Media

BritBox

ITV plc has just reported its annual results, and it was for that reason that we got the announcement of BritBox pretty much simultaneously. Because, from the careful phrasing the in the press release, you can tell that the deal hasn’t quite been done and that there is a final bit of finessing to do: “The BBC and ITV are in the concluding phase of talks to establish…”

Leaving aside both that and issues surrounding the name, which would seem to work better outside the UK rather than within it, BritBox has been a solid success in the US, where it now has 500,000 subscribers to it’s Subscription Video On Demand (SVOD) service.

We have to be a little careful here, because the US is an enormous market. There are something like 120m homes there, so 500,000 has to be seen in that light. Nonetheless, there’s solid demand there.

What we don’t know yet is how much the service will cost, nor what will be available. That means it’d be rash to make any kind of judgement at this stage. And will Channel 4 come on board?

So we’ll take what clues we can get. The image that appears on the BritBox homepage (above) has stills for Victoria (ITV Studios/Mammoth Screen/Masterpiece), Broadchurch (ITV Studios/Kudos), Les Miserables (BBC Studios/Lookout Point/Czar TV) and what I think must be James Norton from McMafia (BBC Studios/AMC/Cuba Pictures).

I include those production companies, because they begin to become quite important in determining where a show might end up, and whether it could be included in BritBox.

“The service will have everything from old favourites to recent shows and brand new commissions,” doesn’t really help too much.

We can look at the US service, but that could be misleading, as rights are regularly negotiated by territory. The US service offers things from Coronation Street to Poirot. And it’s worth mentioning that there’s another SVOD service in the US that directly competes with BritBox offering its own range of TV from the UK (and beyond) – Acorn TV.

There are clearly a lot of shows that could fill up BritBox from the start. ITV already has its premium version of the ITV Hub and that includes all those classic ITV shows that get shown on hard repeat on channels like ITV2, ITV3 and ITV4, and you imagine that catalogue will be folded into BritBox offering. There are all kinds of shows that the BBC could do the same with, although many of them do get airings on UKTV channels, and a recent disagreement between UKTV and Virgin Media was around how much UKTV material was made available on demand.

The big streamers like Netflix and Amazon tend to be most interested in only the highest profile shows. There’s plenty more to go around. But the service will need some of those big shows to drive viewers. 2000 episodes of Homes Under the Hammer and Tipping Point probably won’t shift many subscriptions.

Beyond that, there are a number of financial issues this new service’s owners must face.

Turning Down Co-Production Money – At the moment, if the BBC or ITV commission a top drama series, they tend to use deficit financing. In other words, the commissioning channel does not pay the full production cost of the series. Instead, the production company, a distributor or its financiers take on some of the risk, funding the remainder of the cost. In return they offset that by being able to market with the show beyond its first window on the commissioning TV channel, including its streaming rights. That’s why, when you watch something like Blue Planet II, you see a host of other broadcasters names at the end of the credits. They pay money up front in return for certain rights in certain territories.

The issue is that in recent years, significant amounts of this funding has come from the likes of Netflix and Amazon. Last year’s biggest drama series, Bodyguard, was commissioned by the BBC, but made by World Productions, an independent producer owned by ITV Studios. In turn, ITV Studios got Netflix on board as a financing partner. Netflix took all the ex-UK rights, and the series ended up on Netflix globally (but not in the UK) fairly soon after the drama had finished airing in the UK.

It seems likely that Bodyguard will show up on Netflix in the UK in August or September this year, once a 12 month BBC exclusivity window has closed.

(We’re also beginning to see the reverse of this behaviour. This May Good Omens will appear on Amazon Prime, only following some months later on the BBC. This also happened with later series of Ripper Street that the BBC had otherwise cancelled at that point.)

What all of this means is that if the BBC or ITV want to make a premium drama, they might have to find production or sales partners who don’t have distribution outlets in the UK, if they want that drama to end up on BritBox and not Netflix etc. And as budgets get bigger and audience expectations increase, that becomes harder.

Now to be clear, just looking at the production credits on a series really doesn’t reveal the whole story. Only the contracts between the commissioning channel and production companies will fully detail who has what rights for what windows in what territories.

Turning Down the Licencing Money – This is similar to the above but really comes from programming fully owned by the BBC or ITV. Doctor Who would be an example. At the moment, it’s licenced to Netflix who carry all but the most recent series. Netflix didn’t put money into it; they just agreed a licencing fee for a period of time. Both the BBC and ITV have been licencing their programming in this way for a while. Netflix has viewer data to help determine whether they should licence a property, or renew an existing licence, and they attempt to make agreements with the rights holders to licence or re-licence programming.

There was a fascinating example of this earlier in the year with Netflix and the Warner’s series Friends. Netflix’s previous deal had expired, and meanwhile AT&T, Warner’s new owners, had announced its own upcoming SVOD service to launch later in 2019. Keeping Friends exclusive to their forthcoming service might pay dividends for Warner’s. But there was an offer from Netflix of between $70m and $80m for the rights to the series for 2019 alone. Warner took the money and Friends remains on Netflix (Friends is also on Viacom channels in the UK, including Channel 5).

Independent viewing data suggests that Friends is still heavily viewed on Netflix – perhaps as a kind of “comfort blanket” sort of programming. That and the volume of episodes available means that it’s one of the most watched shows on the platform. I doubt Netflix would have ever gone out marketing the fact that they had Friends, but its presence keeps subscribers happy.

It’s now expected that Friends will leave Netflix in 2020 and become exclusive to the new Warner’s service – in the US anyway. But these are the kinds of dilemmas that the BBC and ITV are going to have to face. If you get a really good offer for Sherlock from Netflix, do you take it? Or do you make Sherlock BritBox exclusive?

A Boxset Future

It’s worth thinking of BritBox in the context of audience desires. The BBC has recently opened a consultation on iPlayer and boxsets. In particular, their stated desire is that 12 months, rather than 30 days will become the catch-up norm. Currently series drop off iPlayer relatively fast, although you might then have to wait for 11 months for them to appear elsewhere.

One may envisage the future as being a series getting a 12 month iPlayer window, free to licence-fee payers, before the series moves over to BritBox on a more permanent basis, where you might have to pay £6.99 a month for access, always assuming that the rights for BritBox are available.

I don’t think that this is a complicated proposition. I’ve seen a few people questioning the idea that BBC viewers in particular might have to pay for something that their Licence Fee already paid for. But this is really a 2019 replacement for DVDs or even videos. There has long been a tacit understanding that if you really want to watch and rewatch a favourite series, then it’s going to cost you some money. The same happens with films, and other TV series. The average Sky viewer never has a clue when Game of Thrones is going to be available as a boxset. Sky’s deal with HBO sees shows come, go, come back and go again from Sky’s own boxset offering. Films drop off Netflix and Amazon. You learn to live with it.

(NB. Of course, a streaming service absolutely isn’t a replacement for owning the media – ideally offline. Shiny discs are under-rated.)

A Multiplicity of SVOD Services

How much do you currently pay for your TV services?

A full Sky or Virgin Media package, including sport and movies might cost £100 a month. But let’s cut the cord and start adding up what everything costs.

Netflix starts at £5.99 a month, although you’ll pay more for better quality streams or more simultaneous logins.

Amazon Prime costs £79 a year, or £7.99 a month and obviously includes free next day delivery as well as other benefits including a music streaming offering.

