Netflix Is Raising Prices By A Dollar (For Now)

So Netflix boosted their prices by a whopping dollar a month and the way a number of media outlets are gasping about it, you’d think they’d blown up their whole business model. (Wall Street, OTOH, reacted by sending Netflix shares skyward.)

But Netflix could raise their prices $5/month and no one would blink an eye—compared to the $100 or so most people pay for cable or even the $15 they pay for HBO, Netflix is still a bargain.

Which is what’s been troubling many of their wiser observers.

Why It Matters

Quick lesson on TV economics for those who were out that day: studios are the VCs of the TV world. They bet their money on a number of pilots in the hopes that one out of every dozen or so will become successful. And by “successful” we mean that the show will run for five seasons or longer, enough to be able to sell syndication rights and overseas rights, the two places studios still make lots of money. If it’s a show like The Big Bang Theory that lends itself to merchandizing (all those Bazinga! t-shirts), even better.

Selling a show to Netflix means a studio needs to give up those two money makers: Netflix is a form of syndication (House of Cards will be on there forever) and, since Netflix is now in just about every country in the world, overseas rights are off the table too.

Industry scuttlebutt has it that Netflix's deals include a huge balloon payment for those studios whose shows make it to a certain number of seasons (five seems to be the one we hear most often) to offset the loss of syndication and overseas revenue, and that some of those balloon payments are about to hit soon.

This worries a number of our Wall Street buddies who wonder how Netflix, which is already deep in the hole, is going to come up with the cash. The most common theories are raising their rates again and launching an ad-supported model, similar to Hulu, that plays off their strong data set.

Our guess is that it won’t be an either/or, but rather both and that given how much people like Netflix and how vast their offering is, it won’t be much of a problem.

That said, it may prove an impetus for people to finally do something about their $100/month pay TV bill. It’s one thing to pay for cable and an extra $9/month for Netflix, another when the Netflix bill is $25/month.

So we may see a lot of downgrading or “cord shaving” as people switch to more basic cable packages or to lower priced vMVPDs in order to offset the rise in their Netflix bill.

What You Need To Do About It

Nothing major is going to happen for another year or two, but whether you’re an MVPD, network or advertiser, you want to be prepared for when Netflix blows up the world. (Or at least the television industry.)

If you’re an MVPD (and we know we sound like a broken record on this) you should follow Comcast’s lead and strike a deal with Netflix so that they’re already part of your ecosystem. It will make everything easier if and when Netflix changes their pricing.

If you’re a network, you probably want to think twice about selling your programming to Netflix, given that they may actually start competing with you this time (though the likely losers will be smaller, less popular networks, not the larger broadcast and cable channels—people aren’t giving those up in a hurry.)

If you’re an advertiser, running ads on Netflix sounds like a great opportunity—all that data—but you’ve got a while before that’s a reality, if indeed it ever becomes one.

 

2. Facebook’s Not Making Friends In Hollywood Either

While no one in DC seems to be a fan of Facebook these days, reports have it they’re not making any friends in Hollywood either. It seems studios are confused at to what Facebook is actually looking for—“Not Game of Thrones” is about the only thing anyone seems clear on. (e.g., not a big production budget must-see type drama.)

Why It Matters

Facebook seems to want to make a bunch of niche-oriented shows aimed at younger audiences. That’s great if you’re making three minute videos, but, if we’re reading the tea leaves correctly, they seem to be ignoring many of the basic rules of television: most series fail, casting matters a lot, so does the showrunner and director, “niche” on TV is more like “cult”—people who’ll spend 5 minutes watching a video don’t necessarily want to spend a full half hour watching a show on a similar topic, and TV shows take a while to actually produce. (Unions and all that.)

That said, it’s an interesting theory Facebook is working off of, that they can launch a network comprised of a lot of shows aimed at niche audiences, none of which becomes buzzworthy within the mainstream media, but which manage to attract large and loyal audiences nonetheless. Facebook's been buying up a lot of niche short form content with large followings and so we suspect that's their theory on longform as well--that the whole is less than the sum of its parts.

Could be.

What You Need To Do About It

This is a wait and see situation for MVPDs and networks, mostly because it’s highly unlikely that Facebook will do a Netflix/Comcast style deal with anyone, at least not yet.

If you’re an advertiser, and you’re looking to reach a niche audience, and Facebook’s got some interesting ad deals, we’d say go for it. It’s at least worth some of your experimental budget, given their success in reaching those audiences.