September 26, 2011

The Tenuous Future, Mediocre Design, and Negligible Payouts of Netflix

For its future as a streaming only service, Netflix is reliant on deals with content owners, a situation which has the service being described aptly as a castle on quicksand. As evidence of its constantly-changing library, Netflix recently lost Starz content but today added Dreamworks Animation films to their library. However, Amazon also doubled their Prime library today (which at $79/year -- including an unlimited free two-day shipping tie-in -- compares favorably to Netflix's $96 annual fee). Competition is heating up, but I can't help but note one other thing about Netflix: the design of their website and most of their apps is, and always has been, mediocre at best. Which is to say nothing of the connection between the service's benefit to consumers and its detriment to content creators.

Despite the fact that Netflix reportedly split-tests many different designs and only uses the best one, I've always thought that their user experience is just a tad short of atrocious. They killed their community many moons ago (remember having "friends" on Netflix?) and have not replaced it since. Other than a basically useless Top 100, they don't even let you see what's popular, and every new iteration seems to get worse. The recently redesigned homepage is exactly what you try to avoid as a web designer: a "brick wall." A brick wall is a bunch of blocks in a grid that forces the user to choose between a ton of options, without clearly prioritizing any of them. A screenshot of my Netflix homepage -- which seems to misinterpret this design faux pas as a good thing -- is at right. I'm not saying I'm the best designer in the world, but I was a Senior Designer at MTV in a past life. So after many years of being a Netflix customer, stumbling on the following web site was a godsend.

InstantWatcher to the rescue?

Thanks to a New York Times article I discovered a free website ((Most of InstantWatcher's feature are free, but a $10-a-year subscription enables you to sort your Netflix queue directly on InstantWatcher’s site, and also lets you shuffle movies from your Netflix queue into a “virtual” queue on InstantWatcher.)) named InstantWatcher, which gives you -- get this -- basic sorting tools, which makes all the difference in the world:

Yes, the simple ability to see what's popular on Netflix -- or filter out all non-HD titles, for example -- requires a separate website. Are you kidding me? Is Netflix still in beta or something, all these years later? This doesn't even begin to get into the kind of social features that Netflix should revolve around -- what are your real-world friends liking/recommending/watching? -- which Spotify embodies as Netflix's all-you-can eat equivalent in the music world. ((I should note that, despite being a paying Spotify user, I think their service would be much stronger with an editorial component as seen at work in their chief competitor in the U.S. -- and another former employer of mine -- Rhapsody.)) If you're a Netflix user, check out InstantWatcher, click on any of the categories in the red nav up top, and discover the wonders that a simple "sort by" functionality brings to the table.

Consumer vs. Creator

Design concerns aside, the question for creatives is, what do these all-you-can eat services pay the content creators? Does anyone have any real numbers? I'd certainly love to see those figures: I almost feel guilty when watching a friend or colleague's film on Netflix, because I know they're getting practically nothing out of the exchange. It's better to watch a film on Netflix than pirating it, of course, but how much better is the question. If Netflix is anything like the music industry, where an artist receives between $0.0004 and $0.002 per stream, none of us are going to make a living by having our content on Netflix. Instead, if the future of film distribution is VOD, it's going to be up to a-la-carte VOD services, which we may not prefer as consumers, but should as creators.

Which makes me wonder if Netflix will ever add a "pay per watch" (rental) VOD section, since they already have the customer base (with Amazon Instant Video in addition to Amazon Prime, Amazon takes one such hybrid approach). If they don't, this will make a number of new startups in this space happy -- more on those soon. For now, check out InstantWatcher, which should be of real benefit to you as a consumer but disadvantageous to you as a content creator, because of the increased access it offers to a world of (seemingly) unlimited content at rock-bottom prices. When it comes to what a movie is worth, there's a direct relationship between what we expect to pay as consumers and what we hope to get paid as content creators, and the same race to the bottom that helps the former is extinguishing our ability to make a living as the latter. Just something to keep in mind next time you hear someone complaining about a price increase!

Link: InstantWatcher

UPDATE: There's an excellent article at indieWIRE today that includes more details about Netflix's payouts, which are not based on a per-stream basis: The Decline of Indies on Netflix: Were They Amputated With the Long Tail?

Your Comment

20 Comments

Koo,
VOD has never been the market that Netflix Streaming plays in. They are quite happy to get the long tail - content that is older and leave the newer content to the VOD players.

AFAIK, Netflix only works with distributors and licenses their catalog on a flat fee basis. Recent reports mentioned that Starz turned down $200 Millions for a 2 or 3 year contract to the 1000 films they distribute (and whatever original series they create).

