The Film Delivelution: 21711
Maybe I need to start a separate blog for all of this…
Today, Redbox released a confirmation of experiential history that is music to the ears of the studios… There Is A Sucker Born Every Minute.
Just when the value of libraries was bottoming out, here comes Redbox and Amazon (not in that order, really), to follow Netflix and TV-centric cousin Hulu into the sucker bet of paying a truckload for content at least six months after theatrical release.
Ironically, with the half-a-brick and a schmear of mortar nature of Redbox, the company could make significant inroads into Netflix’s business, though the emphasis would have to be on more current titles rather than the depth of the library… which is how many people prioritize their Home Entertainment experience.
The big question is which studio(s) Redbox (which might be RedAmazon in this deal… or not… we’ll see) is going to offer for streaming. Are Columbia and Disney going to land via Starz at Redbox and not back at Netflix? Will Warners dip their toe into this deal while they continue to experiment with a wide variety of their own delivery systems and not worry so much about cannibalizing HBO? Is Comcast ready to turn a corner with Universal Studios and/or The Law & Order Streaming Channel? And when will Fox/News Corp make their big streaming play? (Note: Yes, I am aware that the tentacles of all of these companies are already out there and carry some obligations… time heals all content leases, especially at these prices.)
I think that Redbox Streaming needs at least two of the majors’ libraries to be competitive with Netflix. So you’re probably looking at a $500m – $600m outlay for streaming from Day One of the new version of Redbox. Big dice.’
On another front, the WSJ has a good story about the NFL and its labor issue. Unlike the film industry, this battle is about the rich getting richer, on both sides.
What struck me, in terms of movies, about the issue was that this business too creates new content every year, but aside from the individual pictures, doesn’t have a whole lot of growth in it. The NFL is a high margin business. The Film Industry is a low margin business. But ticket prices in both are pretty much maximized. Licensing has pretty much, except in some very specific cases, been maximized.
The technological revolution for film is near an end, in terms of the potential for savings in the physical side of distribution and production. The expansion of digital projection continues over time, but it isn’t hard for the industry to pinpoint when it will be at over 95% of screens. Digital production saves in some areas, but has not proven to be a great opportunity for studios to cut costs.
Very much like the NFL – though this is not explicitly laid out in the WSJ piece – the last great evolution for theatrical distribution was the bankrupting and rebuilding of the multiplexes in the 90s. That’s what accounted for an upsurge in ticket sales, now seen as maxed out, for the NFL. And in the movie business, it allowed exhibitors and distributors to wildly reimiagine how movies are released theatrically.
Unlike the NFL, where a stadium’s max capacity is about 90,000, a studio mega-release will now have as many as 40 to 50 MILLION seats available in North America alone over the opening weekend. An normal wide studio release these days has over 10 million seats available on opening weekend. The NFL has just one game a week and maximum possible sales are about 1.4 million tickets.
Obviously, the movie business outsells the NFL on tickets sold… but by design, the emphasis on opening weekend and these massive inventories, chasing 25% attendance in the best of cases, seems like more opportunity for the film business to grow ticket sales than there is.
Still, the revenue potential for the film business, like the NFL, is pretty well fixed. Film has growth spurts in revenue, but it’s a business that can only have real growth when there is some new anomaly expanding the market.
Big circle, but, the piece on the NFL is about how the owners are desperate for growth and there is no more to be had… so now they are trying to force the players to give up some of what they have so they can count the givebacks as growth.
The illusion in the film business is that because “anyone can make a movie” these days and there are so many films out there, its an open system. But in fact, major studios and their Dependents work in a closed industry, controlling the vast majority of distribution channels and available revenue and only doing full distribution (theatrical and post) for 100 films a year or less. All told, 127 films were distributed to as many as 1000 screens during the course of their domestic theatrical release last year. More than 500 films had theatricals. The revenue from the 127 films represented about $9.8 billion of the $10.1 billion domestic theatrical box office. There about about another 30 movies from majors, dependents, and the few large indies. Included in this are three Oscar Best Picture nominees, The Kids Are All Right, 127 Hours, and Winter’s Bone. But you get my general point, I hope.
6 majors and 4 major indies release an average of 15 films each per year through all of their distribution arms and eat over 98% of all theatrical revenue. That is not an open door business.
And if growth paces inflation or is a little behind inflation or a little ahead… it’s splitting hairs. This is a mature industry and real growth is a rarity. For the last 30 years, it’s been Home Entertainment and foreign theatrical that have grown through technology and investment. But we are facing a time when the last boat is leaving and it will be harder and harder to fix the game without it being quite transparent. Fighting Net Neutrality is the next big frontier for business to try to treat what should be a public right in a civilized country as a for-profit piggy bank.