What next? Now TV because you can’t do without access to Game of Thrones or Premier League football. The Entertainment Pass costs £7.99 a month, while movies cost £9.99 a month. Sport is £33.99 a month! Notably, Now TV always has a number of offers so it pays to shop around with them.

That won’t quite do it for me. I want access to cycling on Eurosport, so I’ll pay for their player too. That’ll cost me something like £4.99-£9.99 a month, or £39.99 a year.

We’re actually getting close to £75 a month at this point. Although some services don’t give you full 1080p HD (let alone 4K) at those prices.

Obviously, I’ll also have access to free or ad-supported services like iPlayer, ITV Hub, All4 and Demand5.

The question then is, how many services will one household pay for? I’ve heard 6 mentioned as a baseline to work with in the US. But that really must assume that you’re not paying a big Sky or Virgin bill to start with. According to reports, Enders Analysis says that the average number of services in the UK is just 1.4. That may be the case now, but it’s surely a number that will increase in the coming months, because there are more big services due to launch.

Disney+ will launch later this year, and will offer things like Star Wars TV spin-off series, as well becoming the home to all those Disney, Star Wars and Marvel movies. They are going to really push the boat out on this offering. They will leverage their IP aggressively to support this service.

NB. In the UK, Sky renewed a deal with Disney in October 2015 that has given Sky exclusivity over Disney, Marvel and Star Wars movies for a minimum of 18 months. It was not reported what the duration of that deal was, and it will be interesting to see if Disney declines to renew that deal in the future, keeping everything for its Disney+ service. That has been the pattern in the US. Comcast outbid Fox (itself being bought by Disney) for Sky ownership.

Then there’s Apple, which is going to launch some kind of service, probably in the next month or two. What it actually is, what you’ll get access to and how much it costs, is a subject of much discussion in the industry. They might bundle it with an Apple Music subscription, or limit access to Apple hardware. We’ll have to wait and see.

In the US at least, AT&T will be launching its own SVOD service towards the end of the year too. AT&T has bought Warner’s (Friends, The West Wing, ER etc) and that comes with HBO and its library too. Reports suggest that HBO is going to be delivering more hours of programming in future, in part to service this new offering. Game of Thrones prequels are not to be sniffed at.

NB. It’ll again be interesting to see what this means to UK viewers where Sky has “output” deals with both HBO and Showtime – the latter owned by CBS. The HBO deal was last renewed in 2014 and ensures that Sky remains home to HBO programming (unless it’s co-produced with another partner) until 2020. A drama co-production deal was signed in 2017, but it’s not clear whether that output deal was further extended. Does AT&T want to take ownership of the HBO relationship with viewers in Europe? Sky is now owned by Comcast who are direct competitor of AT&T in the US. Those Game of Thrones prequels may or may not end up on Sky Atlantic first.

Beyond all of these, there are other specialists like Shudder (horror), Hayu (reality), BFI Player (films), StarzPlay (film and TV) and many more. In the US, Hulu is an important platform, there is CBS All Access (New Star Trek series etc.) and NBCUniversal is expected to launch a service too.

How many will people pay for? In the new world, this is untested, but it’s clearly a competitive arena that BritBox is entering.

But it is worth noting that these new players have the potential to strip a lot of programming away from the incumbents. This explains why Netflix is trying to become ever more reliant on its own properties. It will lose Friends et al at some point. It has not renewed its pricey Marvel deal. Studios from other groups may not want to sell to Netflix in the future, preferring to supply their own platforms. (A slight wrinkle in this comes with a recent adjudication in the US, where Fox has been found guilty of self-dealing in its own corporate interests, but against profit share participants in the TV series Bones. This may play out in interesting ways.)

For consumers in the future, this probably means a need to subscribe to a multiplicity of services to get a reasonable range of programming. Netflix and Amazon on their own probably won’t be enough.

Summary

In retrospect it was a terrible decision from the Competition Commission in 2009, when the predecessor to this service, Project Kangaroo, was prevented from launching. It was seen as too much of a threat to the third parties entering the space. You can read the report from just ten years ago here.

Of course, what happened subsequently was that Netflix morphed from being a DVD rental business to becoming a global streaming powerhouse. Amazon came in and bought LoveFilm (another DVD rental business) and it too became a global streamer. And audiences flocked to these services causing particular anguish at the younger end of the market with existing broadcasters.

Audiences expect ever increasing production values from their drama, and at the same time as its becoming globalised, with viewers happy to watch a Latin American set drama like Narcos, where half the dialogue is in Spanish. However, at the same time programmes are arguably becoming more homogenised. A Netflix series is expected to work in more than one territory which impacts on characterisation, setting and casting. So far, Netflix’s UK originals have not felt terribly British in tone.

Netflix subscribers probably now outnumber Sky subscribers in the UK, and few producers can resist their lure. Netflix has signed up Shonda Rhimes and Ryan Murphy to blockbuster deals to make new shows exclusively for them. Amazon will perhaps spend as much as $1bn on its upcoming Lord of the Rings TV series.

There’s no way to determine at this stage how well BritBox will do, but between ITV and the BBC, but they do have a decent amount of marketing muscle available to them (I suspect there’ll be limits to what can be done on BBC TV however).

The question of original commissions is interesting. When ITV Encore existed, ITV made a few shows for that, like The Frankenstein Chronicles and Harlots. And the BBC indirectly creates original shows via its UKTV subsidiary, Flack being a recent W launch, while Alibi enters some co-production deals and is making a new Val McDerrmid series, Traces.

None of those would count as flagship shows though – being enough to get your wallet out to pay for. That will be interesting to watch. My guess is that they will be looking at a few lower budget genre series – crime or SF – which can develop loyal audiences.

But it would be wrong to think about BritBox in terms of original commissions. This is about providing access to quality British programming and not ceding the SVOD world solely to US players. I would hope that the rights owners can experiment a little, and dig into the catalogue. However it will be the big hitters that get viewers in. It’ll be intriguing to see how it develops.

The Desperate Telegraph

The Daily Telegraph is not doing well right now. It only sells 363,000 paid copies of the printed paper, having long since been overtaken by The Times. Despite being one of the earliest news providers in the UK to have a web presence – eTelegraph anyone? – it feels somehow left behind now. Titles like The Guardian and The Times have much better digital offerings.

Recently the paper has launched a marketing campaign that I’ve particularly spotted on Twitter, and I have a number of problems with it.

It started with this ad which I saw on a fairly regular basis for several days.

This relates to an interview with the former Olympic cyclist that the Telegraph had published recently. The story was newsworthy, and undoubtedly important.

But I really felt very uncomfortable seeing someone’s personal mental health issues being used blatantly for advertising.

As I say, it’s absolutely right that mental health issues are addressed, and stories can absolutely provide useful resources for readers who might face similar issues.

But making those stories clickbait adverts feels really uncomfortable.

Then I began to see this ad.

Oh good. Let’s start wading into the world of trans issues with our ads shall we? If there’s an angrier bit of the internet, I’ve yet to see it. But this is obviously a top clickbait advert. I’ve resisted and have no idea who is making what argument.

By now we’re moving away from more usual clickbait and straight into that “bottom of the internet” crap you find everywhere supplied by companies like Taboola. Low rent garbage indeed.

Most recently the downward spiral continues with this frankly laughable advertisement. Is this the Daily Telegraph or Chat magazine? The stock photo of the woman drinking coffee and reading her phone isn’t quite as gaudy as those weekly magazines, but the story is lifted straight from one of their cover lines.

The Telegraph has been a shadow of its former self for a long time. But this marketing campaign is just awful. Where are its news values? What is it actually trying to sell here?

