.

In Act 2, the studio tries to come up with a "competing" service. In every way inferior with Netflix, it falls flat on its face.

In Act 3 (set in Washington, DC), when the studio realizes it has only hurt itself, has wasted millions, and no one is watching its content that it won't make available, it'll say Netflix is somehow too powerful and must be regulated.
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Weird Harold, 24 Mar 2009 @ 12:06pm

There is a tipping point in all of this for both sides.

If all the studios pull the content, netflix is in serious trouble very fast - no movies, no business.

If one studio pulls the content, they lose distribution.

Honestly, all the studios together could go off and do their own thing and pretty much duplicate out netflix and go from there. But Netflix can do what they do cheaper, better, and so on. It's another middleman in the process, but hey, what can you do?

I suspect that Netflix and the studios will come to a new deal that will pay the studios a bit more, and netflix will turn around and raise their rates on the back of it (and possibly even raise them slightly more than needed and blame it on the "greedy movie companies").

In the end, it can be a win for all (except the consumers who pay more).
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R. Miles, 24 Mar 2009 @ 12:08pm

Leaking air from a tire.
The entertainment industry reminds me of a group of teenagers.

No matter how much you try to educate them, they dismiss the advice completely and do whatever they want.

Usually coming back with their tails between the legs.

Sounds like Weird Harold, too!

Alas, let these idiots run off and do their stupid path in life.

I'm sure Netflix will wait to see the drooping tail, then dictate even better negotiations to favor themselves.
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R. Miles, 24 Mar 2009 @ 12:09pm

Re:
You must not read the linked articles. This isn't about their DVD library, but their streaming distribution.

Even if streaming is cut off, Netflix will continue, usually with a message to subscribers about the changes it had to do.

Much like the stupidity of Viacom to Time Warner/Brighthouse cable company.
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Weird Harold, 24 Mar 2009 @ 12:13pm

Re: Re:
R Miles, you are the short sighted one, aren't you?

if the studios leave, they could leave lock stock and everything else - including the DVD business. Honestly, the DVD business is just a "shiny piece of plastic" thing that is going away in the next few days, so all we are talking about is streaming or downloadable content right?

Without content, Netflix is "null". Sort of you like your posts.
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Shawn, 24 Mar 2009 @ 12:31pm

If the 'studios' all go off and do their own thing together they have a few HUGE antitrust/monopoly/collusion issues to get through first. If a studio pulls their dvd's from Netflix They are sending a huge 'we are clueless' message to all. Ignoring that streaming video content is one of the only 'legit' content delivery method that is not facing a downward spiral of diminishing interest will doom the content owners.
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Matt, 24 Mar 2009 @ 12:38pm

Re: Re: Re:
Sounds like you don't understand.

If they leave streaming, netflix won't care.

If "the studios" leave netflix, netflix won't care. Studios have more business to lose than netflix does by them leaving. this is because the "studios" are not what hold sway with netflix's core business. People are not going to suddenly flock back to blockbuster just because netflix is gone. It's the indie/hard to find films that netflix more business from, and other aspects of their community.

Meanwhile, if the studios lose more of their own business, thats not exactly a smart business decision is it?
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GHynson, 24 Mar 2009 @ 12:38pm

Better Then Netflix
It's called a constant stream of pirated movie torrents to my ftp site.
That way,..both corporate BS'ers are lose out.
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Anonymous Coward, 24 Mar 2009 @ 12:39pm

Re: Re: Re:
no weird harold, you are missing the point all together.