What the creative receives has nothing to do with Netflix per se. It's whatever the agreement with the distributor is... The interesting thing is that Netflix knows exactly how popular the content is and that probably creates a pay-for-performance - i.e. willing to pay more for popular content and less for not as popular content. Also note that Netflix *never* does an exclusive (I think House Of Cards is the exception, where they partly bank rolled it), so the studios/distributors are free to shop the content around.

I am wondering if one day, Netflix will ever setup it's own distributor or whatever so they could offer the creatives directly a deal. Let's say they offer $100,000 to a producer for a 3 year non-exclusive rights. That would be 2000 films for the $200,000,000 they were willing to pay Starz.

September 26, 2011

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Benoit

What producer would want a $100,000 3 yr deal with Netflix on new content? They wouldn't get any other revenue from
theatrical, vod, cable, dvd, nothing...everyone could stream the movie whenever they want on Netflix without paying. Would you buy a dvd that you could stream anytime you wanted already? Would you buy vod on content you could already stream? If you're a cable executive would you buy a movie already on netflix? There is a reason Netflix is at the bottom of
the food chain in distribution.

September 26, 2011

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Mike

Mike,
I must say that I know nothing about the movie industry, and sure, $100,000 distribution on netflix might not seem like much for even a small sized (studio) feature but for many documentaries or independent films (which is what I'm thinking of) that's not chump change.

I would not expect that you would necessarily give Netflix first rights to the movie. Of course Netflix will not supplant Theatrical Releases (assuming there is one for your Doc or Indy) or secondary DVD offering.
You can leave intact the current method Theater (How man screens does an Indy get?) -> DVD Sales/VOD -> Netflix. But of course, you still need a regular distributor for the front end, and they might not give up the back end (Netflix) so they can put a bundle for Netflix and get bigger $ for their aggregate catalog.

I would rephrase "bottom of the food chain in distribution" as "last leg in the distribution flow".
It would be interesting to know 12 Months after Theatrical Release how much revenue is generated on the DVD -> VOD -> Premium Cable -> Regular Cable spectrum (for non large budget films). I would guess that the residuals are relatively small after the initial blitz, mirroring the theatrical release cycle. With that in mind, would a producer that recouped the money (or not) but has little prospects of additional residuals spit on $100K for one more avenue?

In the 100K scenario, I would foresee Netflix totally be willing to wait a year after release before giving an individual production house the money. Again, Netflix doesn't care about the newest content. Also, that's just a "what if" example. At this point, AFAIK, they don't do that.

Koo,
I'm an investor in Netflix (last 2 months sucked BTW) and we discuss their business quite extensively. On a recent Earnings call, I think the CFO mentioned that they do not pay a "per view" fee. It is strictly flat fee for the licensing period *for the catalog*. So no, there would not be any payout based on performance.

How do they guesstimate the viewership? They can correlate to similar offering they have and while it's not perfect it probably gives them an idea. The next negotiation cycle, they will know EXACTLY how often things got watched and what the viewer rating was and they can compute the exact value of the content for them.
So, maybe they overpay the first round, or maybe the underpay...

However, they don't force anybody to sign a renewal (as seen by Starz deal). They are willing to put up $X and if the distributor doesn't like it, that's fine with them.

September 26, 2011

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Benoit

First you say Netflix will do the deal as a distributor directly with content creator(see your first post), now you're saying Netflix doesn't care about new content and will be glad to wait a year...and still pay $100,000 for something that has been distributed already? Huh?

September 28, 2011

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Mike

How do they guesstimate how often an indie catalog will be watched, though? And do they change their payout based on performance?

I should note, I'm a paying Netflix customer, have been for years, and don't plan on canceling anytime soon. But there are plenty of frustrating things about their service, and this was my choice to voice those concerns...

September 26, 2011

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Ryan Koo
Founder
Writer/Director

I too have always wondered about the payout to content creators.

Thanks for the link to InstantWatcher. Super helpful, and your analysis of their strange UI is spot on. Another greivance of mine is the suggestion engine—one of the best things about the service is almost wholy absent through instant play acesses (say, on the PS3 for example). Browsing titles, it shows average ratings, but not it's best guess for MY rating (which is way more important). And yeah, all I really want to do is but their magic to work—can I please just sort all categories by "Our Best Guess" for my ratings? No, not even on the website.

A couple other things—since when does Netflix house shorts? I randomly found one via instant watch; a 9 min. film called Spider by Nash Edgerton http://movies.netflix.com/WiMovie/Spider/70141657?trkid=2361637

Another QC problem (that's pretty funny): search for "24" on instant watch and you might find some testing-video called "24 FPS Test" or something like it they must have uploaded, well, for testing. Made me wonder if there are any other weird faux easter eggs.