Considering that these are targeted ads, I’ve no idea who has done the targeting. I mean, I might wonder if they were trying to target women with these ads, in which case they’ve missed massively in my case.

Either way, an obnoxious campaign.

Digital Movie Libraries in the UK

Buying a digital movie or TV series in the UK is an utter mess.

You can buy movies or TV series from a number of sites including: iTunes, Google Play Movies, Amazon, Sky Store and Rakuten.

But if you buy something in one of those places, you can only watch it via that company’s app and/or products. You run the risk of your hardware not being supported (e.g. no app for your new TV), or needing to buy new boxes or dongles to play a particular operator’s fare.

All taken together this means that it’s quite easy to have digital copies of films and TV series across a number of services.

And of course, if you are able to download offline copies of the films, they’re encrypted with DRM, and won’t play on other companies’ services or hardware.

Then there is the mess that is those codes that come with physical media. If you have bought a DVD or a BluRay over the last few years, it may well have come with a code on a slip of paper in the tray. You go to a website, enter that code, and get a digital copy. That’s the theory.

But this too is a complete mess.

Different studios have different options – some limit you to iTunes. Others, work only with Google Play Movies. Most commonly, you have to use Ultraviolet, which theoretically lets you then choose a service to view your films. In the UK, the reality is that this “choice” is Flixster. But this is insanely limited, in large part because they’ve shut down in the US. In the UK and elsewhere they continue to exist, but there are only very limited ways to watch films. You can use a mobile app, or via the web-browser. There’s no Android TV version available, and newer TVs don’t have a built in Flixster app any more. (And that’s before we get to the fact that you’ve probably created multiple accounts for the studio, Ultraviolet and Flixster, just to get to that point).

Further problems include unavailability of previously available films. For example, I bought a disc of the Frank Capra classic Lost Horizon which included a digital copy from Sony Pictures (owners of Columbia). This shows up in my Flixster library marked as unplayable. Clicking on it takes me to a broken insecure Sony Pictures website page. The digital copy seems to have disappeared. [Update: It turns out that I can view this film via Sony’s site. But not via Flixster for some reason, even though other Sony movies and TV are available on Flixster.]

Some studios just never played ball in the UK, with UltraViolet or anything. Notably Disney has never included digital codes in its DVDs or BluRays in the UK. The same is true for other smaller studios. It has not become the norm to include a digital copy of a film with physical media.

Anyone would think that the studios loved the idea that users had films scattered across the four winds of film services, with those services sometimes closing down or changing, and purchasers losing access to their films.

Now, in the US, UltraViolet is shutting down. There, they have Movies Anywhere, which is supposed to take all this pain away. You connect up all those disparate accounts across a number of services, and everything is available anywhere. So if I prefer to watch films via Google’s app, I can watch everything including purchases from my iTunes library.

It’s not clear that UltraViolet will be shutting down in the UK, although it’s certainly not encouraging [Update: Ultraviolet absolutely is closing down in the UK on the 31 July 2019 as with the US version of the service. See further update below]. Users instead are left with disparate collections of films across different services, playable via different devices, and generally confusing and a mess.

I find it interesting that last week, various studios got together to promote “Mega Movie Week”, a week of promotional pricing for a number of recent films. Recent titles like Crazy Rich Asians were being sold for £2.99 for a digital download. The pricing seemed consistent across the various different platforms, and it seemed like most major studios were participating. So they can play nicely together if they want to.

They just don’t seem to be able to settle on something sensible like Movies Anywhere outside the US. This may come back to haunt them in the fullness of time if a service ever shuts down and users lose access to their film and TV collections.

[Later Update] Shortly after publishing this, I got an email from UltraViolet confirming that the UK service is indeed shutting down on 31 July 2019.

The website suggests that you verify through their Retailers Services page that your library is connected to one of their services. In reality, this is a choice between Flixster, Sony Pictures and a company called
Kaleidescape who I was not previously familiar. The Sony site seems to just have the Sony owned films, while Flixster, in the UK at least, has everything else, with the exception of that one film, Lost Horizons. Interestingly, the site claims to be copyright of Warner Bros.

There’s certainly no ability to move your library to somewhere like iTunes, Google or Amazon. And there’s no sign of Movies Anywhere launching, which might take a lot of the pain out of UltraViolet closing down.

UltraViolet says that until 31 July, you can carry on redeeming movies the usual way, but that after that date, “You can continue to make online purchases and redeem codes, but these may only be available through that retailer, and will not be added to your UltraViolet Library.”

In other words, your library will become even more disaggregated.

More worrying it also says, “Your UltraViolet Library will automatically close and, in the majority of cases, your movies and TV shows will remain accessible at previously-linked retailers.” [My emphasis]

That’s not entirely reassuring is it?

Netflix Viewing Figures

Bird Box is Susanne Bier’s Netflix film the streaming service released just before Christmas. It stars Sandra Bullock as a mother who has to protect her children from an unseen entity. Furthermore, if she (or others) see it themselves, they are done for.

Think of it as a visual companion to A Quiet Place.

I enjoyed it well enough, when I watched it over the Christmas period.

Subsequently, Netflix announced that 45m accounts had accessed the film in its opening week.

When questioned a little more, they explained that this count was derived from those accounts who had viewed at least 70% of the title, although that viewing may have occurred over different devices.

That left lots of people doing lots of maths.

Since then, Netflix has published its Q4 2018 results, which show that by the end of the quarter it had 139m subscriptions globally.

These updated some of those previous numbers some more. Netflix was now saying that 80m member households had watched Bird Box during its first four weeks on the service – and that they were seeing high repeat viewing.

Its Spanish school murder drama, Elite had 20m member households watching at least 70% of one episode, while Bodyguard, Baby (from Italy) and Protector (from Turkey) each had 10m member households watching an episode in each of their four weeks. NB. In the UK, the final episode of Bodyguard got a 17.8m 28-day viewership across all platforms, dwarfing the global ex-UK number of 10m over a similar period.

[Update 31 January – The BBC has just revealed that the most streaming requests from iPlayer in 2018. All of the top ten individual programmes were either Bodyguard or Killing Eve. Episode one of Bodyguard alone achieved 10.8m requests. Across the series it achieved an average of 7.1m iPlayer requests. And that’s streaming alone. A useful comparison with Netflix’s 10m number for the UK alone.

Note that it’s unclear how much of a video is sent before a request is counted, so these numbers can’t be directly compared with Netflix’s numbers.]

Finally, Netflix referred to You and Sex Education both of which they project to be viewed by 40m member households in the first four weeks (estimated, because neither had actually been on the service for four weeks at the time of the press release’s publication).

[Sidenote: You is now globally perceived as a “Netflix Original” when in fact it aired on Lifetime in the US where it was singularly unsuccessful. The New York Times explored this phenomenon, and tried to draw comparisons with regular TV viewing figures. However, as they note in their article 40m member households watching at least 70% of one episode globally is not remotely comparable to 12.7m people watching an episode of Big Bang Theory on CBS in the US. TV viewing numbers are averaged across the duration of a show and are per-minute. The cumulative “reach” of a show will be higher. And the number of people who watched 70% of one episode of Big Bang Theory across an entire season will be much higher again – very likely to top the 40m Netflix quote for You. And that’s just TV viewers in the US. If anyone can point me to a published reach of a big US TV series across an entire season, then please let me know in the comments.

UPDATE – 30 January: Joe Adalion tweeted the following from a CBS press release.

