Netflix: We've Seen This Movie Before – Jewish Journal

Netflix: We've Seen This Movie Before – Jewish Journal

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The uneasy codependence of production and distribution harkens back to the days of silent films.
Falling subscriber counts at Netflix and the company’s plummeting stock price surprised investors and purveyors of streaming media this week, but the plot twist was familiar to long-time followers of the content versus distribution power struggle. The uneasy codependence of production and distribution harkens back to the days of silent films, when the Jesse L. Lasky Feature Play Company merged with Adolph Zukor’s Famous Players in 1916, and Famous Players-Lasky acquired a film distribution company called Paramount in a hostile takeover in 1917. The US Department of Justice broke up production and exhibition companies with the 1938 Paramount Consent Decree. The battle for dollars between movie producers and distributors has had more sequels than the James Bond franchise. (Spoiler alert: have you ever heard of Vestron? More about that in a moment.)
NFLX stock declined 35% on Tuesday to $226 from $348, and is down 65% in the last six months from a high of $691. Still, the company has a market value of ~$100 billion.
Netflix offered several reasons for the decline. Subscription-sharing. Proliferation of streaming competitors. Disconnection from Russia. These are plausible, but not comforting explanations, because they don’t imply a quick fix or long-term solution.
Founded in 1997 to sell and rent DVDs via snail-mail, the company started streaming and video on demand services in 2007, and launched its content-production juggernaut with House of Cards in 2013. However, the bulk of its content was licensed from other media companies that were pleased to receive revenue from a previously untapped source. For a while, Netflix dominated the space.
Amazon started a service, called Amazon Unboxed, in 2006 that allowed consumers to purchase and download movies and other content. Amazon Studios was started in 2010 to develop, finance, produce, and distribute original programming. By 2015, Amazon shut down Unboxed and shifted completely over to its Prime Video streaming product. Amazon Studios now is a behemoth, producing a slate of big- budget films annually, selectively releasing some in theaters, winning Academy Awards, and competing full-on with other major movie studios.
Now, of course, we have Hulu, Apple TV, Disney +, Paramount+, YouTube TV, Peacock, and more.
The market sector grows larger and more complicated. When streaming was new, the production companies were content to allow startups like Netflix and Amazon Prime take the risks of creating a new market. However, now that the market has been established, media content producers prefer not to share streaming revenues with third-party distribution partners if they can keep the money in-house, so they create their own services. More competition tests the limits of consumer spending on these services and puts downward pressure on pricing, while content licensing and production costs inevitably rise.
Vestron was founded in 1981 to take advantage of a new market for videodisc and video cassette sales and rentals, beginning with video rights to the Time Life Films television programming library. Vestron expanded its offerings with films licensed from movie studios, including some from MGM/UA. Studios were content to allow a startup take the risk of creating a new market for VHS and other tape formats.
By 1985, Vestron was successful enough to go public, raising $440 million in an IPO on the New York Stock Exchange. However, every major film studio began to market its own videocassettes. As today with streaming revenues, they preferred to keep the money in-house. Vestron had to create its own original content. The company’s fortunes peaked in 1987 with exclusive theatrical and video distribution rights to Dirty Dancing, a sleeper hit film produced for $4.5 million that earned $214 million at the box office. Ultimately, Vestron could not ramp up its successful production slate enough to compete, and could not profitably license content from other producers.
By the end of 1990, Vestron declared bankruptcy. Its assets were sold off by 1992.
Three years later, in 1995 DVDs, the latest iteration of a technology that had been evolving since the 1960s, began to replace VHS cassettes for home video sales and rentals. And in 1997, Netflix was founded.
Coming full circle in a sense, last week Amazon completed the $8.5 billion acquisition of MGM/UA, whose assets include a library of 4,000 films and 17,000 television shows. For a company the size of Amazon, that was a modest acquisition.
Although there is timeless wisdom in the Yogi Berra maxim that the hardest thing to predict is the future, it is likely that contestations and combinations between media producers and distributors will continue.
What’s next? Although there is timeless wisdom in the Yogi Berra maxim that the hardest thing to predict is the future, it is likely that contestations and combinations between media producers and distributors will continue.
We are thinking that Netflix could acquire or merge with Paramount and increase its content in a way similar to Amazon’s MGM/UA acquisition? Since the whole season of the Netflix saga isn’t available to stream in its first week, you will have to come back for the next episode. The bigger point is that more consolidation is likely. Stay tuned.
End.

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