A “Most Important” column on a Thursday? What’s going on with the Entertainment Strategy Guy’s usual Friday column? Well, an out of town wedding, which means I’ll be on the road tomorrow. So enjoy an early bite at the entertainment biz apple.
Also, next week, with a birthday, Fourth of July, and some household projects lined up, posting will be light again. However, I have a lot of fun ideas planned for July, so keep checking in.
Most Important Story of the Week – The Office Is Leaving Netflix (in 2021)
Imagine that you have a favorite restaurant. A fancy small plates restaurant with a named chef. The first time you go, the meal is incredible. Almost all the dishes are delicious. (The service is impeccable too.) And for how much food you get, well, the price isn’t too bad!
Naturally, this becomes a restaurant you visit often.
Fast forward a bit. A year or two later. The small plate place has changed its entire menu. It’s a bit more adventurous. You try a few plates, and well this time there are a few dishes that are misses. Meanwhile, your old favorites are gone. (The service is still impeccable.) Do the portions seem a bit smaller? Man, this bill is kinda pricey for what we got.
Naturally, you don’t go as often anymore.
Since this is a business strategy site, let’s take the above two scenarios and put them in terms of the old quality drivers: the product–in this case the food–isn’t quite as good. Though part of the product–the service–is the same. Meanwhile, the price for the food (both in terms of quantity delivered and quality of dish) is much lower. Hence, you don’t go as often because it isn’t as valuable.
You see the Netflix analogy, right?
One part of Netflix’s product is just fine: the user experience. They’re way out in front of everyone else in streaming. But the prices are going up, starting in the US and expanding to the EU. These prices are going up right as the quality of the product (in terms of both size of offering and quality of individual titles) is about to potentially fall off a cliff facing. Starting about two years ago–and continuing for the next half decade or so–Netflix has lost or will lose theatrical movies from Disney and Universal, new shows from The CW, library TV content from Disney, Fox, and others (including The Office which was widely speculated about online) and more.
Let’s not pretend that losing thousands of hours of the most valuable content is nothing. You can’t lower quality while raising prices and say, “This will have no impact.” Signs are Friends and The Office are Netflix’s most valuable TV series in terms of hours viewed; I continue to believe that Disney has the most popular movies being made because…they do. (See box office.) Moreover, the biggest shows and movies aren’t just bigger by a little bit–long time readers know where I’m going with this–they are MULTIPLES more important. (Article explaining that here.)
As we move into the next wave of the streaming wars, the value of a content library will be increasingly important in separating the services. Consider this (hypothetical) situation with (made up) numbers. Netflix has a service that most customers value at a “5”. Disney offers a service most customers value at a “4”. But Netflix costs twice as much as Disney’s service…so how many keep both? How many cut the cord for Disney? What if HBO ends up with a service customers (hypothetically again) value at an “8”, but it costs even more than Netflix? What if NBC and Hulu are free…but have better content valued at “3”?
I don’t know! That’s a complex equation with too many variables to compute. Then we’ll have to repeat the exercise country by country around the world. But whereas we know one key piece in that equation absolutely—price per month isn’t a secret—we’re left guessing on how much less valuable the Netflix library will be after The Office, Friends and Disney movies (after Dreamworks movies, Fox TV series and others have already left) depart the platform. So will this hurt Netflix? Yes. How much? It remains to be seen.
(Here is where I wish I could link to my article explaining how to value content libraries (versus series, which I did here), and my take on which service has the most valuable content library. But, um, I haven’t written those yet. Yes, I’m on it. I’ll do what I can.)