Why streaming content still sucks as a business model

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netflix2 Why streaming content still sucks as a business model
While we all contemplate the various issues regarding revenue for comics and where it will come from, let’s look at where we all assume it will be going: some variant of streaming content. With Apple—and the rest of the market—doing everything they can to kill off the DVD and “the cloud’ becoming the place from whence all jollies will emerge, it is still not a great source of revenue for the big players like Netflix and Spotify.

Netflix just released their quarterlies, and after the whole Netflix/Qwikster debacle, you might think the reason they wanted to split off the business of mailing out DVDs—obsolete technology via an obsolete delivery system—was because it was a money loser. In fact the opposite was true. The old media model was far more profitable.

If you break that down, each streaming subscriber is worth only $2.40 in profit each quarter to Netflix, compared to $17.32 for each DVD subscriber. The old business was very lucrative. The new business kind of sucks. The economics are very different. The DVD business had fixed costs, while Netflix is forced to negotiate streaming licenses on a case by case basis with each media company.


In other words, Universal and WB and whoever are charging Netflix so much for their content that it’s not a very profitable business. And if you’ve seen the streaming options on Netflix lately, you know they haven’t been given access to the good stuff.

The same is generally true for streaming music services like Spotify and Rhapsody. Here’s an example of a general business structure:

1. General deal structure: Pay the largest of A) Pro-rata share of minimum of $X per subscriber, B) Per-play costs at $Y per play, C) Z percent of total company revenue, regardless of other business areas. As stated previously, this means labels de facto set retail price (they also regularly negotiate floors on price, giving even less wiggle room), which limits the ability of the music service to develop ancillary revenue streams that aren’t siphoned off by the labels.


The above article notes that Pandora avoided these kind of deals by styling itself as a radio station —they must pay a per-song royalty but don’t have the Sisyphean licensing structure of the streaming services.

Of course, the reason why movie companies and record labels are charging all this money is to— theoretically—somewhere down the line give more of the profits to the content PRODUCERS—the Steven Spielbergs, Ke$has and Faith Erin Hickses of the world. So your “Free” streaming site may become as expensive as your cable TV by the time things settle down.

As someone noted somewhere in commenting on our comics economics post yesterday, one of the true costs of piracy is the DEVALUING of content. Once everything is free, it’s hard to convince otherwise decent people that it’s worth something. While streaming and distribution from the cloud is clearly how things are going—wait until the iTV comes out—only Apple and Amazon seem poised to take a reasonable cut via a per download cost.

Comments

  1. So true with Netflix holding back on the good stuff -should be interesting to see now that they are creating original content. Really looking forward to “Lilyhammer” that debuts Feb 6th. The first episode just aired in Norway already.
    And also very interested in this as i received Apple TV a couple of days ago -but haven’t bothered hooking it up…not sure i see the point as i already have a computer hooked to the TV -which is highly recommended btw.
    Speaking of recommendations thank you for recommending Misfits on Hulu -started watching and really enjoying it. Noticed Hulu had ads on your site, but no longer -and that they aren’t mentioned in your article.
    And lastly the main reason i find your article interesting: having our animations-in-progress aired on http://www.Cerebus.TV -didn’t realize streaming was so in tune with the business zeitgeist. Though I don’t see how comicbooks themselves can be streamed…I mean i guess…sorta like an audio/video book…I guess that could work…

  2. “Of course, the reason why movie companies and record labels are charging all this money is to— theoretically—somewhere down the line give more of the profits to the content PRODUCERS—the Steven Spielbergs, Ke$has and Faith Erin Hickses of the world. So your “Free” streaming site may become as expensive as your cable TV by the time things settle down.”

    Hahahahahaha… No.

    They are charging this much because they are used to getting an upfront license fee and are not used to being paid on a per view basis. The studios don’t take “monkey points” (net points). That and the fact that VoD is becoming more an more lucrative for content producers – greater than DVD as far as domestic licensing deals go.

    They also aren’t going to give up that money to the producers unless they’re forced to do so. That’s why HARRY POTTER hasn’t made a dime, nor has TRANSFORMERS. The studios hold onto their money and wring it out of everyone who owes them a fee.
    Period.

  3. Bruce Lidl says:

    I think Heidi’s quote is an important one, “As someone noted somewhere in commenting on our comics economics post yesterday, one of the true costs of piracy is the DEVALUING of content. Once everything is free, it’s hard to convince otherwise decent people that it’s worth something.”

    However, I don’t think it’s just piracy, or even significantly piracy that is driving such an effect. I think it’s mostly the nature of digital content, the fact that it is, when online, for all intents and purposes, infinite. Many people, especially those who have grown up with the net, really do value digital content at much lower levels than we would like.

    What they do value are other things that are not so easily copied, such as convenience, community, tangibility, rareness, etc. Why else would services like Netflix, webcomics like Penny Arcade and vinyl collectible LPs become so successful when they have to “compete against free?” They succeed by commercializing things that cannot be digitized.

