Shulou(Shulou.com)06/03 Report--

A year or two ago, Netflix's streaming style was regarded as supreme by almost all content industries, especially video sites. Big data drives to investigate users' hobbies and tastes, launch boutique homemade content, and pay to subscribe instead of advertising.... For a moment, these words have become the unquestioned "secret of streaming media". For no other reason, Netflix's share price has soared more than 8500% since 2008, and the counterattack story from DVD renters to streaming empire giants is so good that few people question the legendary Netflix model.

But now, the problem is gradually surfacing.

After the release of the Q1 results, Netflix caused a lot of controversy on Wall Street. Although Netflix posted revenue of $4.52 billion, even exceeding Wall Street's previous estimate of $4.5 billion, Netflix's revenue grew by just 22% year-on-year, allowing Netflix to achieve four consecutive quarters of declining year-on-year growth. And Netflix's forecast for Q2 revenue this year is also conservative.

At a time when streaming intruders such as Disney, Hulu, Amazon and HBO are gradually accelerating their layout, combined with Netflix's past huge investment in content production, people obviously have higher expectations for Netflix's revenue power.

In particular, we can also re-examine the "key factors" that used to be considered the secret of Netflix's success.

How much advertising expenses did Netflix lose because of the utopia of advertising-free members?

Netflix's paid membership model was once regarded as a very reasonable charging model. In contrast, many streaming platforms regard paid members as value-added services, providing them with rights such as de-advertising, HD, early updates, and so on. But because Netflix has always focused on attracting users to homemade content, an one-size-fits-all model that must be paid seems to maximize the attractiveness of homemade content.

In fact, this model is not new, only copying the charging scheme of cable TV in Europe and America. And this kind of charging method has begun to form a hindrance to Netflix's income.

At first, Netflix quickly attracted users with a few dollars to more than a dozen dollars, much less than the monthly fee for cable TV, and ad-free content. By contrast, cable TV charges dozens of dollars and cannot be exempted from advertising, which does not seem to have any advantages at all. But in fact, cable TV not only provides content, but also monopolizes inherent assets such as signal transmission, cable, signal tower and so on. It is difficult for their revenue to be overturned by their peers, and they firmly hold the pricing power in their own hands.

Netflix is different. In addition to mastering the content of an App and App, Netflix cannot control broadband and 4G networks, and the end result is that everyone can participate in the price war. For example, the monthly fee for Disney's streaming service is less than half the price of Netflix. This is undoubtedly compressing the price increase space of Netflix.

What is even more embarrassing is that with the imperceptible education of the early advertising-free mode of Netflix for users, the resistance of platform users to advertising is fierce. In mid-2018, Netflix tried to recommend content ads to subscribers between programs, which led to a large number of users' complaints, and even many people excitedly said that they would cancel their subscriptions if ads appeared.

This is just a content advertisement on the platform, and if it is replaced by commercial advertising, the effect will obviously be more terrifying. A recent survey by Hub Entertainment Research shows that if Netflix reduces its price by $1 and adds ads, 23% of users may or will cancel their membership subscriptions. If the price is reduced to $3, the proportion will be reduced to 12%.

According to analyst data, adding advertising can stabilize the cash flow of Netflix and reduce the borrowing demand of Netflix. It is conservatively assumed that if you join the advertising service, it will generate $1 billion in annual revenue for Netflix, of which the net profit will reach 700 million. Such as the current Hulu and other similar platforms, are providing users with low-cost + advertising services.

But now the strong opposition of users has become a barrier between Netflix and huge advertising revenue.

Low-cost copyrighted content escapes, is homemade content really a panacea?

In addition to income, we also need to discuss the question of cost. The high cost of homemade content is needless to say, but what many people don't know is that Netflix has been smoothing out the high cost of homemade content by storing copyrights. In the early stage, most TV stations were not aware of the future development of streaming media, so they reached a cooperation with Netflix at a relatively low price. In 2008, for example, Netflix announced a partnership with Starz, an American cable company, which gives Netflix users access to more than 2500 movies and TV shows.

As a result, as soon as the contract expired in 2012, Starz immediately ended the cooperation because of its dissatisfaction with the low copyright fee, resulting in the disappearance of the 2500 content from Netflix. This phenomenon of copyright flight continues as television stations begin to set up their own streaming services. Recently, both HBO and ABC have said that they will withdraw the rights to the classic US TV series "the Office" and "Friends" in the next two years, and HBO will also set up its own streaming service HBO+.

You know, according to third-party research firm Jumpshot, only two of the top 10 shows on Netflix are original Netflix content, while the top two are the fleeing Office and Friends. Will the flight of these classic shows really lead to the loss of Netflix users?

Not only that, in the process of Netflix's globalization expansion, its content planning will also be affected by different regional policies. The European Commission has enacted laws that suggest that streaming service companies must ensure that at least 30% of the content is dedicated to local content in the European Union. In other words, Netflix provides services in Europe and must entrust European companies to produce, buy television shows and films, or donate money to the European Film Fund to meet this quota. Although it is not difficult for Netflix to meet this requirement, if more and more countries and regions put forward such requirements in the future, the burden of Netflix in content production will become heavier and heavier.

Therefore, when Netflix gradually loses the copyright license of mainstream film and television works, and at the same time has to bear the content production needs of different countries, regions, and even languages and cultures, how to reverse the current situation that Netflix continues to issue bonds?

What can Netflix learn from the Chinese model, not just utopia?

So we can see that the membership model of Netflix is not necessarily the best charging scheme, and although homemade content brings a large number of users to Netflix, it is difficult to balance the cost. Especially from the comparison of the broadcast volume of homemade content and copyrighted content, I am afraid it is doubtful whether the so-called big data driver of Netflix can really make popular styles again and again.

In this way, we can also re-examine China's streaming media and content industry, perhaps the "China model" can bring more solutions to Netflix.

For all Internet-based streaming media services, the grasp of content is the only key lifeline, how to use the advantage of self-made content to extract more value from it.

For example, in terms of advertising, when traditional plug-in ads, insert ads, and so on are strongly disgusted by users, homemade content can become another way out. for producers, advertisements can be implanted at the time of content production. provide a variety of advertising forms.

As for the price of membership services, when Netflix cannot raise the subscription price of its members, it can choose another path that many Chinese streaming platforms will choose-- detailed services, such as editing variety shows into feature films, pure-enjoy versions, tidbits and other versions, and retaining some content for members to continue to pay for. In many attempts of Netflix, such as interactive movies, there has been room for members to add value. Perhaps Netflix can add one more file to the current three members, giving them the right to view all the plots, and so on.

Of course, we can also see that Netflix is continuously weaving technologically, striving to use its technical capabilities to reduce the cost of content production and distribution to bandwidth applications. In short, high-quality homemade content + high-quality membership service is a very idealized model. From a business point of view, Netflix as an enterprise wants sustainable development, I am afraid it is necessary to find a balance between ideal and reality.

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