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Netflix is going to need a lot of exclusive shows

13 May

house_of_cardsI’ve had a few intriguing chats recently with David Purdy, Rogers’ senior vice-president of content, about the status and prospects of Netflix. They were good conversations because they were very level-headed, which is contrary to a lot of the conventional wisdom flying around out there, which surmises that cable companies must surely view Netflix as the devil incarnate – a bitter rival to be crushed and destroyed.

There’s certainly no doubt that traditional television providers are threatened by the over-the-top provider, which is why, according to Purdy, they’re all looking to duplicate its services. But I found it interesting how he views the company overall.

“Right now it looks and smells very much like a premium pay service, like The Movie Network,” he said in an interview last week.

I take his point. Netflix is, essentially, an on-demand channel with a big catalog of movies and older seasons of TV shows. It’s different – and in some ways complementary – to traditional TV, which offers live news and sports and the latest “must-have, iconic” shows as its main value propositions. That’s why Netflix isn’t too different from, say, HBO.

Netflix’s big advantage over traditional television providers, or at least those in Canada, is that it can offer that big on-demand catalog over any platform at a relatively good price. And with the company continuing to grow globally, it’s achieving the sort of scale that is ultimately going to be hard to compete with. Right now, it’s disadvantaged in Canada because TV providers here are so heavily vertically integrated, which means they have existing relationships with content-producing studios and therefore online rights to a lot of content – but that could soon change.

“It’s possible [Netflix] could pressure the studios to throw Canada into a bigger global deal,” Purdy says. “That’ll be the tension point.”

The other new, potentially “game-changing” factor is Netflix’s headlong charge into producing its own exclusive series. If it really is a premium pay service like HBO, it’s going to need those series to drive subscribers and revenue. Purdy mentioned a recent conversation he had with AMC brass, who feel they need six to 10 exclusive hit series per year to stay relevant to subscribers, advertisers and distributors. “Anything less than that and one of those three relationships is at risk,” he says.

Netflix differs from that model in several ways. For one, it doesn’t have to cater to advertisers or distributors, seeing as it’s an over-the-top internet service. But more importantly, it may actually need more than 10 series to ultimately keep customers hooked. Since its strategy is to post every episode of a series at once, subscribers can binge view them very quickly, then ditch Netflix if they don’t see anything else that catches their eye.

Estimates peg this subscribe-and-quit rate – also known as churn – to be very high, at around 40 to 50 per cent of customers per year. Those same analyses suggest that Netflix needs high-quality, exclusive series such as House of Cards to improve customer stickiness.

The only problem is the math. Including House of Cards and the recently launched Hemlock Grove, which has received largely negative reviews, Netflix will have five original series this year. If a channel such as AMC, which airs individual episodes of its “must-have iconic” series once a week, needs six to 10 of them over the course of a full year to retain customers, how many will Netflix need?

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11 Comments

Posted by on May 13, 2013 in netflix, rogers

 

11 responses to “Netflix is going to need a lot of exclusive shows

  1. Marc Venot

    May 13, 2013 at 3:46 am

    Maybe they should look toward Bollywood which is producing movies en masse with the same scenario but people are still going to cinemas because there they are treated like VIP.

     
  2. russellmcormond

    May 13, 2013 at 10:32 am

    Whenever I hear the phrase “over the top” I ask “of what”? Thinking of Netflix as “over the top”, but cable TV as something different is antiquated analog-era thinking.

    We have wired and wireless communications technology that sends information — some of that is analog, but most is digital. Some of the data is organized as packets with Internet Protocol headers on them, and some of them are not — and some which have IP headers have private-network addresses, and some do not.

    For most people, that is all useless technical information. Whether I use Netflix vs Rogers cable or Bell telephone vs Vonage is irrelevant, and while claiming that legacy analog is “special” may have some truth, the digital stuff is not. Rogers “home phone” and Vonage are the same thing, except Vonage is more portable (IE: move your Vonage box to a different network connection and it still works. Digital video over Roger or Bell-maintained copper or digital voice over Roger-maintained copper isn’t any less “over the top” of something as any other digital service is.

    I suspect a Rogers VP has to think they are somehow “special”, given for some people the very fact they consider themselves “special” is what drives us away. I don’t want vertical integrated anti-competitive ties between the last-mile network facility into my home and any service that runs on top of that. I look forward to the future when the communications exception is finally wiped out, and municipal communications is handled similar to electricity, water, and other utilities.