In particular, The Big Bang Theory has reached 51.7m people so far this season in the US. For 60 Minutes, that figure is 80m.

The Netflix numbers are global, and refer to households, but this is a useful reminder to show how big network TV still is.]

But these are all big numbers; so what do they mean?

First of all, they are global figures and not local ones. So make your comparisons carefully. And for series, they really show the power of Netflix’s own marketing. While 10m households might have watched [most of] episode one, we don’t know how many watched subsequent episodes.

These numbers represent households and not people. So viewership will be higher than these numbers. How much higher is hard to say. People watching on their phones are likely to be solo viewers. But on a big screen TV at home? I don’t know.

It’s again important to note that both the first week 45m and four week 80m figures quoted by Netflix are global figures.

But Netflix is suggesting that a over half its subscribing homes watched Bird Box which undoubtedly makes it a massive hit.

As others have noted, Netflix keeps it’s above-the-line real estate on the Netflix homepage exclusively for itself. The very first thing you see when you boot up Netflix, is whatever they want to promote. And they promoted Bird Box hard.

But compare and contrast with the figure of 26m that US ratings group Nielsen claim watched the film in the first week. Nielsen’s methodology is very different. It’s sample-based, but the sample is big enough to provide relatively robust numbers for a big hit like Bird Box. However, Nielsen doesn’t measure mobile viewing – notably on phones, tablets and laptops. So it certainly under-counts Netflix viewership. And note too that it is a US-only figure.

What all of this shows is that if Netflix goes gangbusters for a film like this, perhaps “forcing” every subscriber who opens Netflix to see it advertised – probably with an auto-playing trailer – it can generate a hit. How would that compare with a film that everybody agrees was a massive box-office hit?

In North America, Avengers: Infinity War achieved the highest opening weekend box office of all time, with $258m. By week four it had grossed $605m in North America, It would go on to gross over $2bn globally.

Money earned at the box office isn’t the same admission numbers – for one thing, ticket prices tend to increase over time. But, if we use the Box Office Mojo average ticket price for 2018 of $9.14, we get 66.2m admissions to the movie.

Now, 66.2m admissions doesn’t mean 66.2m different people. Some will have seen the film more than once – even across its opening weekend. But that’s an estimate of the seats sold in North America across a four week period for the biggest franchise currently in cinemas.

We can probably add tens of millions of more “foreign” (i.e. non-North American) viewers to that figure. Note that international box-office data is harder to come by.

We’re left with the following:

  • Globally, 80m households – perhaps 100-130m people – watched Bird Box in its first four weeks.
  • In North America, there were approximately 66.2m admissions to Avengers: Infinity War in its first four weeks – perhaps representing 40-50m individuals (assuming fans went to see it multiple times).
  • In China alone, Avengers earned nearly $360m, and using very rough calculations, might represent another 36m ticket sales there too.
  • Globally, you can probably safely double the US admissions number, and perhaps triple it, giving us perhaps 100-150m viewers in total.

Does that mean that Bird Box and Avengers: Infinity War were actually as successful as one another?

Probably not.

Bird Box will have been cheaper to make, but Netflix subscribers will have paid a fraction of the cost to see it. Netflix remains loss-making after-all, whereas last time I checked, Disney was incredibly profitable.

But Netflix is capable of launching a film with an internationally known star onto the global marketplace, and to achieve a viewership that can compared with the biggest cinema hit in recent memory.

The Death of MoviePass?

A few months ago, I tried to work out what the business model of MoviePass (and putative UK equivalent cPass) might be.

I concluded that the operators were going to need very deep pockets, and there was absolutely no certainty that the model works.

And that seems to have been an accurate prediction. The service recently nearly ran out of money, and had an emergency $5m injection last week. As Techcrunch reports, that wasn’t enough for the operators to block MoviePass subscribers from buying tickets to the weekend’s big new release – Mission Impossible: Fallout. And according to reports from a company meeting, the same restrictions will apply to some forthcoming big releases.

With the share price of MoviePass’ owner falling like a stone to below $1, the outlook is not good. I would imagine that at this point, the owners will be looking at some kind of fire sale. But even that doesn’t make a great deal of sense.

In the meantime AMC has launched its own subscription sevice – AMC Stubs A-List – which might be a mouthful, but offers three films a week for $19.95 a month. That puts it on a par with long standing subscription schemes in the UK like Cineworld’s Unlimited or Odeon’s Limitless offerings.

It’s unclear where that leaves cPass. They continue to offer a “waiting list” system to invite new subscribers. But I suspect that their investors will be carefully monitoring the losses of MoviePass, and may well decide to abandon ship rather than launch a loss-making product of their own.

It was hard to understand the business model of MoviePass in the first place, and that turns out to be because there really wasn’t a workable one. At least there wasn’t a workable one that accurately reflected movie-goers habits at a price point that made sense. All the more so, when MoviePass had deals with neither cinema chains, nor movie distributors.

The film industry does need disruption, but it’s already happening. It’s happening in how we watch films, and the type of films that get made. Most importantly its happening in where we watch films. As was highlighted in the book, The Big Picture it’s happening with Netflix and Amazon. Those mid-budget films are more and more skipping theatres, and showing up on their services. Cinemas are left with blockbusters at one end and art-house films at the other.

Will cinemas as we know them now survive another 10-20 years? I hope so, but I’m not certain. But MoviePass certainly won’t be the game changer it thought it’d be.

This is a fun read from The New York Times back in May.

Is IP TV Really Ready for Primetime?

Last night YouTube TV went down for an hour. That’s not YouTube the platform, but the premium TV service that YouTube offers customers in the US a range of broadcast TV channels in exchange for a monthly fee. The service went down right in the middle of the England v Croatia World Cup semi-final in Russia.

Every time a set of major sports rights comes up for sale, there is more and more discussion about whether a major internet platform like Amazon, Facebook, Google or Apple will be bidding. So far, there have been a few toes dipped in the water. Amazon has a small package of Premier League games from the season after next; Amazon also has ATP tennis in the UK from next year, and has had a few tennis tournaments this year; Amazon has streaming Thursday Night NFL rights, sharing them with free-to-air and pay-TV ; Facebook has bought Premier League and La Liga rights for a handful of Southeast Asian countries.

But at the same time, there are ongoing problems with many of these streaming technologies. In Australia, Optus had massive issues with its World Cup rights as I’ve mentioned previously. They’ve ended up refunding subscribers, and allowing all their games to be shown on free-to-air broadcast TV. ITV Hub has had various issues during earlier games in this World Cup (although I’ve seen few reports for the semi-final last night). Hulu’s stream of this year’s Super Bowl went down towards the end of the game. There are plenty of other examples.

Streaming is hard, and the resources to ensure no breaks are not to be understated. You might get angry if you can’t stream an episode of GLOW on Netflix because something between Netflix and your ISP isn’t working right. The worst that might happen is that you have to wait a bit and watch it later. But that’s not a remotely satisfactory solution for live sport.

If a company the size of Google can still have a major outage during a global event like the World Cup, then you know that this isn’t easy. During the Sweden v England quarter-final, the BBC reported a record 3.8m live streams at one point. And of course, there were also reports that the stream fell over towards the end of the game for some.

It’s notable that for the World Cup, the BBC’s UHD streaming experiment was initially limited, to ensure that those who got a stream weren’t going to be disappointed half way through when too many other viewers caused the whole system to fall over (Of course, viewers would quickly find out that they were well behind other versions of the picture meaning that you could be hearing your neighbours cheering a goal minutes before you saw it yourself).

