Recently, I read a news article on Netflix and how it’s raising its prices (or more specifically, putting a premium on streaming content) and this got me thinking… why would Netflix, who currently is one of the highest ranked companies in customer satisfaction, do such a thing?
Most likely, it is response to studios putting pressure on Netflix requiring enormous licensing fees in order to distribute their content.
Let’s take a (not so) hypothetical situation. Imagine a new, large budget film about fighting robots is coming out, and you want to see this film in theaters. Here in LA, going to a theater is going to cost you around $13 a person, so take a date and you’ve spent $26. Got kids? You’ll probably end up spending $50 to see this action packed thrill of a film on the big screen. Forget gas and concessions, this doesn’t count in this scenario because this money doesn’t go to the studios. It is a major factor to most families though.
Now say that you do want to see this movie, but you decide it’s not quite worth the $50 to see in theaters. Instead, you decide to purchase this on DVD or Blu-ray. You’ll spend $20-30. Not much better.
The third, and most common option is rentals. The most popular options are Netfilx with its $10 a month plan for streaming and 1 dvd at a time, and Redbox, offering $1 a night movie rentals.
Unfortunately for these companies, the studios aren’t making enough money off of them.
The studios want it their way or the highway. Either pay absurdly high licensing fees or nothing.
It’s the same thing with going to the theater. Why are ticket prices high? The studios make it so. They force theaters to make money selling $6 bags of popcorn and $5 sodas while they take most of ticket sales, leaving theaters to make most of their money off concessions.
Why do studios do this? Because they need to make their absurdly large budgets back.
Now, the question. If a large, action packed movie about robots fighting can’t make its money back without high ticket and rental prices, should that film be made?
If a movie has to pay its star a $30 million advance, but films can no longer recoup those high costs, should that star be paid that much? Are they worth that cost to the film? The difference between above-the-line and below-the-line costs on most features is astounding. Are movie stars really worth that much money?
In today’s economy, for the modern family its either streaming content and cheap movie rentals or nothing. And right now, Hollywood is taking their audiences for granted.
On the other hand, Netflix’s streaming service offers mediocre content at best (I’m sure most of you believe they’ve seen every good movie they have to offer), and if this price hike means more good movies available for streaming, then Netfilx may survive. However, I seriously doubt the studios want to give away more content.
Which gets to the crux of the issue, and something I’m not sure Hollywood will ever figure out. It’s not advertising or special effects that sell movies. It’s good writing and positive word of mouth.
The good thing is eventually Hollywood’s model will collapse for all but a select few must-see-in-theaters movies. People will realize content is king. Movie star salaries will go down, and movies will be made for less money.
That is, until someone gets greedy and comes up with another bright idea.
