Netflix: Leading the Way in Content Distribution

It is quite possible that Netflix will single-handedly change the way we watch movies. Netflix Inc.'s online movie rental subscription service has garnered over 7.5 million subscribers who can choose from a DVD collection of over ninety thousand titles. As of late, Netflix is expanding much more than their subscriber base. Netflix Inc. is making significant joint-ventures with other companies, as well as developing its technology, in a major attempt to provide its subscribers with the capability to watch movies through different channels and mediums (not to mention the incentive for non-subscribers). As of one year ago, Netflix subscribers were able to rent movies through the mail, or stream a limited collection on only a PC. Earlier this year, Netflix introduced Roku, a box that allows subscribers to stream a similarly limited collection of titles through one’s television. The box is currently being sold for $99.99. While Roku was a major step in expanding its content distribution, the selection is limited, and both subscribers and business analysts alike have been wondering what Netflix’s next moves will be. Well, after a deal with Microsoft this summer, starting this fall, Netflix subscribers will be able to stream movies online through Microsoft’s Xbox 360 video game console. Netflix has also made a partnership with both LG and Samsung to develop and sell boxes similar to Roku, but with the technology that supports both HD and Blu-Ray content. While all of these advancements are quite significant, I believe the two most recent advancements in Netflix’s distribution mediums are also the best to date. This past Friday, Nexflix allowed subscribers to test and begin using their beta program that will allow Mac users to stream content online. Netflix also announced Thursday that it will begin a partnership with TiVo, Inc. to integrate the Netflix catalogue into its already wildly successful DVR boxes. This week, I have decided to sway away from Hollywood finance to comment on two separate articles written by fellow bloggers who have written about Netflix’s partnership with TiVo, and its inclusion of Mac computers into its online streaming capabilities. The first article, “Netflix Streaming Finally on Tivo”, written by Elaine Chow, examines and explains Netflix’s partnership with Tivo. The second article, “Netflix Opens Beta for Mac Movie-Streaming Service”, written by Gregg Keizer, quite obviously takes a look at the new beta that will allow Mac users to also stream the Netflix catalogue. For your convenience, I have posted both my comments and links to the original articles below.

“Netflix Streaming Finally on TiVo” by Elaine Chow
Comment:
Thank you Ms. Chow for your article explaining and examining the recent partnership between Netflix Inc. and TiVo Inc. First of all, it was very nice to immediately read what was most important: the TiVo products that would feature Netflix’s streaming service. Some questions I have is whether or not any of these products will feature Blu-Ray technology, and a possible estimate as to how much you think these products will cost. I particularly appreciated the inclusion of quotes from both companies’ CEOs. This venture solidifies an extremely powerful partnership between two very successful companies and was an incredibly strategic decision by both companies. Hearing what each executive had to say gave me a much better idea as to the vision and attitude of each CEO and their companies. As a Netflix customer, I am extremely excited for this new service, and believe this collaboration is the best alternative for subscribers to view content aside from Netflix’s mailing system. While online streaming to one’s computer is becoming increasingly more popular, I believe the DVR feature of the TiVo boxes will really differentiate this product from any of Netflix’s other partnerships, namely Microsoft, Samsung, and LG. As Reed Hasting, CEO of Netflix, quoted, Netflix fans are “avid movie watchers and this combination gives them immediate access” to the content available through TiVo and Netflix’s vast catalogue. I wonder, do you think this partnership will negatively affect the sales of the products that are being sold by Samsung and LG? I can’t help but think that even with Blu-Ray capabilities, the combination of TiVo’s amazing service and now a Netflix catalogue will surely weaken the sales of both companies. I would have liked to read some commentary on how this partnership will affect Netflix Inc.’s relationship with cable-service providers such as DirecTV or Time Warner, and how it will affect Netflix’s entry into that particular industry. Other than that, I thought this was a very enjoyable and informative article, and I also appreciated the references to other articles. Thank you again for your article.

