Netflix’s next move

A few years ago, Netflix had said that by 2015, they would stop their DVD subscription, and have almost everything streaming instead. 2015 came and left, and we’re not only still have DVD subscriptions on Netflix, but their streaming service has become weaker, with fewer noted titles. At the same time, Netflix is being battled by the establishment, be it Hollywood studios, or internet and cableTV carriers.

Sure, I’d love to have Hollywood’s latest offers streaming for me via Netflix, but this is obviously never going to happen. Not for $10 per month anyway. If people could pay $25 (or even $50) per month, a more full Hollywood catalog could be offered, but that’s not going to gather a lot of subscribers because the price is too high. Creating tiers of subscribers (e.g. $10, $25 etc with different catalogs for each), will anger customers too. So what could Netflix do?

I personally see only one way out of this mess, and it’s two fold:

1. Adopt an iTunes & Amazon model, where most Hollywood movies and TV shows are offered for a rent price (e.g. $3-$5 for a movie, $1-$2 for a TV episode).

2. Produce in-house about 250 productions per year (instead of the current 50 or so — episodes are counted separately here).

Let’s run some numbers on a back of an envelope:
There are 30 million Netflix subscribers in the US today. Each pays $10 per month. This means it has gross sales of $3.6 billion per year. Taxes and operational costs aside, should leave the company with $2 billion to invest in its own productions.

What this means is that on average, each production can cost up to $8 million. Which is plenty of money to shoot amazing movies *if you employ the right talent*. Consider the recent and well regarded sci-fi movies “Another Earth”, and “I, Origins”, by the same director. The first one was shot for just $70k, and the second one for $1 million.

Also, considering that some TV episodes don’t necessarily have to cost more than $2 mil (at least for dramas), it means that some more expensive than the average $8mil movie productions can take place too. I certainly don’t see why the first season of “House of Cards” cost $100 million…

So anyway, every other day a new episode or a new movie can debut on Netflix, that no other service has access to. I’m personally in favor of smaller TV seasons of 6 to 8 episodes (instead of the current 10-13), with the 3 first episodes streaming immediately together, and the rest every few days. Overtime, all these new productions will accumulate, building a strong catalog.

The first couple of years might be rough, while the catalog is building, but I think it can be done successfully, since a lot of their current streaming deals will also be active for a while before they go offline from the subscriber version of Netflix (these can still re-appear on their renting side). Plus, some of these productions (e.g. documentaries) are cheap enough to license anyway, so they can still remain at the streaming side of things.

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