    Even if Rogers manages to come up with an on-demand service better than Netflix, which I seriously doubt given their backward-facing ideas, I still won’t consider the service if there is vertical integration between unrelated services.

     
  3. Simon

    May 13, 2013 at 11:18 am

    I wonder why Netflix “needs” any original series. After all, they’ve reached their current position of strength based on non-original content. Seems to me that the main benefit of OC is being able to control the cost of content as subscriber numbers grow.
    @russell there is still a distinction to be made with OTT. Regardless of the encoding of the content (digital vs analog), if it is delivered via a proprietary network e.g. cable, satellite, it isn’t OTT. What makes OTT is the use of an internet connection which in theory makes the content agnostic with regards to the player providing the connection. That’s not to say that Rogers/Bell couldn’t create OTT content of their own, but Netflix is a pure OTT play.

     
    • Peter Nowak

      May 13, 2013 at 4:48 pm

      Hey Simon – I can see a couple of reasons why Netflix would want its own exclusive series. The biggest is the churn issue mentioned above. A lot of people might sign up, but a lot also quit. If there’s something new and good constantly coming up, that alleviates that to a large degree. Second is related to what you mentioned: pretty soon, everyone is going to have old shows and movies on demand, so not only might the cost of that stuff start going up, it’s also going to be harder to differentiate one service from another when everyone has the same stuff.

       
  4. trixxiii

    May 13, 2013 at 12:10 pm

    I dont understand vertical integration or OTT but i do understand cost and the fact the huge conglomerates bought our air waves, when before we could use those aerials on the chimney to get the signals and thats all TV entertainment cost as the ‘commercials’ paid for the programs and the companies got very rich on that alone – so why we are continually charged exorbitant $$$$ for mere ‘boob tube’ entertainment boggles my mind. We all definitely need alternatives to the huge bad boys like Rogers and Bell.
    Netflix would get my money if they also offered Closed Captioning.

     
  5. redneckonthetrain

    May 15, 2013 at 4:43 am

    Trixx, Netflix closed captioning is mostly here already:
    http://www.engadget.com/2012/10/11/netflix-closed-captioning-2014/

    Dave Reed, CEO of Netflix, is a very smart man who understands where he needs to go, and is going there on very limited resources. Everyday he is fighting major issues from the many businesses that are strongly resisting his business model. Right from having to deploy his own network infrastructure, to producing his own content.

    I believe that in the next two years Netflix will have enough buying power to start setting terms with the studios, similar to how Apple inverted the music market with iTunes.

    David Purdy will lose this fight because he is fighting against what consumers want. That being affordable anytime content that is good. Not old or new or exclusive, just entertaining. Perhaps something that can be socialized over with friends.

    Nowak, I would love to hear what you have to say after talking things over with Dave Reed.

     
    • Peter Nowak

      May 15, 2013 at 9:19 am

      You mean Reed Hastings, right? Here’s a conversation I had with him two years ago in which we touched on some of these topics: http://www.cbc.ca/news/technology/story/2011/03/29/f-netflix-qanda-hastings.html

       
      • redneckonthetrain

        May 15, 2013 at 10:39 pm

        Whoops. Please note the time stamp… Lol Dave Reed is just a random name in my head. Reed Hastings it is!

        I wonder how much his opinions have changed in two years?

         
  6. trixxiii

    May 15, 2013 at 3:06 pm

    Thanks Redneck and Peter – i am very pleased to hear all this as I am both an advocate for CC and also getting Rogers to lower their caps – its a total cash grab and yes its definitely not good for Canadians. I will be cancelling my HBO and other chanels with Rogers as soon as the CC comes in.

     
    • redneckonthetrain

      May 15, 2013 at 10:45 pm

      CC is mostly done I believe. As of the time that article was written, 8 months ago, Netflix was already 85% compliant. I will hazard a guess the last few points are legacy material.

       
      • trixxiii

        May 16, 2013 at 12:17 am

        http://www.huffingtonpost.ca/2013/05/14/reed-hastings-netflix-canada_n_3275761.html
        just happened to notice this tonite in Huffington Post.
        GREAT news i will be going back to Netflix asap.
        Ive been sending emails to many producers about getting more CC in the theatres, since Odeon is not in control of CC.for each movie, the individual director/producer company has to either authorize it or have in on the actual reel. Odeon is marvelous in that they supply CC contraptions that work nicely. I would think in this day and age something easier could be found to ensure CC for every single movie?

         
 
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