Hulu Pays For High Loyalty Content That Mainstream-Chasing Netflix Can’t Afford
This is another step in the direction things are heading… one I didn’t really expect.
The Criterion Collection, the dominant cineaste’s Home Entertainment label, is moving to Hulu after about 18 months streaming on Netflix. And they are moving the whole thing. Over 150 titles right now. And over 800 titles, once the last of what Netflix’s streaming rights expire.
Why?
Because Netflix is spending so much on its other content deals, now all quite expensive, that a mid-range deal like Criterion is too expensive and not highly prioritized enough to get done. That opened the door for Hulu.
But here is my take… in a few years, Criterion and the like will be all that is left to Netflix… and depending on how the business model evolves – remember, Hulu is owned by studios – perhaps to Hulu. Some business will have to be the streaming home of indie product. The numbers will not be nearly as big as for mainstream product. But it will be a viable business because, like Disney and kids, the loyalty to high-end product is enough to drive subscriptions. Not 30 million subscriptions. But maybe – pulling a number out of the air – 5 million… when combined with other product?
There will come a tipping point studios and library owners see the potential for more profit in making their product available directly and not through Netflix, which cannot afford to keep expanding their slice of the market or to pay the kind of rates it is now paying for a slice of the market. And keep in mind, only starts streaming after DVDs are released and sometimes 28 days after that.
And when that day comes, if Hulu remains aggressive or other players make serious entries into the business, Netflix will be left with either a very small slice of the market or be forced to sell itself – essentially, if not literally – to one or two studios to front what will essentially be an in-house post-theatrical streaming business. That’s when content like Criterion will be critical.
What a lot of people seem to forget about the internet is that it isn’t brand loyal. It’s true that there may not be a clear Sony brand, for example, that screams to people to buy a channel of only Sony product. But on the web, packaging is a matter of will, not real estate. Somewhere, there is a server that holds this studio’s movies (and TV shows) or that studio’s movies (and TV shows). You want all the studios? Here’s a price. You want 3 of the studios? Here’s a price. Just 1? Here’s a price. Set-up doesn’t require a proprietary wire going into your house. Access is not any more challenging than a strong wi-fi signal.
As long as Netflix feels to people like the cheapest, most complete way to access movies, they will have a massive subscriber base. But that reality is becoming less true and the illusion, as they spend more and more for content, is becoming harder to maintain. Losing Criterion is a big deal to people who love movie history. Netflix is one step closer to really streaming aging content from studios that is available on a somewhat inconsistent basis.
Some have painted me as a Netflix basher. But I’m not. I’m just a realist. The only way Netflix 3.0: The Streaming Era really works is with a lot more subscribers or a lot lot price for the content they are streaming. And if that price comes down, some studios will find that tipping point and stop making their product available to Netflix to stream. It’s not an attitude about Netflix. It’s just math.
There will be plenty of streaming. More than you ever imagined. And with better quality to more devices. But to stay alive in the market that they led experimentation into, they are going to have to have yet another great idea that keeps them from being cannibalized by their current content providers.
I cannot think of one title this would affect. Not one. I didn’t even know Criterion rolled that way. I thought they were some company that did “premium” dvd releases, offering more extensive interviews and behind the scene type clips and some added commentaries. But then as more productions were shot, they’d go ahead and do all the dvd extras at the same time or closely afterwards. And now with BD, I didn’t know they (Criterion) were still doing business besides what’s already on the shelves. I didn’t realize they controlled any sort of content. Just whatever studio or prod company wanted to contract out to them to be able to offer platform pricing they would use them.
Now, is this just streaming that Netflix loses rights to? They still have the hard dvd’s to issue, correct? Wouldn’t anyone who’s going to watch a Criterion movie going to want the actual dvd, with better audio, picture and added features anyway? The ones really anxious for that are going to want the higher quality or you wouldn’t get it in the first place. Unless it’s someone like me who wants to see I don’t know All About Eve, on the spur of the moment. And even then if I look for it in the library, I may be quietly crossing my fingers hoping it’s there but half way wouldn’t expect it.