The same fixture had broadcast viewing figures of over 19m, with many more watching in pubs and at outdoor events. And while we need to be careful about comparing audiences (1 stream does not equal one viewer; they are not measuring exactly the same thing), it’s clear that the vast majority still watch via the more robust broadcast systems. The question is, for how long?

Talk to a TV engineer and you’ll begin to understand why broadcast is still better. The Freeview transmitter network is very robust with built-in redundancy to ensure that TV channels’ signals reach local transmitters. While local transmitters can fail, these tend to be extraordinary events, and their “up time” is high. If the transmitter is working then the only reason you don’t get a picture at home is down to your set-up (e.g. a faulty antenna on your roof). Satellite transmission is also remarkably robust – with perhaps only extreme weather causing picture degradation.

With IP, there are many places that the system can fail. Broadcasters are reliant on large Content Distribution Networks (CDNs) to distribute programming. And that complexity increases with live. Then there might be a local problem with your “exchange”, or even the local fibre cabinet near to your street. Perhaps your the free router your ISP gave you has failed. It can be hard to diagnose, and there are many potential points of failure.

For the most part, service will probably resume quickly. But just how quickly is another question.

I’m not arguing that IP can’t fix some of these problems, or be more robust. But I do think that it’s going to be a significant technical challenge, with many parties involved, and broadcast is better in many respects. From a broadcaster to transmitter might only involve a couple of specialist companies. The pictures arrive faster, and there are fewer places for things to break. One viewer or 30 million viewers? It makes no difference.

On the other hand, some future live event will take the record for streaming again, but these will be more worrying moments as systems are put under bigger pressure than ever before.

I’m not ready to give up broadcast as efficient video and audio propagation methodology just yet.

Marketing TV

If you’re a TV channel and you’ve got a new show you want to tell people about, it should be relatively simple. You make a trailer or two for it, and then you run that trailer around programmes that the audience for the new show are already watching.

You might want to be a bit cleverer than that, perhaps pulling in viewers of less obviously related programmes. Indeed if you’re really clever you might make different trailers to target different audiences.

But for the most part, TV companies use their own channels, which makes a great deal of sense. Or perhaps did. Because as the audience becomes ever more dis-aggregated, it’s getting harder to reach potential audiences. Viewers are spread far and wide, and you can’t be certain that you’ll reach a large potential audience just using your own channels.

It’s instructive that if you visit a big US city like New York, you’ll see advertising for movies and television shows everywhere. When I visited in April, even the city’s bike hire docking stations had advertising for Showtime’s Billions.

TFL Have Missed a Trick

Yes, Times Square has historically been full of movie and TV billboards, mostly elaborate digital screens, but it was interesting to see just how many Netflix and Amazon shows were being promoted. Beyond those, you have bus sides, taxis, and subway carriages. Traditional media. Ads were everywhere.

Times Square Ads

Tourists

Americans

Bosch

Compare and contrast with the UK, where advertising budgets seem more modest. Yes, BBC One advertised Troy reasonably heavily on posters, and indeed their current World Cup coverage (I’m not at all certain that the latter is the best use of marketing spend incidentally). Sky has put significant budgets behind Bulletproof and Patrick Melrose in recent weeks. And ITV and Channel do occasional campaigns for bigger shows. But there’s not the same consistent spend as you’ll see in the US.

Yet even those US spending levels aren’t enough.

A really good piece in The Information explains that although Netflix is upping its spend on marketing alone to $2bn, that’s not always enough to gain cut-through.

The story cites a Netflix show called Disjointed, that they promoted via a pop-up weed store in Los Angeles costing $20,000. I would point out two things from that. Yes, it will have created some local buzz (pardon the pun), but that doesn’t particularly do anything much for viewers outside of the Los Angeles area. Secondly, the marketing had zero impact outside the US. I like to think I pay reasonably close attention to the television landscape, and have never heard of this show, even though it had a big star in Kathy Bates! That $20,000 might have been better spent on regular advertising.

It’s also worth noting that the story compares Netflix’s $2bn spend with CBS’s $246m. The difference, though, is that the former is spending across the globe, while the latter is mostly spent in the US.

Netflix today has dozens of original films and series that I simply know nothing about. Unless I’m willing to watch a trailer to learn what a title I’ve never heard of is about, then they are heavily reliant on traditional routes to media. That could be sending stars onto the promo circuit, or just word of mouth. But as the volume of production intensifies, things are much more likely to get lost.

Even a couple of years ago, a die hard Netflix viewer would probably have been able to name most of their big dramas. Today, I no longer think that’s possible – assuming you’re not an industry exec with a professional interest.

“The most common complaint I hear from fellow Netflix showrunners is that they would make a great show, and no one would know that it was on,” said a creator whose show is currently being produced by Netflix.

I don’t know what the answer to Netflix’s problem is, with their vast number of productions, from all over the world, fighting to break through. But I do think some British networks need to probably invest more in off-network promotion.

Netflix, Independent Cinema, and Hollywood’s New Business Model

The other day The Ringer published a piece about Netflix and their original movie strategy. The piece, entitled Netflix and Shrill listed the original movies that Netflix has already released in 2018 and challenged readers to see how many they recognised. For most people, the most familiar title will have been The Cloverfield Paradox. This was an $XXm space horror film that became part of the Cloverfield franchise. However the studio that made it, Paramount, got cold feet and decided to sell the thing to Netflix lock, stock and barrel. They promptly gave it a surprise release right after the Super Bowl, during which of course, they promoted it.

But what about the rest of the titles in Sean Fennessey’s piece? Well only three others on the list actually resonate with me at all – Mute, Kodachrome and Mercury 13. The former because it’s a Duncan Jones film, and the latter two because I just added both to my Netflix List.

Netflix gets films in a few different ways. It sometimes licences big name studio films either directly from the studios or via third party rights packages. That’s the way most of those familiar titles end up on the service. However, those titles are probably only licenced for a specific period of time. That’s why you get lists of movies that are coming off the service.

Then there are those it acquires at film festivals. The model for smaller independent titles has often been to scrap together funding from wherever, then pitch up somewhere like the Sundance Festival and try to get a distributor to take on the picture, getting it into theatres and, importantly, marketing it. The latter is expensive, and it’s the reason why titles sometimes end up unseen even though funding had been found to actually make them. Netflix’s preferred model is to buy the global rights and buy out the film in perpetuity. But sometimes that’s not possible because different territory’s rights may have been given up as part of the funding model. Furthermore residual rights for home release like Blu Ray or iTunes may reside with someone else.

Finally, there are Netlfix original productions – those that are put together on paper and then shot specifically for Netflix. These are labelled “Netflix Originals,” although confusingly, so are those acquired at places like Sundance. When Netflix owns the film in totality, they get to release it globally and own it in perpetuity on every platform. They control whether you can ever even see the film somewhere like iTunes.

What all this means is that the list at the top of The Ringer article only completely applies to the US. That said, when I checked, all but one of the films was also available in the UK.

I recently read a really good new book called The Big Picture by Wall Steet Journal reporter Ben Fritz, who has long covered the entertainment beat. The book goes through deep into the current Hollywood business model, because it has changed fundamentally inside the last ten years. You only have to look at the table in The Ringer piece.

Fennessey notes that the six major Hollywood studios have released a total of 25 films in the first 16 weeks of 2018. During that same period, Netflix has also released 25 films!