1. netflix is a proven business and business model. as a studio you can't just pull your content, you in turn lose viewers and also cut a stream of revenue. you can do it but its a pretty stupid business decision. some money vs no money

2. the studios lack any alternative site/distribution method.

i'd love to see them pull their content. just makes us consumers even more likely to go and torrent the movie to spite the industry and its lack of foresight, business models.

why is there piracy? because the industry lacks platform. netflix actually has a great platform/model but it seems like the industry is pissed because they can't control it (like they had previously prior to the interwebs)

just my .02 though.
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Anonymous Coward, 24 Mar 2009 @ 12:41pm

Re:
I would like to point out the converse by stating that on any given day I would avoid the Fox movie section.
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sdsummer, 24 Mar 2009 @ 12:43pm

re:
The studios could pull there movies from the netflix streaming but they can't pull it from the dvd/blu-ray side as Netflix purchases the discs.
If the studios pulled there films from the streaming service and I was netflix I would leave the movie in the listings. That way when someone clicks to watch it you could display a message about which studio pulled the movie and why.
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Brian, 24 Mar 2009 @ 12:47pm

And, Weird Harold, pray tell us what the point of a studio without distribution channels would be?
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Anonymous Coward, 24 Mar 2009 @ 1:09pm

I'll just get it at the BAY!
Note to Movie Studios: If I can't watch your movie via Netflix stream it now (or another legal streaming site), my next stop is The Pirate Bay! I have absolutely no problem paying for what I watch, but I'm not going to inconvenience myself to pay for it. Stop shooting yourselves in the foot by making it more difficult for me to pay for content than it is for me to pirate it.
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hegemon13, 24 Mar 2009 @ 1:18pm

Re: Re: Re:
"if the studios leave, they could leave lock stock and everything else - including the DVD business."

Actually, you are wrong about this. Netflix does not need the studios' permission to rent movies. They only need legally-purchased DVDs. The right of first sale guarantees their right to rent those discs?

We also know Netflix is willing to go to any lengths to provide a complete selection. How? Because they already have. When the Weinsteins signed an exclusive rental deal with Blockbuster, they cut off their distribution to Netflix. Without missing a beat, Netflix literally sent employees into Wal-Marts to buy copies of the movies to rent out. I am sure they have found other supplier solutions by now. Weinstein movies are still available on Netflix, but you don't get the "features" of rental DVDs, such as a ridiculous string of unskippable trailers and anti-piracy messages.

Another example is Redbox. Universal cut off their immediate suppliers. So, they found other supply solutions, and Universal titles are still available in Redbox.

Netflix is not going anywhere, despite what the movie studios might try. Our copyright laws might be ridiculous in some ways, but one thing they got right was not allowing content creators to price fix or control who gets to distribute beyond the initial sale.
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Joel Coehoorn, 24 Mar 2009 @ 1:18pm

I don't know
If netflix suddenly lost 1/4 of it's inventory, and they just vanished from my queue, I might not want to keep my account.
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deadzone (profile), 24 Mar 2009 @ 1:30pm

Here is the problem
You want to know the problem in a nutshell? It's in this quote right here:

"Hollywood studios appear to be waking up to the threat posed by Netflix's instant-watch service, which the company says is being used by millions of its subscribers,"

Waking up to the THREAT... It's not a threat you ignorant buffoons! It's a legitimate way for people to consume your content.

It's gonna suck for us for a little while but I really hope Netflix takes the hard line and shows them who is in control. At some point you just have to shoot the horse if they refuse to be taken to the water.
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Jason, 24 Mar 2009 @ 1:46pm

The studios have placed harsh restrictions on every digital download system. AppleTV, VUDU, Netflix, Amazon VOD, are all under pretty much the same contracts, hence you see the same availability and rental hours/download and purchase options from all of them. It gives the competing services almost no room to compete. Every box essentially does the same thing, just in different quality.

It's a shame that those companies can't compete and lower prices for the consumers. Or make more movies available.

And now the studios are trying to take what they have given these services away. Terrible.
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Anonymous Coward, 24 Mar 2009 @ 1:46pm

Re: I don't know
Except that it's not the DVD's that would be pulled but the streaming content. You're queue would not change.
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Anonymous Coward, 24 Mar 2009 @ 1:50pm

Re: Jason
Why do think that Bittorrent is so huge?
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Weird Harold, 24 Mar 2009 @ 2:02pm

Re: And, Weird Harold, pray tell us what the point of a studio without distribution channels would be?
Do it themselves.