I had someone over the other night who wanted to watch a musical. I suggest Irma La Douche. You could get the dvd but it wasn’t available for streaming. Shocker, huh?! I don’t know if I even added it to my queue. I’m always the first to gripe about the staggering levels of entitlement exhibited by people in this town but I find it very hard to believe ONE PERSON is going to say, “WHAT?! No, Creature From the Black Lagoon up for streaming?! That’s it, I’m chunking my Netflix account!” Purely anecdotal, sure but people will shrug their shoulders and do without. Netflix only runs into trouble when its subscribers think they’re wasting their money on the service. Having a great streaming library is cool but my guess is people bought into the system to get the hard dvd’s first and then the streaming is a bonus. They didn’t have a problem growing their membership off hard dvd’s only.
Conversely for Hulu, it’s going to take a lot more to convince people to fork over money to get the paid subscription. Even if Fox and Uni decide to offer their films and tv shows for streaming exclusively for their own Hulu, I seriously doubt they’d yank their dvd’s completely from Netflix. Why would they turn their nose up at free money? And if they did, wouldn’t Warners and Sony and whoever else jump at the chance to be featured on Netflix w/out the competition for streaming and get more eyeballs to their product that way? Studios love, love, luuuuuv, to buy in. Here’s a market, not only established but growing significantly, devices already in place, all you have to supply content and we’ll pay you and take care of managing things but if that’s too easy for you and you’d like go ahead grow your own market segment with only your limited library, be our guests.
From my own experience, the people who have Hulu but not Netflix have completely different needs. I’m not exactly sure Netflix needs to have tv shows available 24 or 48 hours after airing to maintain its base and market position. Netflix may be spending too much but I don’t really see this hurting them. Even the 28 day lock out period. If people were that eager to see a title, they would’ve gone to see it in the theater 3 mos prior. Netflix just needs to offer a steady diet of fresh product, the relative timeframe so long as the other options for alternative consumption becoming saturated before Netflix offers said production I believe would be inconsequential.
But Creature From the Black Lagoon is up for streaming!
Hulu has an ugly viewer, and choppy as hell, so that’s a problem.
Just as well, Triple: If memory serve me correctly, the actual songs were dropped from the movie version of Irma La Douce.
http://seekingalpha.com/article/252316-whitney-tilson-why-we-covered-our-netflix-short
Some interesting commentary on why Netflix should have a stronger future than the studio heads would like us to believe.
The rule of thumb is no brand loyalty on the internet. I disagree on Netflix because of their recommendation database, value reputation, massive head start and market share. Sure the studios can attack the Netflix margins in many different ways but Netflix can easily fragment their pricing plans for better streaming content. If you could care less about watching Just Go With It until 2013 (dvd or streaming), keep paying less than what households used to pay for Sports Illustrated. If you want to watch Just Go With it in a few months, bump your subscription to $18. They could even add non-subscription pricing quite easily. Isn’t that a lot easier for the 20% of households (and rapidly growing) to adopt vs figuring out how to use Hulu/AOD or unreliable cable streaming?
All of that is why Netflix will always be the number one portal for streaming. They already have massive economies of scale and if it is so easy for the studios to handle it themselves we wouldn’t be having this conversation. In other words, Netflix has already gotten to a point where they’ll be able to give the studios just as much as they could make on their own.
A lot of false assumptions in that article, Chris, based on what’s happening today, not next year.
The assumptions, before their head was turned by Mr Hastings, were more accurate.
Right now, there is no serious competition in streaming film. This will change, both because of the economics AND the technological improvements which are increasingly available to everyone. Yes, Netflix has a head start.
What amuses me about the Netflix argument is that the company has made it clear by its actions, not its words, that it knows otherwise. They are the ones who have set the astronomical market for streaming. By paying numbers that pay-TV gave up on years ago, they have kept some product in line. This will only get more expensive.
