With more streaming service competition, Netflix has made several adjustments recently, from cracking down on password sharing to announcing an ad-supported tier to its platform. It also started licensing instead of owning comedy programming. Kim Masters and Matt Belloni analyze whether Netflix will need to trim more spending in order to survive.
The gravy train had to slow down
Kim: We kind of knew it, with the proliferation of streaming services, the proliferation of competition, and spending on original content, sooner or later, the gravy train had to slow its roll.
One sign that this is in fact happening is Netflix is changing its deal. Netflix was the comedy special place. It became the Johnny Carson gig of the era, where you got your comedy special, and they would pay a lot of money for [it], and they would own [it] in perpetuity. But Netflix is now backing away from that because that's a sign of the times.
Matt: Absolutely. There was a Wall Street Journal story this past week that noted that Netflix is now paying people $200,000 for a two-year license of a comedy special rather than these multimillion dollar figures that they were throwing at people to own the special.
A canary in the coal mine
Matt: But what's interesting about this is whether this is a canary in the coal mine situation, whether Netflix is going to apply this strategy to other aspects of what it is doing because that was the initial Netflix model.
When they first got into original programming, they didn't have any desire to own. They just wanted to have things on the platform, so they would license shows like “House of Cards,” “Orange is the New Black,” or “Hemlock Grove.” Ultimately, they got into ownership.
But now, if they are retreating from ownership and saying, “Let's just pay a little bit and have this show on the service for a couple of years, and then you can have it back and sell it,” that's a big change.
Why isn't Netflix licensing its content?
Kim: The other piece [is], “Why aren't you licensing ‘House of Cards’ to someone? And what good does it do to have it sitting there on your service forever?”
Matt: There's a school of thought now that as more of these Wall Street analysts are valuing the profitability of these streaming services, you should be licensing out this old content to generate more money for your service – even though the whole proposition of Netflix was going to be on the service forever: you subscribe to Netflix, you can watch anything you want that [it has] ever done, at any time. But some of the stuff just doesn't have that high viewership, so maybe the value is bigger, elsewhere.
And if Netflix starts having that philosophy, that is a huge change from where they've been, where they just think that they can spend as much as they can on content [and] own it forever, and it's a simple proposition when you subscribe.
Netflix is morphing
Kim: They're getting close to launching their ad tier. And there's all kinds of speculation about how they'll do that, what it will look like, and how consumers will respond to that.
So yes, Netflix is morphing. I think they are going to make fewer movies, they're going to have to cut that [spending], whether they want to admit it or not.
Netflix is not alone
Kim: We've seen Warner Bros. Discovery looking to save money. And Disney has always been a little bit on the cheap side, unless you're one of the top creators in the world.
The industry is just swinging the other way now because there's a saturation point, and this is going to be a thinning of the herd, as Bob Iger has recently said, “We can't have all these services, and they can't all be cranking out originals. It just doesn't work.”
Fat trimming at Apple
Matt: We're seeing now some of the fat being trimmed. I did a story this past week about Apple ending its relationship with Oprah Winfrey. That was something where they paid a lot of money to Oprah to get her into the Apple TV+ fold at the very beginning, so people would take it seriously.
Oprah had a non-exclusive arrangement. She did a lot of stuff for other outlets like, Harry and Meghan, and Adele for CBS. Apple ultimately didn't get a ton of value out of that relationship beyond the press release. It's just not worth it anymore. They'd rather do one off deals with someone like Oprah if they want to put their money there, but these giant relationships really are under more scrutiny now.
Kim: Warner Bros. is taking a close look at what J.J. Abrams has brought them.