As you might tell, one who has picked through the instant watch catalogue has to find ways to entertain themself. When we're out of DVDs, our instant watch behavior is almost akin to channel surfing every 4-5 minutes because the rest of the lot sucks so bad.

September 27, 2011

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* I've never used Netflix (I'm in Spain, they say they'll bring their service here next year) but I've got a feeling that it has become the facebook of video, in a bad way:
http://xkcd.com/918/

* There's a lot of money to be earned by everybody in a well-designed all-you-can-eat model with revenue sharing; never in my life have I spent $15 a month on music records or DVDs; sometimes I come close to that on rentals, but it's not sustained, it's just holidays; so I'm offering them an increase in revenue (I'd be happy to pay $15+$15 per month for an all-you-can-eat streaming services in high quality over a comprehensive catalogue); then, they have to share the revenue fairly with the content creators, maybe with something like this:

* take a cut on my $15 monthly suscription, maybe 20%, and distribute the rest among the rights owners of the music I listened to and the movies and tv series that I watched (say, 60% in per-minute terms, 40% based on my rating of the content)

with this, I think everybody wins

except they'll be afraid that they may end up loosing something, and will go on trying to sell me CDs and DVDs

September 27, 2011

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Interesting tidbit concerning the direction for Netflix: They recently penned a deal with DreamWorks Animation (Shrek, etc..) where starting in 2013 they will get first broadcast rights, replacing HBO - For DWA, they now have the pay TV "slot" in the distribution timeline.

And they offered more money than HBO did (reported $20-30 Mil per movie).
I'm not sure that will be the model for everything, but it shows that Netflix is not afraid to pay content creators directly for good content.

September 27, 2011

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Benoit

Not afraid to pay content creators directly for LARGE (read: blockbuster) content, that is...

September 27, 2011

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Ryan Koo
Founder
Writer/Director

Well...more than likely blockbuster content. New films, no guarantees, etc...

I don't think NetFlix is necessarily out to replace the current distribution system. Whenever possible, they will deal with distributors to get a catalog of films.

Does anyone know how the Producer Distributor relationship is structured?

Does the distributor have exclusive distribution rights for X amount of years, which freezes the producer out of selling the film directly? If so, then once the distribution deal ends (do they ever?), the producer could approach NetFlix directly and say I have this film, do you want to license for $X for 2 years? I wouldn't expect X to be 7 figures, but if after 3 years on the market, you can get residuals in the low 6 figures, isn't that a win? I don't have answers...but I'm interested in the business tho.

September 27, 2011

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Benoit

Interesting subject and discussion everyone. As an indie filmmaker, I have heard stories about Netflix with indie material, they weren't good. But neither is any distribution model as far as I know. I have chosen the difficult path of self-dist. with my first movie, but at least I can actually monitor sales. And since there is never a "performance guarantee", what's the point?

Film biz is extremely difficult anyway. We want our films to make money so we can make our next one....and etc. etc.

September 28, 2011

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Lee

Koo-
I enjoy reading your website and appreciate the work you put into it. So if you were a senior designer at MTV,
how do you explain the horrible pink and turquoise header at the top of your blog? And as for Netflix, yes the site has some quirks, but for the most part is excellent. Anyone complaining about the cost of their service is crazy.
It's a bargain. Anyone who cares about movies will want to watch them on DVD or blue-ray. Regarding movie distribution, worry about making a great film. A great film will find an audience.

September 29, 2011

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Dave

Koo, there are other websites with a similar service to instantwatcher that have even nicer interfaces. See a brief list of a bunch of Netflix-related sites and tools of the same vein (including instantwatcher) here: http://gigaom.com/video/netflix-tools-tips-tricks/

Moving on to the weightier issue of your article, making money from your creative product: as an aspiring filmmaker, I'm pretty close to giving up the idea of making money from being a filmmaker. It seems that the opportunities to make money from it, which were already rare, are becoming increasingly so, and the money that is made is diminishing rapidly. Just read Philip Bloom's article on cameraman day rates and the comments that he received. It's disheartening. I also saw a mini-special on Francis Ford Coppola where he explained why he generally got out of the film business and went into wineries instead, with a super-insightful comment: he said that he finally realized that the film business was not really a business. It does not have a consistently repeatable model where you could make money, like, say, making wine does. Consider that for a minute. One of the most talented filmmakers of the previous generation and arguably of all generations got out of it because the "business" was too financially unpredictable.