The streaming world will be a boon for a few years… 2 or 3.
And then, once things shift into a subscription model for all post-theatrical and post-premiere TV, the only real game left in town will be pricing of the packages… which should be very lucrative for studios. But the illusions of the past will be gone. And there will be nowhere left for the super successful companies to hide… little chance of the existing companies to lose their shirts… and a door as closed as the NFL.
Let’s just hope that the NFL and the Film Industry are smart enough not to start cannibalizing themselves just because there is no obvious growth.
Redbox is hated more than Netflix by pretty much everyone that owns a film library. The only way they’ll be able to afford a worthy streaming competitor is if the studios sacrifice margin in the hopes of stopping some of the Netflix momentum. I don’t see that happening. Why would they help support $1 rentals right before Netflix is going to stay overpaying?
I really don’t see why Amazon would partner with Redbox. What am I missing DP? Amazon sells a lot of blu-ray and dvd, why would they want to help subsidize $1 rentals? Amazon might have 10% of US households already using Amazon Prime. They are the only serious competitor to Netflix right now because of that subscriber base. Apple clearly doesn’t think there is enough margin in monthly film streaming. Amazon sees some value because it will boost subscriptions to Amazon Prime. The more households they sign up, the more likely the free shipping will finally make the program slightly profitable (not to mention the increase in sales and client loyalty). Again, what is in it for Amazon if they partner with Redbox?
Netflix decided to not keep Criterion because the average Criterion fan wants the real Criterion experience. They were probably excited to watch Hulu overpay. I don’t think they’ll lose any business from it. If anything, Hulu grabs some customers that still keep their Netflix account. Netflix had the viewing data to realize that and decided to save some cash to go after the more expensive and valuable contracts up for renewal soon.
Netflix destroyed Walmart, Amazon (from attempting) and Blockbuster last time things started to heat up. My bet is on them to do it again. I think they would already have 25% of households if more of America had access to high speed internet. That is changing quickly and as soon as Netflix hits 30% of households, I think they’ve won the race to being the obvious middle man. Their model works at that kind of scale and Netflix has proven they aren’t as greedy as Apple. The studios will soon understand it isn’t worth making it cumbersome for consumers to sign up with several carriers and be happy Netflix has done all of their work for them.
I’m certainly not pro-Redbox or anti-Netflix in this situation.
You give Netflix a lot of credit for being in control. And that is where you (and many others) miss the situation.
The reason Redbox is attractive to Amazon is that it gives them the hard disc rental element. The question for their lawyers will be whether a Redbox merger would put them into harms way re: state taxes in every state in the union. So maybe no merger. But the more kinds of service you can provide, the stronger the player you are.
Excited to see Hulu overpay? Silly. They would have been much happier if there continued to be no competitive bidders and they continued to get Criterion for a song.
Netflix didn’t destroy Walmart. Walmart has been slowly pulling away from DVD for almost 10 years, seeking ways to balance the problem of floor space for inventory vs sales. They are a retailer and being something else, while they flirt, is something they keep stepping away from.
As far as Aamzon goes, again, first priority is unit sales, not a subscription business that will eat into their unit sales. Still, in a slowing DVD sales market, they are considering it.
And Blockbuster just never got off the dime.
I have never said that Netflix wasn’t innovative or first in this area, as they were in subscription dvd rental. Big wins. But the game has changed and I don’t quite understand why so many people are fighting this overt reality.
When a business is spending $50 million a year on content acquisition and the cost balloons by 10x, while the amount of the content is getting smaller and the subscription base is not being increased because of the extra expenditure, how is this seen as The Big Win?
Mark Cuban is still The Winner of the early web bubble, first by creating Broadcast.com, then by selling in for an insanely high price before revenues suggested it was worth the money, then by turning the stock he bought it for into cash ASAP… aka getting out before anyone noticed that he sold them an empty vessel and the real costs were in filling that vessel, not creating the tech.
But hey… can’t be any clearer on this end. No matter how smart the Netflixers are, they can’t outrace the bar for a technology that is getting lower daily combined with a reliance on content from companies that are every bit as ambitious and (generally) smart as Netflix.
Jeez… hasn’t anyone noticed that cable was forced to carry local programming for the last 35 years and is now being forced – by economics – to pay networks that all those years ago just wanted the cable companies to keep including them?
Netflix woke a wounded giant that was so busy licking its wounds from DVD maturation that they were happy to take scraps. Now those scraps are, potentially, a significant percentage of their business. But people still want to believe that Netflix Jack is going to escape the giant and get down the beanstalk safely with the hen that lays the golden eggs.
Good luck with that.