And I agree, massive increases in subscribers can make this work… like double or triple what Netflix already has. That’s a big leap for the company. If not, I will stick to my hypothesis.
Finally… you really should avoid sentences like “Netflix will always be the number one portal for streaming.”
How many #1 portals have remained #1 portals? Two that I can think of… Amazon and E-Bay. When no one else was competing with Netflix and they were the only ones in or seriously interested in investing in streaming, they were fine. That time is over. Netflix is paying millions per title as a result.
It is certainly a bold statement DP but I’ve been searching for reasons to short nflx for 6 months. All of that searching brought me to the conclusion they’ve won. Getting to 50% market share when you already have 20% is a lot easier than getting 50% from scratch.
Netflix might even start overpaying for content right now to maintain their momentum.
Itunes with 70% digital music market share also comes to mind with Amazon and Ebay.
David, the internet is ridiculously brand loyal. People go to the same sites time and time again and they go there for a reason: familiarity. That’s brand loyalty and people are loyal to Netflix. Seriously, this is clear stupidity on Criterion’s part as a dude who loves Criterion, I will never pay one damn dime to watch one of their films on Hulu. Hulu is a fucking joke. Hulu plus is even more a joke. Why any company would go to Hulu for any reason, with their horrible interface, is beyond me.
Also David, going on about things just BEING MATH, does not exclude you from being a hater. You use numbers as a way to hate on something. Case in point… INCEPTION but you love to deny your SOP, and that’s what makes you you.
ETA: http://www.chud.com/37453/criterion-tells-chud-about-the-netflix-to-hulu-shift/comment-page-1/#comment-125280
Read that… it’s about BRANDING! Criterion wanted a part of a site to themselves and Hulu gave it to them. Good for them but this is reason enough to be epically pissed at Criterion for making such a fan-hating egotistical decision.
I guess you went long on MySpace then, Chris.
They are now overpaying for content. And as the other deals expire, they will be faced with paying more for the other 80% of the market their deals are soon to expire with.
There is a huge difference between Apple having a share of the marketplace and producing new and improved product as a way of dealing with competition and a company like Netflix that acts exclusively as a middle man providing content they don’t control or produce.
Why do you think HBO got into Original Programming and that Showtime and Starz followed?
Netflix absolutely has a 3 year window about now. There still may be events that raise the stock price. But being in after that, unless something fundamentally changes about the business they are in, is suicidal.
IO… trees… forest… eye appointment.
Myspace had market share but clearly an interface with room for improvement.
I don’t think there is much room for improvement between what Netflix is offering and what competition can offer. Do you disagree? If anything, Netflix is Facebook.
IO, I assume Criterion went to Hulu for a bigger fixed number so they could care less if their library is actually watched at Hulu.
David, math, hater, and full of shit. Go get a colonoscopy to help you pull more numbers from your back side.
Chris, did you just post that without realizing Chud got the official answer from Criterion? If so, I will let you slide, if not come on man. Just come on.
DP, the only serious threat to Netflix in my opinion is Amazon Prime. Bezos has shown he can care less about margins for a LONG TIME if it means saving his customers money.
Per your itunes comment, Netflix isn’t just a middle man. They’ve developed a cheap and easy transition for customers from dvd rentals to streaming and they have a great system for helping customers find older content. I think the ipod was a similar transition medium that setup Itunes for dominance. Think about how much Netflix invested in inventing the dvd by mail business and compare that to the iPod development costs?
Internet explorer has a 50% global market share and it might be the worst of the top 5 browsers. Why don’t people switch? It came with the computer just like Netflix is coming with the tv.
I think the reason we’re disconnecting on this is because you don’t think they’re going to double or triple in size. I’m not convinced the number needs to be that dramatic but it is more likely to happen than not in my opinion.
Are you referring to this IO?
http://www.chud.com/37453/criterion-tells-chud-about-the-netflix-to-hulu-shift/
What else is he supposed to say? He’s selling the intangibles even though they chose Hulu because of hard cash.