But there’s a reason for that. Hollywood has just dropped out of the middle market – those $30-$80m or more production films that weren’t based on franchises, relying instead on audiences turning out to see stars. They included thrillers, romantic comedies and more serious fare. Fritz’s book takes a really good look at the model that yet used to hold up Hollywood, because some of those titles in the past might have lost money, but others would have made decent cash.

However in the scheme of things, Hollywood was only make 10% and now for a studio like Disney it’s closer to 30%. That’s because they don’t these days make films that aren’t based on franchises or other known intellectual property.

Most famously Disney has Marvel. But they’ve also got Star Wars, their own animated back catalogue now being remade in live action, Pixar (who are perhaps the only real originators of new stories at the moment, even if they themselves are relying more than ever on franchises. Did we really need another Toy Story, or did the trilogy end perfectly before?), and coming soon Indiana Jones.

Fritz’s book looks closely at the travails of Sony. In part because they were the studio that were considered the most talent friendly in the past. Amy Pascal who led the studio had great rapport with the talent and was as a result Sony was home to lots of those kinds of mid-budget films, while only really having Spiderman as a top tier franchise.

The other reason the books uses Sony as a case study is because of the massive email hack. All those communications ended up online and viewable to all. These caused Sony enormous damage at the time, not least when studio heads bad-mouthed people in some of those emails. But Fritz uses them to illustrate some of the inside thinking at Sony as they realised that they desperately needed franchises, and at the same time were struggling with their most valuable asset in Spiderman. As long as they kept making new Spiderman movies on a semi-regular basis, Marvel wasn’t able to grab back arguably their biggest property.

This is all important in light of The Ringer piece because it explains why the number of studio releases this year equals the number released by Netflix. If it wasn’t for Netflix, it’s not clear how those movies would get released at all!

I’m not saying that some of them wouldn’t make it to our screens. In the US, Alex Garland’s highly regarded recent release, Annihilation, based on the Jeff Vandermeer novel, got a theatrical release. But the studio who made it – Paramount again – got slightly cold feet and sold the rights for the rest of the world to Netflix. So a film that was visually spectacular ended up going no a screen no bigger than our televisions, and no doubt for many people, no bigger than their phones. However, that’s another discussion for another day.

Had Netflix not existed, then yes, I suspect some kind of theatrical release would have happened for Annihilation – certainly in the UK. But I can’t see studios like Paramount continuing with this kind of strategy for long. Nor can I see Netflix wandering around picking up and endless succession of studio releases that the studios have suddenly got concerned about. While Annihilation is excellent, the same can’t be said of The Cloverfield Paradox which is decidedly the weakest in the somewhat contrived franchise.

The risk is that Netflix is perceived as the dumping ground for movies that have tested badly with the distributors. Of course Paramount and their ilk manage to avoid having a flop on their hands, and come out cash neutral, or perhaps with a small upside.

Meanwhile, I completely understand that filmmakers must be frustrated. They made these films to be shown on the big screen – that’s how they’re conceived and shot. You frame things differently for television. On the other hand, it has long been the case that far larger audiences will see films on television than will the big screen.

More and more, then, it’s going to continue to be Netflix and Amazon that become the homes of these medium and smaller films. What they perhaps struggle to do is sufficiently market those films.

A lot is made of Netflix’s algorithms that surface films that viewers will want to see with incredible accuracy. I don’t agree. I’ve long felt that Netflix (and Amazon) are woefully bad at surfacing their own titles. They think they know me, but they really don’t.

When Netflix emails me to alert me to a new Adam Sandler release, Netflix being the exclusive home of new Sandler releases these days (Fritz’s book details this deal), then Netflix has failed to grasp even the most basic understanding of my interests. Of course they only know what they know. They don’t know that I enjoy Westworld on Sky Atlantic; The City and the City and Howard’s End on the BBC; Endeavour on ITV. They don’t know that I saw nearly all the Oscar Best Picture shortlist at the cinema this year.

Furthermore, when big releases like Annihilation or that recent flawed Duncan Jones title, Mute are released, I have to really go searching to find them. Did either Kodachrome or Mercury 13 show up on the Netflix home page? No – I had to do a search.

Now these are titles that I’m actively aware of. What about others that I suspect I’d like if they were marketed properly? Well those are the titles that are disappearing into the depth of the platform.

It still seems remarkable to me that neither Netflix nor Amazon are able to replicate what a good physical store is able to do in showing me new titles. If I visit a branch of Fopp (about the only significant retailer of physical discs in the UK right now), I might browse at a display of films from the Criterion Collection, the BFI or Second Sight. In some instances, I simply won’t have heard of some of the titles, but I’ll still pick up discs and browse at them. I may actually buy them. The same is true in a good bookshop where as well as the latest bestsellers, the bookseller has perhaps contrived to display some thematically interesting books together on a table somewhere.

A properly released mid- budget or indie film will have press ads, posters, bus sides, and importantly, reviews. The latter is an area that Netflix and others need to work hard at. Most of the broadsheets have full time film reviewers, but in the main they don’t review streaming titles very well. The release medium seems to dictate what gets reviewed. In the past studios would “game” this. A release that was really “direct to DVD” would get a brief cinema release over a weekend just so they got notability before you spotted the title in the DVD aisle of Sainsburys the following week.

Somehow a movie poster can tell me more about a film than a small box with barely even a one line description of the title. Netflix has some incredible algorithms to test multiple images to find just the right one to appeal to me. Am I a fan of a particular actor? Then I see that actor in the image on the platform. You see something different to illustrate the same title. But beyond that, they need to work harder. Choosing to start a stream is a much more proactive choice than flicking through the channels on a remote control before settling on something.

So that’s the real reason why those movies have disappeared without me aware of them. That said, if you gave me a list of everything released at the cinema in the first few months of this, many of them too would be unfamiliar. There are a lot of films craving for attention, and only so much attention that they can be given.

I’m not going to criticise Netflix for their release strategy – but they do need to work harder on marketing of titles. Otherwise, yes, it can feel as though these films didn’t exist at all. An unfamiliar movie title in a long list remains just that. A consumer gets more excited when they seen a known property than an unknown one.

The Ringer piece notes forthcoming films from Paul Greengrass and Alfonso Cuarón, both of which I’m excited to see. Netflix will also be bringing Andrew Niccol’s new SF film, Anon (It’ll air on Sky Cinema in the UK). I’m always keen to see a new film from the man who brought us Gattaca. As long as Netflix does enough to raise the profile of these films rather them just at best appearing as a meaningless title that tells us nothing, then I’m excited for their future.

The studios, however, I’m more worried about. Their strategy of shifting to fewer and bigger films runs all kinds of risks in the longer term. The words ‘eggs’ and ‘baskets’ spring to mind.

Marvel may be unassailable at the moment, but it only takes one or two duff movies, and that success can begin to slip. In his book Fritz notes that the reduced number of releases affords movie executives more time to spend on the titles that they are releasing. They can give them the time that they need, delaying releases if necessary. That’s great in theory, but even Marvel films have dates to meet, particularly if the outcome of one film leads into the next Avengers title or whatever.

The Marvel Cinematic Universe is, as he says, the world’s highest budget TV series. Audiences go and see the new Marvel films regardless of the hero, a bit like watching your favourite TV shows week in and week out. Marvel tries to structure the films a little like a TV a procedural. You can basically watch each as a standalone, but of course there’s a larger story arc underlying the series. But as we know, even the biggest TV series juggernaut, eventually falls from grace eventually.