“Netflix Opens Beta for Mac Movie-Streaming Service” by Gregg Keizer
Comment:
Mr. Keizer, your article explaining Netflix’s technology developments and their relationship with certain companies is very interesting. I believe Netflix Inc.’s ability to provide subscribers who also own Apple computers with their on demand online streaming service is an incredibly significant development in Netflix’s overall strategy to expand its distribution methods for current subscribers. I think we can both agree that streaming online seems to be the next method of viewing content, and I don’t think Netflix would be able to continue to grow and remain profitable without being able to provide all computer owners with that basic service, regardless of whether it is a Mac or PC. This technology seems to be a great incentive for Mac owners who are not yet subscribers of Netflix. As a Mac owner with a Netflix account, I have been waiting patiently for the ability to stream content through my computer, and I can almost guarantee that I will renew my subscription for at least another year due to these constant improvements in Netflix’s service. I would have liked a little bit more explanation as to what Silverlight 2.0 was, and how Mac users could download that program. While I was thoroughly informed, I was still left a little confused as to where one could download the Silverlight program and how it streams Netflix’s content. I think a link might help readers who don’t already have the program. I also would have liked a little more explanation as to why Netflix went with Microsoft’s streaming technology instead of Apple’s. I think that is a very interesting topic, and I’m glad you brought it up in your article. However, you only touch briefly on Apple’s anti piracy software and why they refused to share it with Netflix. Do you think Netflix’s deal with Microsoft will prevent any future partnerships between Netflix and Apple? Overall, I appreciate the article, and think you provided readers, especially Mac owners, with much more excitement about Netflix Inc.’s future strategic decisions.

Cut The Fat: How Hollywood is Adjusting to the Recent Economy

Two posts ago, I talked briefly about the current state of Hollywood in the midst of the economic crisis that we are in, but focused primarily on the split between Paramount Pictures and DreamWorks SKG. This week, I have decided to focus on the larger economic affects on Hollywood, and how the entertainment industry is being shaken up in every sector, from major studios to independent film festivals. As stocks and quarterly figures alike continue to fall, companies are making serious changes in order to counter their projected losses. Jeff Zucker, CEO of NBC Universal (seen right), has decided to cut $500 million from next year’s budget, despite profits in its last eight consecutive quarters. The figure will constitute a total of three percent of operating expenses for 2009, and the major cuts will be in three areas: discretionary spending, promotion expenses, and staffing. Zucker was quoted in a memo stating to his workforce, “We are living in a time of unprecedented economic challenges, and it is increasingly clear that the worldwide economic slowdown will continue into next year.” I agree wholeheartedly with Zucker’s quote, and believe that most of the recent cutbacks in the entertainment industry are due to the grim projections of 2009. In addition, it seems that the cutbacks most companies are making are primarily in the number of projects being produced, especially in the independent film market, and the advertising and marketing campaigns of new or current projects. I believe it is in the best interest of studios and production companies alike to cut the fat on extraneous endeavors and projects for the next few years, and focus on the tent-poles that will bring in enough revenue to sustain these companies through this rough period. Unfortunately, other aspects of the industry may not be so fortunate.

In the past month, several major independent film distributors and production houses have been completely shut down by their parent companies. Warner Brothers eliminated two of their independent, albeit successful production companies, Warner Independent and Picturehouse. Paramount Pictures absorbed most of its staff at its specialty division, Paramount Vantage, as well as terminating fifty of its employees. These businesses were not extraneous ventures started by the studios during some boom, producing small films no one had heard of. For example, Paramount Vantage was responsible for, among many other noteworthy titles, There Will Be Blood and Into the Wild, two of this past year's nominees for Best Picture. Aside from those in the independent film sector, even big studio films that have been slated for a release date have been pushed back in the attempt of conglomerates to minimize losses for 2008. One primary example of this is Paramount’s film, The Soloist (pictured left), starring Jamie Foxx and Robert Downey Jr., which has been delayed to March of 2009, instead of its initial November 21st, 2008 release date. The decision was made because Paramount did not have the budget to support the film’s advertising and marketing campaign, which included an Oscar campaign for the Best Actor and Best Picture category. Research shows that the delays on this film alone will save Paramount $60 to $70 million in prints and advertising costs. Along with The Soloist, vice chairman of Paramount Pictures Rob Moore said last week that it was “cutting costs by reducing the number of films released each year from about 25 to 20.” While Paramount will lose the revenue of these five films, this cutback seems to be a safe, and even timely decision. Moore went on to explain that unless the split with DreamWorks was made, Paramount would have a difficult time reducing its production count to twenty films per year. The split also created the opportunity to make other potentially lucrative deals, including an agreement with Marvel Studios to distribute all four of its films that will be released through 2011. As we have seen with the success of Iron Man in both the box office and DVD sales, the distribution deal seems to be a very smart move for Paramount.