Chris, it’s not hard cash as much as it’s BRANDING. Goodness.
Here’s the question… How many people are actually going to sign up for Hulu at $8 per month just because Criterion signed with them?…
Exactly Mutiny. Exactly.
I find your comparisons shocking, really. Comparing a subscription business and a per-until sales business makes absolutely no sense to me. I think you think that we are in a growing per-unit business. Per-unit in post-theatrical is in its twilight.
If people stopped making deals with Apple because Apple charged too much for iTunes, iTunes would be marginalized as well. If Apple was paying more per unit than they sold it for, they would be in a bad business.
Amazon is not a big issue for Netflix. Ease of technology is a big issue for Netflix. There is nothing singular or proprietary about Netflix’s streaming business. They just did it first. It’s not like Amazon, where infrastructure is almost impossible to catch up with without making an insane capital investment.
Netflix and Hulu Plus both come with the PS3. So does MLB.TV. So will an ongoing parade of delivery systems, including Sony VOD, which is already there. Netflix has done a great job positioning itself while everyone else slept. But with the margins on the post-theatrical business getting tighter and tighter, the tipping point at which they will feel it is better for them to control the process rather than to farm it out to Netflix is coming. And if you think that someone buying a Blu-ray player in 2012 won’t have every streaming option the manufacturer can fit in the machine, I have some bridges to sell you.
Have you seen the Universal, Sony, and MGM hi-def channels? Slow, steady branding.
Netflix is a channel of entertainment, not a technology play. Didn’t we learn this from AOL when dial-up ended?
I am reminded of DirecTV without local channels. There just wasn’t enough bandwidth. And now there is. And now the difference between local cable and DirecTV and ATT U-verse, etc, is price and content, not technology and what a pain it was to have a local antenna and a satellite to get your local programming.
If DirecTV ever lets Sunday Ticket get away from them as an exclusive, the churn rates will go through the roof. DirecTV is raising prices because the commitment to that package by its customers is iron clad. But as soon as the NFL decides – by the next contract or the one after – that there is more money in opening things up, DirecTV will have to cut prices by 20% or 30% overall and compete much more aggressively to keep their customers. Same thing here.
Right now, there are only two major competitors in the streaming market. Within 5 years, there will be dozens. And the way things are built out, the only difference between getting you Disney content from Netflix via Starz and direct from Disney will be that Disney will be able to offer more… and it will be just like changing channels on your TV now.
I have bought the MLB package on DirecTV for over 5 years. I won’t be buying it this year. Why? Because MLB.TV offers the same access, but to all my portals, for $30 a year less. Do you think MLB is capable of doing something that the studios cannot? Every live game outside of my local market, plus full game replays of the entire season, on my phone, iPad, HDTV, and computer. If it didn’t work, I’d be sticking with my TV-only option. But it does.
That’s the future that Netflix faces. And if you see it like that, you see that cost of content and the amount and consistency of content becomes a much bigger issue than being first into the market.
But I guess we will have to agree to disagree.
I think you need to step away from the hype around Netflix and look at what the product really is. The product itself is moving in the wrong direction right now. The fallacy that it is “a great way to see any movie” is far from accurate. As I wrote a few months ago, there are only a handful of Oscar winners, for example, streaming on Netflix. And that’s not going to change anytime soon, except at great cost.
That is not to say that Netflix hasn’t been very, very smart. But they are in a content-driven business and they do not control the content. The only conflict that Amazon, for instance, would ever have with content is if they tried to get it for too little money or discounted in ways that the rights holders saw as damaging. They are not spending $2 million so that 8 months after release, someone can stream the new Adam Sandler movie and hoping that it amortizes over 50 million subscriptions. Apples and oranges.
Mutiny… under 100,000.
But it is a building block, not an answer.
You’re asking the wrong question.
Some great points DP, thank you.