And will audiences continue to actually go to cinemas? They’re fighting the battle by laying on bigger and better seats that can sometimes be more akin to a business class seat on a long distance flight. They’re offering in-chair food and drinks service, and we’re seeing new formats like IMAX 3D and 4DX. Yet cinema ticket prices continue to rise ahead of inflation, and they become ever more hostile environments when they don’t ensure that patrons keep their phones switched off for example.

Disney’s answer to this potential uncertainty is to get skin into the streaming game as well. With its Disney Life app in the UK, and the forthcoming bigger offering that is coming in the US, they get to do their version of Netflix. Star Wars and Disney titles will soon disappear from Netflix as a previous deal expires. Don’t expect to see further expansions of the Netflix Marvel TV series featuring the likes of Jessica Jones and Daredevil, although I suspect the existing titles will continue, with the former having just been renewed for a third season.

Disney is claiming back its catalogue, and will no doubt look towards making its own Marvel TV series, and almost certainly, a live action Star Wars universe series. Who would bet against a reboot of the Young Indy series in the future too?

Will audiences get bored of superheroes? Are there enough franchises out there? How often can the same series be “rebooted”?

Who knows. But Hollywood is betting big time on them not running out any time soon.

The Business Models of MoviePass and cPass

Over the weekend, a new company raised its heads above the parapets. cPass is a new subscription cinema going scheme that allows members to see one film a day at the cinema for a monthly fee of £9.95.

Cinema membership schemes aren’t unheard of, but they tend to be more expensive. Cineworld has its Unlimited scheme that costs £17.90 a month, rising to £20.40 if you want to include central London cinemas. My local suburban Cineworld charges £12.10 for a regular ticket in peak times. So I need to see 2 or more films a month to make a Cineworld membership worthwhile for me. But under the cPass scheme I’d only need to see one film to start making savings.

Odeon has it’s Limitless scheme and it’s very similar to the Cineworld offering. It costs £17.99 a month, or £19.99 if you want central London cinemas included. Note that the flagship Odeon Leicester Square is currently closed for renovations, although a single visit to that cinema can easily exceed £19.99 alone. However my nearest suburban Odeon charges £12.50 for a regular ticket in peak time. So as with Cineworld, I’d need to see two films a month for it to be worthwhile.

So how is cPass offering a seemingly better deal than either of two of the UK’s largest chains offer on their own, with the advantage that I can see films in any cinema (subject to terms)?

Well, they’re copying nearly precisely the US MoviePass model. That is, they’re not working directly with the cinema chains at all. What they do is send their members a debit card – I assume either Visa or Mastercard – and when someone books a ticket on their app, it puts some money in the debit card’s account for a limited time and lets you buy a ticket as you would with any regular debit card. The cinema gets paid, and you get a ticket.

But if I’m paying £12.50 for a ticket, yet have only paid £9.95 for an entire month, how does that make any business sense?

The Recode Media podcast recently interviewed the CEO of MoviePass to try to understand the model, and a few things emerge, whilst others remain unsaid.

The Gym Membership

Part of the model is the assumption that we won’t all be trying to see 31 films in a calendar month. The average person probably sees 2-4 films a year. i.e. not that many. Everyone knows that gyms are packed in January and then settle back down to a more manageable level shortly thereafter. Gyms have more memberships than members they can cater for. They hope that while some are going 5 days a week, more are going much less frequently and are too lazy to cancel their memberships. We’ve all heard the tales of onerous cancellation procedures – there was a whole Friends episode about this.

MoviePass are quite honest about the fact that when members first get their cards, they rush to see lots. But fairly quickly they drop back to a more modest level of film going.

We’ve all got subscriptions to things we don’t use as much as we should. Part of MoviePass’s model relies on that.

Different Areas – Different Prices

I live in Greater London and the price of a visit to my local cinemas is just more than £12. Other parts of the country may charge closer to £6. So the maths can be different, and even if they make a loss in London, it could be offset elsewhere.

That all said, cPass says it’s launching in the capital.

Growing the Market

On this week’s Kermode and Mayo podcast, the thorny subject of film piracy was raised again. It’s clear that lots of people are using dodgy streams to serve pirated films – much more so that downloading torrents of a few years ago. Kodi boxes with the right (i.e. “wrong”) plugins have made it simple to watch recent releases on your TV at home, perhaps having to suffer some dodgy pre-roll adverts.

Mark Kermode’s solution to this is the day and date multi-format release. That way, you could choose to buy the DVD or Blu Ray, stream for a fee on your preferred service, or go to the cinema.

I suspect that wouldn’t work very well and would swiftly see the end of cinemas altogether. How many families would honestly spend £25-30 or more for a trip to the cinema with all the add-ons when they could get the DVD, Blu Ray or legal stream for closer to £10? Visits to the cinema would drop away massively, and they would start closing. I don’t deny that the right film seen with a large audience is great fun, but I’m uncertain that this is enough to prevent a serious dent in cinema attendance.

While I’m not certain that the music model is quite right at the moment, it is true that the likes of Spotify have removed the reasons for downloading music illegally. You get high quality music either for free with ads, or for a relatively modest monthly sum, ad free.

Part of the cPass/MoviePass model is that more people will go and see more films. They grow the overall market and encourage those who see relatively few films to see more. In turn that generates more tertiary revenues for cinemas – i.e. popcorn sales.

The downside is that the likeliest people to take up something like cPass are those who already go to the cinema a lot. Indeed, subscribers to current unlimited schemes would surely swiftly cancel their current memberships and move to the cheaper model.

Scale and the New Normal

Scale is what it’s really all about. These companies want to become dominant in the market place and have their members become a significant part of the overall audience. That gives them an awful lot of power with the chains (see next section).

You need deep pockets to play this game, and the backers of these services are clearly spending to get to a certain level whereby they can start to use this scale to their own advantage. This is the familiar Silicon Valley model of spending heavily to get an audience or user base, and then turn it around to monetise it.

At the same time $9.95/£9.95 becomes the new normal for pricing schemes. As alluded to at the top, this is close to half the price of existing schemes that are generally limited to a single chain. It instantly becomes harder for Cineworld to market Unlimited when there’s a cheaper, better option out there.

As it stands the chains know who you are, how often you’re going and what you’re watching. That’s valuable data. They instantly lose that as patrons move to the cheaper non-affiliated deal.

Deals with Chains

This is the big unspoken bit. MoviePass in the US is already negotiating with smaller chains and indies to get both discounted tickets and even kickbacks from sales of food and drink.

If a large proportion of the population is using something like cPass or MoviePass, then a certain amount of power is wielded by those companies. They might try to “incentivise” members to use one chain over another by temporarily or permanently removing certain cinemas.

If this result in sizeable declines in box office takings at the removed cinemas, these companies could throw their weight around and “force” the chains to provide them with deep discounts.

This has happened in the US with MoviePass, who have excluded some AMC locations, seemingly to pressure AMC into giving it discounts.

It’s worth noting that deep discounts do already exist in the marketplace. Many corporate “perks” websites and other third-party membership deals offer significant discounts to cinema tickets. 50% discounts aren’t unheard of. You can safely expect that these pass companies will be pushing to get discounts at least as deep as these, because they can redirect audiences away from anyone who doesn’t play ball with them.

It’s a fine line of course, since if none of the chains play the game, then the pass companies could be left out in the cold, haemorrhaging money. But it’s going to be interesting to watch.

Would the chains consider themselves as being “held to ransom,” and being forced to co-operate when they don’t want to?