One can imagine that if these major studios and production companies are minimizing costs as much as possible, smaller film festivals around the country, including the Jackson Hole Film Festival and the Santa Barbara Film Festival, are really feeling the brunt of it all. Due to insufficient funds, these festivals have been forced to shut down. According to one studio exec, “Outside of Cannes, Berlin, Sundance, and Toronto we’ve never acquired a film at another festival. And in terms of tracking talent, anything that generates heat comes back to L.A. anyway.” It seems that without celebrity backing garnering enough publicity, many of these events are losing corporate sponsorships, which account for most of the festivals’ budgets. Not only are cutbacks being made everywhere in the film industry, but costs are also being minimized in the television world across the board. NBC’s Knight Rider, ABC’s Private Practice, and FOX’s Terminator: The Sarah Connor Chronicles have all been slated for nine more episodes apiece, despite mediocre to poor reviews and ratings. If this were last year, let alone five years ago, these shows would have been cancelled and a new show would have taken their place. However, “given the cost of producing and marketing a new scripted series,” companies like NBC Universal “might have a greater temptation to give a show like ‘Knight Rider’ more time to find an audience.”

Due to the recent economy, aside from job security, stock-market crashes, and everything else we have to worry about, audiences around the country are going to have to worry about quality of entertainment and media for the next year, as almost all mediums are minimizing their content and rate of production due to the decreasing stock value of the major conglomerates that control the output of entertainment for the majority of the country. Whether it be in film, television, or the independent arena, audiences will not be available to the maximum potential of the industry for the next year. However, this downside is the only option the industry has in a time like this, and Hollywood will bounce back when the time comes. Every industry needs to play it safe these days, and Hollywood should be no different.

Hollywood Finance: Surviving In The Midst of A Meltdown

On September 19th, DreamWorks SKG and sibling company Paramount Pictures inked finalized a negotiation ending a long, two-year partnership. Steven Spielberg (that’s where the ‘S’ comes in, in ‘SKG’) signed a deal with India-based Reliance Big Entertainment ensuring $500 million in equity, as well as securing $700 million in credit through JP Morgan to back a new, $1.2 billion film company. This new venture is just one of many recent deals in Hollywood that have guaranteed billions of dollars in financing over the next few years. But wait. One minute I’m reading about the suffering economy, and the “impending doom” and “horrible reality” that awaits me, and the next minute I’m reading about the $230 million budget for just one movie, (the upcoming 007 sequel Quantum of Solace), along an entire slew of films that have just been slated for the next couple years that will no doubt have budgets that exceed $100 million. How can this be? Where is this money coming from? After yesterday’s stock market “meltdown” as only one of the more recent events that have threatened the very possibility of a functional economy, one must wonder: If every industry in America is failing right now, how is the film industry still finding the capital it needs to not only survive, but thrive?