I’m still having a hard time believing that the average American household wants more than maybe one or two monthly subscriptions. Can you imagine how hard it would be for a family of 4 to decide what “subscriptions” to buy? Especially when the content in those subscriptions changes so frequently. Maybe I’m missing something but I think it’s a lot easier for the consumer to have one middle man to make those subscription decisions and payments for them. Similar to letting the cable company decide how to charge each of the basic cable networks.
By paying so much for content, isn’t Netflix helping to keep other companies from starting up since they would not be able to match the investment? While you are right about the studios owning the content you have also often mentioned that people are not going to pay for six and seven different subscriptions (plus sports programming).
Yes Disney could effortlessly create a streaming channel and get people to sign up, though this would have to heavily rely on their television output. Even with DVD returns slowing, I would assume the Disney vault strategy is still working for their back catalog, and why risk moving a million units of Jungle Book on Blu-Ray because you made it available by subscription?
As for the other studios, they make a mint on cable fees. I would imagine they are going to drag their feet on setting up any system that might spur people to cut the cable cord. They might jump on board after a migration from cable occurs but I doubt anyone but Sony and maybe Paramount will be ahead of the curve.
People aren’t going to bother with six or seven different subscriptions. If they can’t get what they want out of one subscription, they won’t bother with anything. The studios are too stupid / greedy / fearful to realize that it’s a Netflix-type collective or nothing.
Hi Netflix,
I want to change my subscription to premium Disney, Criterion, HBO, dvds by mail and unlimited streaming of non-premium content. How much will it cost to have access to that on any electronic device I use with an internet connection?
Hi Chris,
Those specific options will cost $35.50 a month and we’ll guarantee that price for one year. Thank you for being a loyal subscriber and please let me know if you want to continue with that change to your monthly package.
I could give a shit about recent Oscar winners on Netflix – you can pick those up anywhere. It’s the rare unavailable films clogging their queues that’s making me bow to them.
David, what Christian wrote, and why would any studio want to spend the money to create their own streaming service? Hell, who outside of Amazon and Apple, would be crazy enough to do it? Hulu is just a joke due to Fox and Uni forgetting that THE KID’S DO NOT WANT TO PAY except for Netflix, which they see as a better value because it is. Why on earth would any studio want to put all of this effort into creating something that even Netflix would state is getting rather untenable at the moment?
I do love when you hypothesize about the future. Seriously, you always go on about all of this choice we are going to have in the future but I have to ask? What if we are happy where we are right now? Sure, some big technological advance could come along and change everything, but have you ever thought that people are happy in a facebook/twitter/netflix/sites that whore for traffic world? Has it ever even crossed your mind that smart phones may be selling like crazy but that not everyone has one?
Hell I don’t have one out of no other reason than two year contracts are stupid. Hell, I get that you want to have everything all of your devices but how many people in this broke as country can afford such a luxury? Seriously, you are living with technology better than most and for most people, something streaming like netflix is mecca from heaven. If you were in the trenches more, you might get that, but you have all of this tech that needs to have content. Unfortunately the Netflix content does not do it for you, but what proof do you have that a studio would?
Again, you want us to believe that Netflix is going to be under attack and I ask again by WHOM?
All should be alerted that Maestro Benigni’s TIGER AND THE SNOW is available on Netflix Instant.
BENIGNI POWER.
Then you should watch GORP with Dennis Quaid and Michael Lembeck.
I’m probably going to swtich to Hulu when the criterion titles roll out to PS3 accessibility for the simple reason I’m on a one out plan (downgraded recently from 3 out, and netflix has stopped stocking bluray upgrades of studio and criterion catalog releases. I want to revisit films in high def dammit. I’m happy to cancel netflix because vidiots badly needs my business anyway and they actually do stock what I want to rent. I can’t do HD on streaming due to having Verizon DSL for internet, but hulu will have a lot of product unreleased on disc that I’m interested in. There’s already enough non-disc released titles on the initial 150 title launch that I’d consider the subscription right now, but it’s a hassle to hook up the VGA out and audio out (to my receiver) to my TV (what I used to do for netflix before they came up with other ways to access streaming than a computer) so I probably won’t.