Marketing Opportunities

These pass companies will also be chasing revenues from film distribution companies as well. They can do deals to heavily promote certain titles and push their audiences towards them.

The data they collect on their subscribers viewing habits could potentially be used to point consumers to relevant films – or at least do as good a job as people like Netflix can.

Summary

This isn’t by any means a proven business model, and if the big chains hold firm on their pricing, then it’s unclear how it can ever be. If lots of people don’t go and see many films yet continue to pay $9.95/£9.95 a month, then the sums work anyway, but I suspect it’ll take more than that. Particularly if these cards become popular among the younger demographics for whom money is tight, but demand is high.

The strange thing is that cinema owning isn’t as profitable as it might be. Deals with distributors mean that for big releases a large proportion of the ticket revenue, particularly in early weeks of a release. It was reported that in North America Disney wanted 65% of box office revenues for The Last Jedi, and also required that the film played for at least four weeks in the largest auditorium. Failure to do this meant that the share would rise to 70%!

Lots of cinema chains are desperately seeking reasons to get people to upgrade their seats and spend more. We have premium seats, 3D films, IMAX and more recently 4DX – all trying to get you to spend more. These pass schemes mostly push for the cheapest tickets. Does this work against the needs of the chains?

And what does this mean for overall box offices? If tickets are being sold at cheaper price points, then even if there are more people on seats, the overall value might fall if a high proportion of movie goers are paying what are effectively discounted prices.

The pass companies would counter that they’re about growing the market. And that might be the case. But as mentioned above,the first group of people who are likely to jump on these schemes are regular cinema goers who can quickly save lots of money. Just as the early adopters of Spotify were those who in the past had spent a lot of money each week on music, now only had to spend a tenner a month for the same quantity!

A really interesting scenario would be if some of the UK chains formed their own cross-chain pass. In other words, merge Unlimited and Limitless with any other schemes out there. It’d potentially be cheaper to operate since you wouldn’t need to get any banks involved and all the costs of processing debit cards.

Making those unlimited/limitless cards cheaper would certainly grow the market, but would distributors be happy? Do the sums add up to fuller cinemas and a net increase in box office?

I find the whole model curious, and I’m really uncertain that it’ll work. But I’ll be paying close attention!

Netflix: $8 Billion and 700 NEW Shows?

How much programming is Netflix actually making?

The answer is a lot, but I think that the widely reported numbers are a little misleading.

Heavily retweeted earlier today was this:

I’m not trying to pick on one person; these are figures that have been reported elsewhere.

Most pieces reference a Variety story: Netflix Eyeing Total of About 700 Original Series in 2018. But you’ll note that the Variety headline includes the word “total” in it.

The key section of Variety’s report is this:

The “700-range” figure [Netflix CFO, David Wells] cited includes 80 non-English-language original productions from outside the U.S., such as psychological thriller “Dark” from Germany and “Club de Cuervos” from Mexico. The total encompasses both new and existing original series (such as “Orange Is the New Black” and “Narcos”). [My emphasis]

In other words, this is a cumulative figure and represents the total number of original series on the platform.

It does not mean an additional 700 originals!

The Variety report is based on an investment call that Netflix had, and as is the way with these things, the transcript of the call is available online.

Here’s the relevant section:

Unidentified Analyst
Right. So moving from maybe the big-picture stuff to more into here now. What are your priorities for 2018? Where are you focused and where is the team focused in making sure the company executes this year?

David B. Wells – Netflix, Inc. – CFO & Principal Accounting Officer
Well, I think — a lot of what you hear many of us say is internal execution, right? So we think we have a large market. We just talked about there’s so many more nonmembers than there are members, and so our focus is really to continue to improve the product that we have. We’ll be adding increasingly more and more of our originals in our global content. This year, we’ll have 80 originals in the global category, meaning these are non-English language original produced content things, like Club de Cuervos, Dark — O Mecanismo is a new one coming from Brazil. And so the — our muscle in that area is increasingly being built and exercised, and I’m excited about lots of great stories coming from different parts of the world. And again, people seem to love high production quality and a good story. It doesn’t really matter where it comes from. So I think our focus is building out our production muscle, building out our global production muscle, increasing our product in various parts of the world. We’re the newest in Asia. So I’d say it’s continuing to sort of localize pieces in Asia, continue to improve the product there. But we also have an eye towards not losing our leadership position in other parts of the world as well. So it’s not like we’re not also improving the Americas.

Unidentified Analyst
You mentioned 80 global originals. That’s TV series, so that’s distinct from your film strategy?

David B. Wells – Netflix, Inc. – CFO & Principal Accounting Officer
Yes. That’s distinct to film, and it’s even distinct from television series that you might describe as sort of global, like Orange Is the New Black or Narcos. These are things that are produced in a non-English language market. So I just want to make that distinction. So there’s even more than 80 that are sort of for the global market. If you think about the total number, it might be somewhere in the 700 range.

That makes clear that there are 80 original “global” originals – non-English language originals. And there are 700 in total. They obviously measure movies differently, and categorise them separately, but then they are still both commissioning original movies and also buying them outright after festivals such as Sundance, beyond the regular licencing of movies from studios. Ted Sarandos, Netflix’s Chief Content Officer has previously said that they will release 80 original movies in 2018.

But how do you even determine what is a Netflix original? It’s not that simple.

Stranger Things or Narcos are relatively simple. They’re 100% Netflix. But for others it’s less clear. For example, in the US, the science fiction series The Expanse appears on SyFy, but it counts as a Netflix original in much of the rest of the world. Star Trek: Discovery appears in the US on the CBS All Access streaming platform. Everywhere else it’s a Netflix Original. Troy: Fall of a City is currently airing on BBC One and was co-commissioned by both the BBC and Netflix where it’ll appear globally.

Even seemingly homegrown series like Orange is the New Black and House of Cards, aren’t strictly Netflix exclusive. Orange is the New Black is currently airing on the Sony Crime channel in the UK, having done a deal with Lionsgate the producers. In France House of Cards originally aired on Canal+ since there was no Netflix in France and the producer, MRC, was able to sell it to them. On more recent 100% Netflix commissions, it has reportedly tightened contracts to prevent that programming appearing elsewhere – unless they choose to allow it.

In any event, a Mashable report makes clear that this 700 number includes some of these co-commissioned series:

A Netflix representative told Mashable that this content budget includes properties we already know and love like Stranger Things, as well as licensing content from partners like AMC’s The Walking Dead.

Note that The Walking Dead is not available on, for example, UK Netflix, because Fox International has the rights and they distribute it on Sky’s platform in boxsets.

It should also be pointed out that “originals” can include one-offs as well as series or seasons of shows. Think about all the stand-up comedy specials that Netflix is commissioning.

So to summarise, there will be 700 originals in total at the end of 2018, which includes new commissions, previous commissions and co-commissions.

Netflix is definitely spending a lot, although it’s in the ballpark of what other large media companies also spend each year. But it’s not launching new series at the rate of two a day!

They’re also losing money – negative free cash flow in the parlance. I’m not arguing that there isn’t an underlying business model that makes sense, but it’s worth noting all the same. The theory is that as they build up their library of originals, they don’t have to licence as much third party material (See also the recent news that Disney won’t renew their Netflix deal and will shift their output to their own new streaming platform).

Netflix faces the issue of needing to have relevant programming in multiple local territories, and while there’s value in older series, viewers will continue to seek new programming. Netflix will have complex calculations about how much it needs to spend on new programming versus catalogue versus subscriber growth versus how much it licences. It’s a complex grid.