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Home » Our Take » What are we really paying for: A glance into the world of Unlimited Online Streaming

What are we really paying for: A glance into the world of Unlimited Online Streaming

Posted on October 23, 2014 in Industry Insight

Last night I found myself aimlessly browsing Netflix, when I came to a startling conclusion:
“There’s nothing to watch on here.”

That has become the new cliché replacing “500 channels and nothing’s on”, hasn’t it? It’s funny too, in a world where we can stream just about anything we want at any given time, it sometimes still isn’t enough. However it is great we have so many options. And at the end of the day what do all these options cost us? Just about $9.99 a month …and your data.

Netflix revolutionized film and TV with their pricing model much like Apple revolutionized the music world with ITunes. By implementing that price, it set a precedence to the rest of the industry by loudly announcing “This is what it will be worth going forward.” Customers then had an expectation of what to pay to stream entertainment (or in the case of Apple, the price of an individual song downloaded legally.) Companies that wanted to deviate were bound to fail. Even Netflix has run into the problem on more than one occasion. For example, they tried to drive a 60 percent increase in price for the combination of streaming and selling DVDs. In return, they lost roughly 800,000 customers and saw nearly an 80 percent drop in stock price. (Sandoval, 2012) 
Recently the company saw a major dip in their stock over a ONE DOLLAR INCREASE per month that was proposed back in April. (Liedtke, 2014)

The reason Netflix was able to completely wipe out brick and mortar video stores like Blockbuster is not simply a matter of convenience, but because rentals were significantly cheaper. If you remember, at the onset of Netflix they had to mail you your DVD of choice, forcing you to wait days to watch the movie, and selections were limited. Forget saving yourself a trip to the video store, with Netflix you could save on fees for multiple rentals PLUS the dreaded late fees. Now services like Amazon Prime and Hulu Plus are all around or slightly cheaper than the $9.99/month price tag because the only way to survive in the post Netflix world is to settle for that.

It’s not just movies and TV anymore either. Take for instance, World Wrestling Entertainment, who entered the streaming game this year with their own network. They not only offer any Pay-per-view show EVER in their entire history and most of their TV programming, past and original, but they have cannibalized almost their entire PPV revenue and opted to transition completely to the Network—all for the low, low price of $9.99, a number they not only beat into their audiences brains, but have even turned into a slogan and T-shirt to promote. (WWE Network, n.d.)

To give this some perspective, PPV revenue is a BILLION DOLLAR PUBLICLY TRADED corporation’s THIRD BIGGEST REVENUE SOURCE behind Merchandise and Event tickets. That’s like if Google completely abandoned Youtube to invest in an untested, new video app. Why would they do something like this? Well, for two important reasons. The first being that the owner of the WWE, Vince Mcmahon, sees streaming as the future and wants to get in the game sooner, rather than later. The second all important reason? Because streaming can open up new sources of revenue, through more advertising and user data.

There is a good reason you don’t see commercials on Netflix—they don’t have to. They can analyze just about every point of your viewing habits, from what you are watching to when you are watching it, to the device information you are watching it on—-all this for good cause. At the 2012 Hadoop Summit, Netflix Senior Data Scientist Mohammed Sabah stated that around 75 percent of what viewers watch on Netflix is based on recommended viewing suggestions inside the service. (Harris, 2012)
By knowing so much about their viewers, Netflix can take proactive measures to lower their rate of cancellations, increase their subscriptions, and even know what content they should buy and create. The first Netflix original show, House of Cards (the American Remake) is the best example to prove my point. By monitoring the successful metrics behind David Fincher’s The Social Network and the British House of Cards, Netflix was able to take a $100 million dollar gamble, which paid off in spades. (Carr, 2013)

The company’s push for more original programming has continued, with no real misses so far, and many more on the way. Next on the docket for Netflix is original movies, and they just signed one of the last few internationally bankable stars in the world, Adam Sandler, for a four picture deal. (Spangler, 2014)
With this major deal in place you should expect Netflix’s spend on original programming to increase dramatically from their current$300M. Similar services will follow suit. Many, like Amazon prime, already have. (Amazon Original, n.d.)

Companies like Yahoo and Sony are trying different combinations of the Netflix formula, from bringing back cult classics like Community (Furlong, 2014) or trying out shows based on popular properties with built in audiences. (Fool, 2014) Others, like Hulu, still offer ads along with their premium services to keep revenue high. The common denominator is that these companies keep us watching all thanks to the data we provide them.

So how’s the streaming business doing overall? Pretty darn good. Netflix wiped out pretty much all brick-and-mortar video stores in the U.S. (along with help from services like Redbox and OnDemand, of course) and has more than 50 million subscribers worldwide. Amazon even gives away Amazon prime if you buy one of their phones or tablets! However, not everyone is winning. The WWE’s stock price has dipped dramatically after almost doubling the month their network launched. The decreased stock price is a result of grossly overestimating their predicted number of domestic and international subscriber numbers by EOY. (Solomon, 2014)

However, I suspect they will right the ship eventually. Meanwhile, HBOGo is getting ready to launch and continue to distance themselves from cable (Anderson, Liedtke, 2014) and networks like CBS are eager to get involved in the streaming business too. (James, 2014)

What does it mean for us, the viewers? Well, we have more direct access to media than anyone in history. We are also, in a sense, unknowingly filling out marketing surveys to make it even better for ourselves each time we log in and watch something on one of these services. That’s the tradeoff though, and both parties win. For now, it’s not such a big deal. But as major companies like Google and Facebook have seen in recent years, tracking user data is a very fine line, and very easy to cross. We may not be so trusting of Netflix or Hulu or Amazon Prime five years from now. But, until that time comes, they’ll keep collecting our data as much as they can, and doing what we allow them to do with that information.

And for those wondering, I ended up watching The Grey last night. Netflix recommended it.

Sources:
http://www.cnet.com/news/netflixs-lost-year-the-inside-story-of-the-price-hike-train-wreck/
http://www.sltrib.com/sltrib/money/58526443-79/netflix-million-subscribers-company.html.csp
http://shop.wwe.com/WWE-Network-$9.99-T-Shirt/W08156,default,pd.html
https://gigaom.com/2012/06/14/netflix-analyzes-a-lot-of-data-about-your-viewing-habits/
http://www.nytimes.com/2013/02/25/business/media/for-house-of-cards-using-big-data-to-guarantee-its-popularity.html?pagewanted=all&_r=0
http://variety.com/2014/digital/news/netflix-signs-adam-sandler-to-exclusive-four-movie-deal-1201319066/
https://www.amazon.com/gp/feature.html?docId=1001155581
https://tv.yahoo.com/blogs/yahoo-tv/community-season-6-yahoo-204612640.html
http://www.nasdaq.com/article/the-death-of-cable-sony-wants-in-on-the-online-streaming-game-cm404118
http://www.forbes.com/sites/briansolomon/2014/04/07/heel-turn-wwe-stock-takes-a-dive-after-wrestlemania-xxx/
http://www.columbian.com/news/2014/oct/19/hbo-go-ing-away-from-cable-streaming-service/
http://www.cio-today.com/article/index.php?story_id=11100A95N7R0