Netflix have just released their most recent shareholder report, and in amongst the good news on international growth and conversion from DVD to streaming customers, there’s a very interesting section on their approach to original programming.
Another way to think of originals is vertical integration; can we remove enough inefficiency from the show launch process that we can acquire content more cheaply through licensing shows directly rather than going through distributors who have already launched a show? Our on-demand and personalized platform means that we don’t have to assemble a mass audience at say, 8pm on Sunday, to watch the first episode. Instead, we can give producers the opportunity to deliver us great serialized shows and we can cost-efficiently build demand over time, with members discovering these new franchises much in the same way they’ve discovered and come to love shows like “Mad Men” and “Breaking Bad.”
The highlighted section is most interesting – Netflix are plainly stating the difference between themselves and traditional broadcasters. Because they aren’t reliant on spot advertising, they don’t have to worry about delivering a live, synchronous attention pattern around their shows. Their subscription model means that long-term engagement is more important to them than overnights; data is more important than ratings. Over the last few years timeshifting attention has become increasingly common for certain kinds of genres, particularly comedy and drama. This is a real problem for broadcasters reliant on ad breaks for their income, which is why ‘live’ event formats are becoming increasingly important to schedulers, and are moving on from reality/entertainment/sport to new genres like specialist factual (the BBC announced Planet Earth Live only this week).
If Netflix and other VOD platforms can follow HBO and build strong brands for drama and other high-value content that is not reliant on a strict schedule, where will that leave the traditional broadcasters? Will the live event pattern be the only way they can guarantee an audience for their advertisers? Or is their future to join Netflix et al in building more income from direct subscriptions, and become less reliant on 30sec spot ads? That would be a long and painful pivot for pretty much all commercial broadcasters, as their income from online platforms is generally less than 10% of total income.
As new attention patterns develop and mature in audiences, we’ll see more and more examples of companies making major content investments based on these new patterns. Netflix’s original investment is one, Youtube’s Original Channels is another. Expect this to be a major growth area over the next 5 years.