Ask Apple to do it.

Ask Microsoft to do it.

Ask Amazon to do it.

NEXT!
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Jesse, 24 Mar 2009 @ 2:14pm

Those are other distribution channels, yes, but that isn't the question. Why would they turn around and treat Apple, Microsoft or Amazon any better? Why wouldn't those distributors respond the same way as Netflix to a bad deal? If the studios do it themselves, then they would probably be offering the consumer a bad deal (instead of Netflix, who would have to pass it on to the consumer).

WH go back to where you came from. Do you have a fetish for advertising your stupidity or something?
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Ben, 24 Mar 2009 @ 3:07pm

No originality at all!
Two Hulk movies within 5 years, endless spinoffs of every kind. One remake after another. You would think that with the limitless palette available to today's film makers that they could come up with something better than movies based on video games and 60's TV series's, let's not forget that 1930's & 40's B&W films are the new 21st century full color blockbusters!
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Weird Harold's clone, 24 Mar 2009 @ 3:27pm

Re: Re: And, Weird Harold, pray tell us what the point of a studio without distribution channels would be?
We'll start eating everyone's babies until they comply.

Give me money!
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Mr Big Content, 24 Mar 2009 @ 4:54pm

Not Fair
It's not fair that mere distribution networks like YouTube and Netflix have so much power over the companies that did all the hard work of actually owning the content. We need a free market that works in our favour, not in their favour. It's clear the Government hasn't passed enough laws; we need more.
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Anonymous Coward, 24 Mar 2009 @ 4:55pm

Re: Re: And, Weird Harold, pray tell us what the point of a studio without distribution channels would be?
The issue with this is that it is very, very, very difficult to build up a Netflix user base. If it were that easy, Microsoft, Apple, Amazon, and Bloackbuster would have already done it. So would the studios.

The biggest obstacle to doing it is that you have to compete with Netflix. They never stop competing. Do you remember an article a few months back when Netflix started talking about what they needed to do to compete with hulu? Hulu responds by removing itself from competition.

I know you don't believe in capitalism and free markets, but try to understand that industries owned distribution because there was no competition. Now there's competition to distribute.

The movie studios can pretend that hasn't happened, but it's out there. And everytime you see an exec complain about piracy, I hear someone say, I don't like competition, it lowers my profit.
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Chris, 24 Mar 2009 @ 9:35pm

I don't buy the premise that the distribution is more important than the content.

I'm a Netflix customer, but without studios making movies and TV shows, Netflix would have nothing to send me.

Same thing with a movie theatre- if nobody made movies, the theatre would have nothing to show.

And YouTube would not exist without lots of people sending content to it.
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Anonymous Coward, 25 Mar 2009 @ 5:47am

Re: Re: Re:
Are you suggesting that, in order to kill Netflix, the studios stop producing DVDs? You don't think that would be a little bit, you know, Pyrrhic?
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deadzone (profile), 25 Mar 2009 @ 6:31am

Re:
Without distribution they have nothing. You can have all the content in the world but if it's not distributed it won't matter one bit.

You truly believe that the content industry could do distribution on their own? They don't even seem to understand the concept of distribution.

It bears repeating. Without services like Netflix, Amazon, Vudu, etc... they are nothing.
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greg, 25 Mar 2009 @ 9:07am

Re: re:
you're wrong. they did pull movies, recently too. Notice how Gran Torino and Day The Earth Stood Still had been listed as coming available soon, then changed to "unknown" release date. I pre-ordered Day The Earth on Amazon, which releases in early April, but on Netflix it is now listed as "unknown release date". So some studio(s) did pull the cord on Netflix.
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SunKing, 25 Mar 2009 @ 9:19am

"If all the studios pull the content, netflix is in serious trouble very fast - no movies, no business"

AHAHAHAHAHAHAHAHAHAHA...............