    Netflix may not make as MUCH from their digital customers as the previous model, but they are still making quite a bit of money, especially considering the Pirate Bay offers every movie and tv show they have, for cheaper and with no windowing restrictions.

  4. Monetta says:

    There’s no doubt, the movie content on Netflix’s streaming model is very limited. Most of their movies you can find on Amazon or Hulu. Their TV show content is very good though. I’ve always thought Netflix needs to add a premium option for their streaming service, to offer more current DVD releases. I would pay $20 a month for something like that.

    I’d like to see how Amazon is doing compared to Netflix in streaming. Amazon does offer rentals for new movies, including some indy movies not available on DVD yet (Innkeepers and in the past Red State, Tucker & Dale Vs. Evil).

  5. Are we trying to compare streaming music and movies with digital comics services here? Because the major difference is the lobbying and litigation power that bodies like the RIAA and the MPAA have where they hold all the cards for the majority of popular content.

    Compare that with the Big 2 and how they can still be put over a barrel by DM stores if a few of them get angry about something. Then add the fact that there are plenty of creator-owned or otherwise independent companies and titles out there that are popular enough to make a dent (however small) in the big companies’ market share.

    I’m not trying to comment on anything more than the fact that the major players in the comics industry couldn’t pull the same kinds of moves that record and movie companies do so the playing field is a little more even in this scenario.

    In short I think digital comics have the potential to be both more profitable and more reasonably priced than music and video services.

  6. Yeah, the real problem with a Netflix for comics is in the licensing. Marvel and DC would almost certainly not sign on, at least initially. Better to shoot for the Dynamite Studios and other small companies, maybe track down who owns the rights to the old Valiant stuff or some such. And go after a huge amount of indy cartoonists. I suspect they’d go for just about any deal, even a kinda crappy one.

  7. i’d love a great answer to this question…if Piracy devalues content because it is free, then what of libraries? You can consume massive amounts of media through a library for free. Do they also devalue content? Both situations create a culture of “reading for free”..its just the semantics of how one acquires the content (for the record i think piracy is wrong, but i’m interested in this dichotomy).

    as to the post, Netflix isn’t “holding back the good stuff”, they are having uphill roadblocks from the studios who refuse to license it for streaming. They know that a streaming model is wanted now by consumers, but it would destroy their physical disc market which is strong enough to keep around.

    You should go out and research this struggle, its been written about in great depth on media and tech sites.

  8. I can not think of a bigger assheaded idea than digital content exclusivity. Someone needs to kill that pigheaded, moronic idea as quickly as possible. Nothing is going to prevent comics from being able to truly advance themselves in the digital space more than that.

  9. About streaming, I’m really not fond of this idea. I love reading my comics offline even if I bought them on Comixology. I mean batteries tend to go down and need to recharge. If I have to stay online to download my comics each time and can’t go back to a previous issue to check this and that, it’s a serious issue. And if you don’t have a Wifi access, you’re stuck. (If you have, it might not be secured so you would be leaking personal informations where you don’t want to.)

    About devaluing products, piracy is not as free as even pirates might think. You still have to pay for your line. An interesting idea would be to pay a global license, hence, the right to download everything you want for a certain amount of money. Money that will go to all the organizations battling against piracy.

    In France, it is also said that Hadopi (web-piracy government measures) costs more fighting piracy then it brings back in the producers’ & authors’ pockets. Don’t know if the system works better in the US.

  10. JoeyL I am aware of the studios/Netflix fight. I didn’t phrase it very well however.

    As for libraries — somehow going into a giant neo-classic building run by smart women wearing distinctive glasses to borrow a physical book that many others have borrowed before you doesn’t have quite the instantaneous feeling of googling “Mucous Man” and [pirate site] and downloading it to you very own hard drive.

    Libraries, by their very nature, have the imprimature of culture. They are generally government funded and run by civil servants.

    And most importantly, you don’t KEEP the book. You borrow it. Pirates don’t borrow booty.

  11. right on about the libraries, however the side effect…not paying for media is still there. I see it as a weird logic trap. Thats why i really don’t buy into the “devaluing content” argument.

    So its really a matter of acquisition and presentation?

    Plus all literature and art has more value than just its purchase price. Including comics. I appreciate art in a museum without paying a penny for it.

  12. Mike Rex says:

    And, libraries pay for their media, and replace and repair if needed.

  13. I think streaming works differently for different media. (As does piracy, I suppose. Actually, probably more a net gain than loss for musical arts is (as opposed to Big Music, of course).)

    For film and video, DVDs are a dead end. Streaming’s coming. DVDs may be profitable today but they’re a dead end. Netflix’s handling of the matter has nothing to do with it. This is Kodak failing to push into digital because of ambivalence about letting go of film.

  14. FYI: “As for libraries — somehow going into a giant neo-classic building run by smart women wearing distinctive glasses” = “As for comic book stores — somehow going into a dimly lit storefront run by misogynists who don’t wear deodorant”

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