I think that creating media in general will become an increasingly difficult way to make a living because of the democratization of the means of production that is happening. Think about it: how many people actually make a good living as novel writers, for example? It's been difficult to do that for a long time, and then the same was and is becoming true of music. Now the next frontier of democratization of the means of media creation is film and video.

I don't think that this democratization is necessarily a bad thing in itself, as many of us have benefitted from it in certain ways (video DSLRs, anyone?), but I do think that media creation will be increasingly something that people do for the love of it, not for the money. In other words, it will trend toward art for art's sake, not a way to make a living.

September 29, 2011

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Shenan

I think the democratization of any medium does not remove nor greatly limit the ability for someone to make money at it. There will always be money in film, just like there will always be money in music. How does democratization prevent a skilled director, with a skilled team, and $200 million prevent them from doubling their money? And even for us little guys, one just needs to adapt with the times.... If you expect to keep relevant with one skill set, one distribution method, only standard def, or only 2D, then, yes... you will stop being capable of making money. Just like the record labels need to learn to adapt from CD sales to online sales... so too must film-makers adapt. For me, the future for film-making seems bright.... maybe I'm naively optimistic, but that's how I feel.

September 29, 2011

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I tend to disagree. The general audience already have no interest in democratised films. I foresee that within a year, even the few people willing to watch low budget movies will dry up. The people interested at this point are mainly low budget film makers themselves, with a few film majors thrown in. What happens when most of these people get bored with the barely watchable content flooding the few OK (but not great) movies?

Low budget movie makers make more dramatic/angst movies than an army of hormonal tween girls could watch in a thousand years. What is worse, is the story premises/plots are tired/uninspired/overdone and the stories are badly written. Throw in below average production standards across the board, and more will be like me... I would rather spend two hours with my mother in law than two hours watching your self indulgent movie.

I have tried to encourage many things in Indie directors/writers/producers. Including (but not limited to) action movies, childrens movies, family movies, comedies (that have more than one overused joke, or fail at unhumour), and developing stories with original/novel ideas (note plural. Not one "what if" question. Many ideas in the same plot). Instead, the indies I have talked to seem to clutch with desperation to yet another "Angst Drama" because that is what sells in Sundance or other festival. The festival scene is a very tiny niche. The vast majority of the potential audience do not care about that niche. They want instead, Action, Family, Comedy, Childrens movies.

Given this situation, I foresee a time where film democratisation completely devalues the roll of "Film Maker" of every sort. This could be a benefit. When "Film Maker" is double speak for "Unemployed and Unemployable", then hordes of teenagers will not clamour over each other to try to be the next Sundance Star. When only the truly talented will expose themselves to public ridicule, the untalented masses (let us be honest, the vast majority of "Film Makers" are talentless layabouts that want fame and fortune for the least possible effort) will not flood out the truly talented in their desperate need for fame and fortune. There will be no fame when the publics view of Film Maker is not much better than Amway Salesman. I do not know about fortune, but the fame will go when the public decides we are nothing more than a target for bad jokes.

I know my opinion is not popular, but it is the truth. The ugly truth that no one wants to discuss in the indie film scene. Instead we have fake back slapping and false praise going around in circles. No consideration to the end game when the group never identifies truly bad or boring content creators.

September 29, 2011

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Bunny

This is what I have to say after reading all of the post. Each and everyone of you is right in in your own opinion. So if you're a beliver in your film making skills then believe that you can truly creat a great film that will capture an interested audience. Because at the end of the day it's what the masses choose to watch and praise or crticize.

Bottom line is I see that the most who speaks in a discouraing fashion are people who have quote on quote failed at generating a substantial amount of revenue so in turn you say this isn't the industry to hope of making any money from. Funny the gentlemen bring uo Francis Coppola. First of all he's a freaken millionaire from being in the fiklm business and he's obviously comfortable that he can now try anything out for change even if it was to buy into the fast food chain franchises. Regardless what he has chosen to do doesn't dictate to other aspiring film makeres that this isn't the buiness to be in. Sometimes some people just loose the creative fire to inspire so they tend to enjoy life trying something new rather than complain and stress.

The energy that we sometimes put into these blogs and other forums about what other people are doing or what they are not doing is a waste of our should be valued time. Instead we because at this point doesn't exclude myself should be using our energy to make a difference if we really care and do something about it instead of just blogging. The film business or digital media is here to stay and there is lots of money to benefit by surfing the wave. Are you going to be the person on the beach watching the waves like right now or will you be the person riding the waves?

The person riding the waves has something to say that people are interested in listening to because pretty simple philosophy...They're doing something and not just talking about it! Make a difference by defiding the odds as some are speaking of and become apart of change by changing yourself first inorder to develop change in a positive light. It's really all just a choice and a difference in opinions but opinions from a broad aspect means "Jack" Results are fact and the facvt is if you actually participate are become creative enough in doing something then there will be results to measure.