"Do it themselves"

AHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA.... (ie. even funnier!!)

Oh Harold, Harold, Harold. Such an active imagination.
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deadzone (profile), 25 Mar 2009 @ 12:13pm

Re: Re: re:
Heh, I am not saying they won't pull content off of Netflix, I am just saying they are stupid to do so and that they will find out soon enough that they need Netflix a lot more than Netflix needs them.

While the concept of them hoarding all of their stuff and not letting anyone distribute it seems stupid, this is essentially what they are doing in a limited way by doing stuff like that.

I mean, it has to be asked, what is the purpose of releasing a movie to be streamed via Netflix for only a certain amount of time? What benefit do they gain from this? All it does is make the content they supposedly want to distribute less available instead of more available.
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TJ, 25 Mar 2009 @ 8:08pm

@greg re pulled movies
What greg? The Day the Earth Stood Still has a Netflix release date of April 7, same date Blockbuster lists. Gran Torino has no release date at Blockbuster, just like Netflix doesn't. Don't know if that has changed, but sometimes studios do just decide to change release dates, and sometimes they don't immediately share the new dates with anyone. No conspiracy here, sheesh.
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nasch, 26 Mar 2009 @ 10:13am

Re: Re: re:
That doesn't mean the studio can prevent Netflix from carrying the movie. Netflix can go out and buy copies retail if need be, they're probably trying to work out a deal for wholesale prices.
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NYC Movie Place, 6 Apr 2009 @ 7:54pm

Leverage
I was in the home video business for years and the studios always manage to kill a golden goose. They helped create the dominant distribution arm that is Netflix. Does anyone remember the time long ago when Blockbuster had the leverage over the studios? Independents, which had built the industry were left out in the cold. Blockbuster started dictating the terms of VHS purchases. Thank god for the DVD. When the indies like me stopped buying VHS (almost immediatly upon the introduction of DVDs) at $60 -$70 wholesale, it sent a message.
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Roger Drummer, 31 Jan 2011 @ 4:48pm

before Directv and Dish Net, cable could pretty much tell ESPN how much they were willing to pay for the channel.

now, with cable, satellite, and the telephone companies, offering multichannel products, ESPN can play cable against Directv, against Dish Net, against U-Verse and FiOS, and distributors have to pay or lose customers to a competing distributor.

distribution is king, only when it has some level of monopoly over that distribution.

when distribution has to compete against relatively equal distribution models, and the customer has access to multiple distributors, the balance of power goes back over to the content owners, who have a monopoly control over their titles, and can play one distributer against another.

Netflix had a monopoly over their distribution model, which was rent through the mail, and monthly charge as opposed to pay per video.

streaming will kill that monopoly the instant a 2nd streamer appears. cable, satellite, and the telcos, are already set up to compete head to head, at least on the new release side, especially cable with VOD. all that's keeping cable from competing now, is clinging to their traditional models of premium channels, (HBO, Showtime, Starz), their traditional pay per view VOD rental business, and wanting that 3 tiered revenue stream. (pay per view, premium, advertiser supported channels.

they switch the model for the newer releases from pay per view to all you can eat for one price, and Netflix says ouch. (but they would have to cannibalize their existing models, which is good for Netflix as a differentiated model)

content will always be a monopoly as to any individual title.

therefore, at least as far as blockbuster titles go, content will rule in the end.

distribution models will come and go, and they'll enjoy monopolies for only limited periods of time.

must have content will rule other than periods when a distribution model enjoys a window of monopoly.

theaters, HBO, video stores, pay per view, Netflix. distribution has gained leverage by innovating, and bettering the previous distribution model. once you can sit on your couch, push a couple of buttons on a remote, and access any title any time you want, from more than one distributor, i'm not sure where distribution can go, inovationwise, from there to wrestle control back for another window in time.
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