For years, including as recently as last week, I have been warning anyone who would listen that abandoning the Theatrical Movie Model in favor of a Streaming Content Model was a trap. And, in the wake of a subscriber collapse at Netflix and a culture war between Disney and the State of Florida, my warnings were beginning to look prophetic.
And then, like magic, this article in The Hollywood Reporter appeared… an article which describes the internecine battle going on behind the scenes as Netflix faces its first true existential crisis. It’s a fascinating look at who is doing what to whom on the inside of one of the world’s most important and powerful Entertainment companies, and it’s well worth your time on that basis alone.
But the article frames the crisis at Netflix as a battle between the forces of Quality and the forces of Quantity, as if the former represents the only profitable way forward, while the latter represents a descent into irrelevance and financial ruin. And in this regard, the article gets the true nature of the streaming crisis entirely wrong.
THR (or simply “The Reporter” as we fancy Hollywood types call it) seems to take the position of the anonymous Netflix insiders they interviewed, which is that the early success of Netflix originals was due to one particular Netflix executive’s focus on high quality content, and that all of the current problems plaguing the service can be traced back to Ted Sarandos’ decision to jettison the “Quality” executive in favor of an Executive more focused on “Quantity.”
But the real problem Netflix is facing is that, while it may be true that the high volume formula doesn’t work over the long term, it doesn’t necessarily follow that a lower volume/high quality model would work any better. That’s because the streaming model has fundamentally changed the nature of the relationship between audiences and content. Specifically, it has transfered the power from the creator to the consumer.
One of the brilliant things about the theatrical model was that Hollywood had managed to train their audience to operate on its schedule, that is, that new movies come out on Fridays, and that movie studios are under no obligation to provide new content every single week… it was a pay-as-you-go model. Also, the Theatrical model itself is inherently self-limiting, as very few people have the appetite for more than one movie a week. And so, since creating quality content takes time… for something like a hundred years the pay-as-you-go model worked well for everyone.
By contrast, streaming subscribers expect a constant firehose of content fired directly into their faces 24/7/365. And while it’s probably true that subscribers to the volume model will eventually tune out if the quality begins to slip, it is also true that those same audiences have an expectation that the gushing river of new content will remain at a consistently high volume. In that sense, the streamers are caught between Scylla and Charybdis… make too much product, quality control suffers, and you lose subscribers… make too little and no matter how high the quality, you will lose some subscribers to platforms which offer more content.
One additional point about the subscriber model that is worth considering is that it is self-limiting in terms of potential revenue. There is an unjustified level of confidence in the theory that it will always be easier to retain subscribers than it is to convince people to go to the movies. This is a point that can certainly be argued in good faith, but what cannot be debated is that the current crisis at Netflix was caused by a sudden and massive loss of subscribers that the company is stuggling to explain. Regardless of the outcome of the debate over theatrical versus subscriptions, it will always be true that while the subscriber model can theoretically create a guaranteed floor beyond which monthly revenue will not fall, it sacrifices much of the upside that the theatrical model can deliver in success.
It’s impossible for Netflix to sign up every human on Eath, but let’s assume for the sake of argument that they could convince everyone on the planet to buy their own individual subscription…. every human on Earth times fifteen bucks per month would then become a hard ceiling for Netflix’s revenue… a huge number to be sure.
But what if you produced a movie that every human on Earth went to see? Every human on Earth times 15 bucks per ticket is the exact same number.. EXCEPT… you could theoretically release more than one movie per month AND if the movies are good enough, some viewers will pay to see them multiple times. Much easier said than done certainly, but unlike the streaming platforms, at the theater the sky is truly the limit for potential revenue.
It’s certainly possible that over time the Netflix guaranteed revenue floor model will make more money than the pie-in-the sky endless upside of the theatrical model but, it seems to me, this is by no means a guarantee.
The upside of the streaming model is further limited by one other critical cultural issue that the Hollywood Reporter piece almost, but not quite, manages to accidentally stumble upon.
Because THR mirrors the intensely Progressive politics of the Industry it covers, they could not resist taking a gratuitous shot at Hollywood’s current bête noire, comedian Dave Chappelle.
Important multihyphenates who work or have worked with Netflix say it was Holland rather than Ted Sarandos, then chief content officer, who gave Netflix its profile as a home to buzzy, quality shows. (It was also Holland who warned Sarandos, to no avail, that continuing to order specials from one of his comedy heroes, Dave Chappelle, would lead to internal strife and bad press.)
There is quite a lot to unpack in that paragraph. First of all, the idea that the hiring of America’s greatest active comic… a man with an almost mythic cult-like status, had anything to do with the subscriber crisis currently afflicting Netflix, is laughable.
Even more ridiculous is the idea that Sarandos’ defense of Dave Chappelle generated only bad press. For every article attacking Sarandos, there was another celebrating him as a brave defender of artistic freedom. The problem is that when you consider the resulting press (good and bad) from the perspective of a very online blue check Hollywood SJW type, you quickly realize that a glowing profile in the Wall Street Journal, the Federalist or, god forbid Fox News, is the same thing as bad press.
What’s really going on here in this paragraph is given away with the first two words.
What is an “important multihyphenate”, anyway? Multihyphenates are the writers, producers, directors and showrunners who create the movies and TV shows that stream on Netflix and the other platforms. And in an industry that is already the most politically Progressive business in the world, the artists who create the content Hollywood distributes are by far its most radically Leftist employees. What this paragraph is telling you is that some of those radical Leftists are still pissed about the last Dave Chappele special and want to continue to work through their anger over his special through their allies in the Industry Press. Their argument, as related in this THR piece, is that hiring Dave Chappelle was a mistake because it damaged the “culture” of Netflix, and it is this cultural damage which caused the drop in quality which, in turn, led to the collapse in subscriptions.
This is nonsense, of course, but it reveals yet another glaring weakness with the streaming model. If Netflix can only make content that is approved of by its most Progressive employees, then they are doomed to underserve (if not completely alienate) at least half of their potential subscriber base… literally every single America who does not reside on the far Progressive Left. And, as I argued in a recent essay, when consumers feel like a company actively hates them and does not want their business, it makes them a lot more likely to do things like share passwords, rather than pay for content.
On the other hand, if Netflix (or Disney for that matter) ignores their most Progressive employees and continues to create content that does not meet with these employees’ approval, then they will face periodic, and very public, employee revolts of the kind that nearly swamped Netflix back in October of 2021, and Disney just last month.
Both of these outcomes would be catastrophic for any streaming platform’s bottom line, and yet it’s hard to me to see a world where they are not forced to make a choice… the Trans-Lady or the Tiger.
At the end of the day, the Streaming Platforms were always going to hit a ceiling where they could no longer attract additional subscribers, and where the only remaining option for creating growth would be to raise the price of a product that may have already reached the point of inelasticity. We probably haven’t reached that point yet… probably… but either way, I would argue that there is still time to pivot back to a theatrical model. A model where there is no artifical limit on the number of paying customers you can attract and where there is no upper limit on how much money can be made.
Whether or not Hollywood makes that pivot, it seems clear that, for the time being anyway, George was Right!