This week, I’ve chosen to explore the blogosphere, and comment on two separate, but related posts that explore not only the recent split between DreamWorks and Paramount, but also other financing negotiations and how today’s economy is affecting the film industry. The first article, “Surreal Separation: Why Did DreamWorks Say Bye Bye to Par?” examines the DreamWorks-Paramount split and the repercussions of that negotiation, and was written by Editor in Chief of Variety magazine, Peter Bart. The second article, “Wall Street Finance ‘Banking’ On Hollywood?” which was written by Julia Boorstin, writer for both cnbc.com and Fortune magazine. For your convenience, I have copied both of my comments below.

“Surreal Separation: Why Did DreamWorks Say Bye Bye to Par?”
Comment:
Thank you Mr. Bart for clarifying so simply the reasons for why DreamWorks and Paramount Pictures have decided to end their partnership. While many people may be confused as to why these companies would want to sever their ties, it makes complete sense that a company which has put out very successful films believes they could operate much more successfully with their own financing. I can understand your comment about DreamWorks setting up a new distribution deal with Universal, but I don’t really understand why the most likely candidate for setting up a distribution deal with DreamWorks is Universal. How did you come to that conclusion for a studio instead of a studio like MGM? Has either DreamWorks or Steven Spielberg commented on a possible distribution deal with Universal or is that merely speculation? The only other question I was left with after reading your post was ‘Who came out the victor?’ Will DreamWorks be able to sustain itself over a long-term period on its own? Will Paramount experience the reduction in overhead through losing DreamWorks like they projected? And finally, if neither party came out the victor, but this was a win-win for both parties, and both parties wanted out of their relationship, why didn’t this deal occur months and months ago? While I understand your posts are not intended to examine an issue in depth, I think some explanation on these issues would really help clarify a lot of questions that readers have.

Overall, I really enjoyed the post, and I especially like your overall conclusion about Hollywood and its role in our economy, that it really doesn’t make sense, and we shouldn’t always demand that they do, especially in the film industry. When has the film industry ever really made sense? I also agree, that no matter what happens to our country, people will always want to go to the movies. While you have no answer now, is this an issue that you see yourself re-visiting? Thank you again for your explanation.

“Wall Street Finance ‘Banking’ On Hollywood?”
Comment:
Thank you Ms. Boorstin for your article explaining the financial role in Hollywood today. While I do believe the economy is in a state of shock right now, I do also believe and agree that “the entertainment industry is having no problem securing bank-financed credit.” Your explanation of the DreamWorks-Paramount negotiations was fairly brief, and on strictly a financial based approach, which is completely understandable for cnbc.com. However, I think a little bit more financial information, or possibly future projections could help readers gain a broader scope in the issue. Which big titles over the next year or two is this deal really affecting? Now that DreamWorks is on their own per se, how many films will they be able to produce each year with their secured financing? Also, what were the financial repercussions of this deal? Were there any at all? I also think your reference to Ryan Kavanaugh’s company Relativity Media and Relativity Capital is a very good example showing the outrageous capital that is being created in Hollywood these days. However, I think if you included some of the other studios or players that Relativity will be working with, readers can get a better idea of what possible films, or where in general the billions of dollars that Relativity has generated is going to go.

Aside from your explanations of recent financial booms for Hollywood, I was especially interested by your overall theory that Hollywood is counter-cyclical. While I did somewhat agree with blogger Peter Bart in that there really is no obvious explanation to anything in Hollywood, I believe that a counter-cyclical cycle is very possible. Hollywood does seem to act differently than any other industry, throughout its existence. While we may be in the midst of a possible depression, it does amaze me to see so much advertising and marketing for new television, video games, and movies. However, I think some other reasons as to why Hollywood is counter-cyclical would really help readers understand your view. Thank you for your take on the entertainment industry and the economy.

