[opendtv] Re: Netflix Is 6% of TV Business, 43% of Ratings Decline — Nathanson | Re/code

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Mon, 27 Apr 2015 07:57:40 -0400

Regards
Craig

On Apr 26, 2015, at 7:49 PM, Manfredi, Albert E
<albert.e.manfredi@xxxxxxxxxx> wrote:

Craig continues to get confused between a conglom and a broadcaster.
Really?

CBS is both. For now, Netflix is neither, but will become part of the content
conglomerate as it builds a library of content it can place into global
syndication.

CBS All Access gives you access to entire seasons of CBS shows, even old
ones, which the article claimed were a big draw to Netflix.

True. But old off network shows from All of the networks are what the article
talked about, not just one network.

Furthermore, I doubt even Craig can twist and turn enough to show that
Netflix produces as much original content as Viacom.

The number of original series is not the issue here, at least now that Netflix
has a proven track record and is creating multiple series every year. These
original shows significantly enhance the value of a subscription, as they
cannot be viewed anywhere else. Most of the library offered by CBS All Access
is available from multiple services, including Netflix. Maybe Bert will believe
another analyst:

http://thedesk.matthewkeys.net/2014/10/cbs-all-access-streaming-service-review/#prettyPhoto
CBS All Access: Is it worth your $6 a month?
But that’s where the service starts to fall short on its promises: You won’t
find many current episodes of hit CBS shows like “The Big Bang Theory” (only
five episodes from Season 8 are currently available), “Two and a Half Men”
(only one episode), “Mike and Molly” (only clips, no full episodes) or “Two
Broke Girls (again, only clips). CBS promises that full episodes of these
shows will be made available one day after they air on network affiliates,
though it is unclear how many of these shows will be catalogued for All
Access subscribers and for how long.

Even CBS’s classic library leaves a lot to be desired: Many of these shows
are already available to stream on other services that offer a lot more
programming for just a few more dollars. “Frasier,” “Cheers” and “Everybody
Loves Raymond” are all available to stream commercial-free on Netflix; back
episodes of “The Good Wife” and “I Love Lucy” are available on Hulu Plus.
Both services offer television programming and Hollywood films from other
networks and studios each for under $10 a month, while All Access limits
users to just shows from the CBS archive. The additional programming options
alone means customers are better off paying an extra $3-4 a month for Netflix
or Hulu Plus (or an extra $10 a month for both) over All Access.

Bert continues:

So, it seems to me that if CBS and the other networks decide to use the
Internet directly, to their advantage, as CBS has done but not yet the
others, they can take back what they worry that Netflix has taken from them.
As much as they could have done with the live streams offered by Aereo.

Once again, Netflix took nothing from CBS. They BOUGHT the rights to some older
CBS shows, paying billions to CBS and the other content owners. Aereo was
streaming the live linear network programming, and paying CBS NOTHING.

If Bert had paid attention he would have read:
What makes this more painful for TV networks and the Hollywood studios they
work with is that they’ve helped Netflix eat into their own business by
selling them their repeats — a very high-margin business they were happy to
have.

Now there are drumbeats that the studios will cut back on those sales, but
during Netflix’s Q1 earnings call, the company said it hadn’t seen any sign
of that yet. Then again, that’s one of the reasons Hastings has been
accelerating his investments in original content — he doesn’t want to depend
on the TV guys’ leftovers.

So Netflix created a service that made it easy to consume library content that
was being sold in the global syndication market. Using SVOD technology they
found a new market for binge consumption of these old shows.

Bert ignores the fact that the syndication market is ALSO primarily appointment
TV, and the shows are typically crammed full of even more commercials than when
they aired on the networks. By making the programs available on demand, without
commercials, Netflix created value that it could sell.

Obviously the networks can do the same with their content. They can even buy
from each other and create a service like Netflix. Oh wait - they do and it is
called Hulu.

But there are three long term concerns here.

1. If there is pent up demand for something, it can be met, as it was by
Netflix. But that demand is not endless. Once someone binge watches a series,
it is unlikely that they will watch it again. That is why the syndication
market is just one part of the long term value of a program - the more it is
made available the less it is worth, and eventually it becomes dated and mostly
worthless.

2. The networks can increase the pricing they ask for these older shows. They
are doing this to Netflix, which is increasing its subscriber fees to reflect
these increased costs.

3. The networks are making most of the money on these syndication deals -
margins for Netflix are razor thin. Netflix is responding by creating its own
high value content, which is also an expensive proposition, but critically
important, as this is what is attracting new subscribers, not the old library
content, which is available from multiple sources.

In the end, Netflix becomes a new member of the content oligopoly.

Craig, of course, has no idea how successful CBS All Access is, nor does he
have any idea of how successful other similar portals would be.

I have a pretty good idea, if for no other reason than the lack of information
from CBS.

If All Access were a huge hit, CBS would use this info to make it a bigger hit.
The reality is that most analysts believe the number is a few hundred thousand
at most. CBS was quick to point out the increase subscriptions for the NCAA
Championship game, but many of the folks who paid $6 to watch that game are not
going to retain the monthly subscription.

On the other hand, Netflix publishes subscriber numbers and it is relatively
easy to gauge their success and profitability based on quarterly earnings
reports. We know they have 40 million subscribers in the U.S. and are eating
into the already low ratings of the broadcast networks.

My take is that this is the future of TV. Craig, instead. Would have us
believe that the walled-garden monopolistic model of yesterday will be our TV
future.

If you are saying that a separate subscription will be required for each major
producer of content, and that multichannel bundles will disappear, I strongly
disagree.

If you are saying that consumers will have more choice, easier access, and the
ability to create bundles that are better matched to their viewing preferences,
I agree.

(Once again, finding I need to belabor the obvious.)

You can and do belabor everything.

Regards
Craig

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