I feel that both Hulu and Netflix have business models that will seem quite antiquated soon when considering what is brewing in the filesharing and p2p space. New p2p streaming capabilities are going change this game dramatically giving producers direct access to users and giving users more choices about the content they want to support.
Man… what have you been smoking?
p2p and filesharing is incredibly difficult to monetize. With no centralized gateway, there are no points at which to hook revenue streams – you can’t hit a credit card for 5c every time a user opens a new stream, you can’t attach ads (especially not ads tailored to a particular market segment which sell at a higher premium), you can’t add a subscription for such a variable service (“sorry, no one seeding Black Lagoon today and we can’t give you a time estimate either”). Producers may be able to access users directly, but they can’t get paid.
You could add a “donate” button, but even Radiohead couldn’t get people to pay anywhere near to the itunes cost of their album – how much do you think people would donate for no-name content?
Second, study after study has shown that p2p is worse for indie content than traditional distribution systems, and that’s party due to the technological strengths of torrenting.
Let me add two qualifiers first. Digital distribution, especially those without curatorial entrance requirements, have done wonders for lowering barriers – a lot more people can produce content that otherwise couldn’t through traditional distribution systems. And there have been some huge indie megahits that have made big-budget content producers jealous.
But the problem is that while there have been more “hits” through digital distribution, there have been even more losers. The top downloaded content is dominated by mainstream fare – imagine the top 10 box office listed by Klady each weekend, and then take ~75% off the revenue from the bottom 5 and add it to the top 5. That’s what the p2p scene looks like. And that’s partly due to the technology – the genius of torrenting is that it breaks up the data transfer over many different hosts, removing any transmission bottleneck. But the converse is that if you DON’T have many different hosts, you get shitty transfer. This means that indies are now competing both on content and on service – that lowbudget horror will not only have lower production values, but it’ll also have a much lower bitrate, and the consequence of that is that consumers migrate towards what everyone else is watching.
Yes, you might have thousands of movies potentially at your fingertip, but without dedicated sources you will be pushed towards a tiny fraction of that library. And once again, the average revenue of content producers goes down.
Anybody know when the Criterion/Netflix deal expires? I’ve got a few dozen Criterion movies in my instant queue, and it’d be nice to know how long I’ve got to watch the ones I really care about.
Hulu told me yesterday, “The Criterion films on Netflix will expire in the coming months. Over 150+ Criterion Collection films are exclusively available at Hulu Plus today. And the exclusive offering will swell to 800+ in the coming months, at which point Hulu Plus will be the proud and exclusive home of the entirety of the digital Criterion Collection.”
Does anyone have subscription numbers for Hulu Plus. Are they getting a substantial number of people to pay the premium? And the regular Hulu can’t be that profitable, they sell about 3 30 second ads a half hour? Even with being able to target the ads better they can’t be making all that much. Especially if you consider how it cannabilizes the actual broadcast.
1. Hulu Plus just launched fully a month or so ago… just getting rolling.
2. The whole Hulu TV thing – repeats online – are part of a much bigger financial whirlwind about windows for content and how revenues flow. And the small number of ads is part of the equation. How many would stop watching shows on Hulu it if there were as many ads as on network TV? How much more valuable are ads that cannot be sped over on a DVR? How much from subscription and how much from ads, etc, etc, etc
“Over 150+ Criterion Collection films are exclusively available at Hulu Plus today.”
Hulu is unclear on the meaning of either “exclusively” or “today,” because of the 150 Criterion titles I see on Hulu Plus right now, I can still stream the dozen or so of those same titles that I have in my Netflix queue.
I suppose the good news in all this is that I’ll finally get around to watching “Black Orpheus” and “The Battle of Algiers” instead of “Smokey and the Bandit” and “Black Sheep.”
JOKE REWRITE: “I’ll finally get around to watching Black Orpheus instead of Black Sheep.” Cleaner, quicker to the punch, better wordplay. I’m ashamed of myself for not seeing that right away.
This is an interesting thread to read a few years later.