2009 Oscars: Why They're Going To Be 'Revolutionary'

America is in an economic crisis that is being compared to The Great Depression. The struggle in the Middle East still continues, with no end in sight. People can no longer escape the headlines. There is nowhere to hide anymore, not even a movie theater. This fall, moviegoers across the country will not be going to the movies to escape necessarily, but to entertain themselves while remaining anchored in the present. In recent years, the American public has become much more aware, and much more active in addressing our nations issues than we were a mere five years ago. While the realities of today may not be pleasant, both the public and movie audiences alike are no longer interested in the Wizard of Oz. We have seen the proverbial “man behind the curtain,” and will not be fooled by Hollywood wizardry any longer. While audiences are still enjoying movies for their entertaining aspects such as A-list talent or special effects, audiences of today and tomorrow are beginning to favor the balance between entertainment, and the focus on the similar or familiar issues of today. For this reason, I believe that the top contenders and winners at the 2009 Academy Awards will be the films that can properly achieve this balance. Two primary examples of this balance will be the films Frost/Nixon and Revolutionary Road.

The first, Frost/Nixon (see poster to the left), is a political-drama based on the play by Peter Morgan, focusing on a series of interviews conducted in 1977 that occurred between BBC talk show host David Frost, and former President Richard Nixon. The film stars Frank Langella as Richard Nixon, and Michael Sheen as David Frost, who both appeared together in the stage production, and directed by legendary filmmaker Ron Howard (A Beautiful Mind, Apollo 13). While the film may take place over 30 years ago, one cannot avoid the themes that Frost/Nixon addresses, and their similarities to today’s politics. Uncovering the truth, demanding accountability from our President, and the media’s role in politics are at the forefront of American discussion. While these issues are prominent themes in the film, the differentiating factor in Frost/Nixon is that these themes will not be force-fed to the audience, unlike other political films. Audiences are now smart enough to tell the difference between a film like this, and a film that over-emphasizes its cause. Frost/Nixon will be a perfect example of a film that will achieve the balance between Hollywood credentials (Ron Howard, Peter Morgan, Frank Langella) and the indirect association with topical themes.

Another film that achieves the balance both audiences and producers are seeking is Sam Mendes’ Revolutionary Road. Based on Richard Yates’ novel by the same name, Revolutionary Road (see poster bottom right) is a story set in 1950’s Connecticut, and focuses on a married couple once free spirits, caged in a life of suburbia in order to raise their kids. The primary theme of the story, an issue that also happens to face millions of Americans today is suburban malaise. While this is not the first potentially successful film about what the editor in chief of Variety magazine Peter Bart calles "suburban malaise" (1999’s American Beauty won Best Picture, and also happened to be directed by Sam Mendes), it too does not necessarily force-feed the theme to its audience. Along with its topical relevance, Revolutionary Road, like Frost/Nixon, also boasts an impressive cast of Hollywood talent such as Leonardo DiCaprio and Kate Winslet (whose last film together was 1997’s James Cameron epic Titanic which also happened to win Best Picture). I fully expect Revolutionary Road to not only captivate audiences, but also secure a position as a Best Picture nominee.

While it may not have been recently, this will not be the first time a trend like this has occurred in Hollywood. According to not only Peter Bart, but also esteemed film critic and University of Southern California professor Leonard Maltin, in the 1930s, “response films” became increasingly popular after The Great Depression. This was primarily due to the fact that people were no longer ignorant to the issues facing America. Producers learned all too quickly that educated audiences want to watch films that do not necessarily educate, but can assume that the audience is educated enough to understand the parallels between the film itself and modern issues. However, this is not to say that the only successful films this fall will be those that indirectly address issues facing the American public. There is a big difference between successful, and unforgettable. There are plenty of highly anticipated comedy (Zach and Miri Make a Porno) and science-fiction (The Day the Earth Stood Still) films alike that I’m sure will succeed tremendously in the box office. Conversely, this does not mean that the films that address these relevant, and for the most part morose topics will be the box office hits of the year. In fact, I can almost guarantee that both Frost/Nixon and Revolutionary Road will do less than favorably in the box office. I do however, believe that the films that not only excel in cinematic value, but also resonate with the American audience will be the films that dominate the Best Picture category. The American audience has progressed significantly since five years ago (2003’s Best Picture winner was Lord of the Rings: Return of the King), and the Best Picture winner this year will be a clear example of that distinction.