Thanks for reading!

September 29, 2011

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Btw excuse so many misspelled words but i'm sure many of you are very intelligent, so read between the lines.
Thanks again.

September 29, 2011

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Quite the interesting discussion here. I enjoyed reading the article and every one of the comments.

IMO, the Netflix criticism is valid. I took advantage of a free trial of their service quite a while ago, but they did not convince me to pay to continue it. There must be a reason Netflix doesn't provide customers an efficient means of searching and winnowing down their catalog. The cynic in me wonders if it has to do with forcing users to spend more time browsing, exploring and discovering than consuming. Only they know for sure.

Admittedly, I previously didn't give online streaming much thought over the last few years. We gave gobs of money to DirecTV, and later UVerse, in large part due to convenience and their NFL Sunday Ticket exclusivity. For financial reasons, though, we recently "cut the cable." I thus had to spend a bit of time considering online content options.

We signed up for Hulu Plus, and I was pleasantly surprised to discover the streaming content my Amazon Prime included (I'd bought it solely for the 2-day shipping a year ago). Our PS3 allows us watch Hulu, as well as Amazon Prime Video and a number of other channels via PlayOn, on our HDTV. The PS3 offers plenty of PPV content (Sony and VUDU) if we wanted it, and Sony now offers NFL Sunday Ticket, too. Just yesterday I replaced the DirecTV dish on our roof with an HDTV antenna to get free local channels. Yep, I bought the antenna on Amazon - it even arrived in one business day. The only thing I'm really missing now is ESPN for Monday Night Football. Yah well...like most everyone else, I'd prefer to have my cake and eat it, too.

Regarding content creators and the film industry, the digital video revolution is helping create a new entertainment production paradigm. High quality cameras, brawny computers and pro editing software options are within financial reach of many, and the internet provides a free global distribution system. What's stopping anyone from bypassing the whole middleman industry and selling their content directly to consumers via the small screen?

Yeah, ya gotta have some startup dough...but as Koo and others has shown, it's potentially attainable if you don't already have it. To me, it's now down to the fundamental basics of entertainment production: storytelling talent and salesmanship. If you're brilliant enough to suspend the entertainment consumer's disbelief, and get them to pay for it (or tolerate advertising), you can make money.

It appears mighty tough to make a fortune doing it on your own, but I believe if you can demonstrate moderate success in this giant new free market, the entertainment industry will want you. Cream does rise to the top; do you have what it takes?

September 30, 2011

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"...but I believe if you can demonstrate moderate success in this giant new free market, the entertainment industry will want you. Cream does rise to the top; do you have what it takes?"

Knew a director from film school that wrote and directed someone to a Best Actor Academy Award
..and it made money...all within couple years of graduating....almost 10 years later they still have not got a second film out. Keep your illusion though...funner to be delusional and optimistic...realistic is total downer.

In 80's and 90's the field wasn't so crowded...now there's facebook...video games..hundreds
cable tv channels...who needs the film industry..? No-one except kids who want to get out of the house
and away from parents. Record Industry was first to fall...film is happening now right before your eyes.

There is hope though...Classical music has been a dead art form for last couple hundred years...yet
it survives. How..? By embedding itself in the academic school setting..tax money goes to support it
because people thinks it's important. Thing is it always was a high art...film always was a low art.
Coppola is a wise man...pay attention to what he says:

http://the99percent.com/articles/6973/Francis-Ford-Coppola-On-Risk-Money...

"This idea of Metallica or some rock n’ roll singer being rich, that’s not necessarily going to happen anymore. Because, as we enter into a new age, maybe art will be free. Maybe the students are right. They should be able to download music and movies. I’m going to be shot for saying this. But who said art has to cost money? And therefore, who says artists have to make money?"

"In the old days, 200 years ago, if you were a composer, the only way you could make money was to travel with the orchestra and be the conductor, because then you’d be paid as a musician. There was no recording. There were no record royalties. So I would say, “Try to disconnect the idea of cinema with the idea of making a living and money.” Because there are ways around it."

Q:What is the one thing to keep in mind when making a film?
"When you make a movie, always try to discover what the theme of the movie is in one or two words."

November 12, 2011

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sammy

I think Netflix will end up like AOL if they don't clean up their act... Think about it, AOL was insanely popular because they were one of the first commerical internet provider. But in this world medicore products can't sustain itself more than a few year with compeitition. Thank goodness for iTunes, amazon, and YouTube VOD.

Also looking forward to spotfly's incorporation of VOD.

October 15, 2011

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