I subscribe to Netflix, Inc. ($NFLX), and I use it once a week. Typically, my wife and I will watch an episode of Blacklist, followed by Longmire. For Blacklist, we’re just getting through the second season, which is all that’s available on Netflix so far. As for Longmire, we’re watching new episodes. What makes this interesting is not our viewing habits, but the fact that new episodes of Longmire exist at all.
The cable company that originally put the show on the air cancelled it. Netflix then scooped up the rights to it, produced new episodes, and instantly connected to viewers like me.
Clearly, the Netflix sees the opportunity to make a profit where the cable company could not. In this sense, Netflix is disrupting the media business just as Apple, Inc. ($AAPL) did with the iPod and iTunes. They are building a business off of the long tail. Instead of offering a small number of products that do exceptionally well, they offer a multitude of products, which together get enough views to make the business successful in a way cable companies aren’t.
As a point of disclosure, I currently own Netflix in my Triple Play Strategy. It was rocky for a bit there, but there’s no question that the company clearly fits one of my main criteria. It falls into the category of what people will do in the months and years ahead.
Without getting deep into high school statistics, the long tail refers to data points that occur far away from the average. How many Longmire viewers must Netflix have for the series to be profitable? I don’t know, but because they simply stream the service, and can put all episodes up at once, they can make money with a lot fewer viewers than cable! This allows the company to offer many more shows, which draws a wide audience of viewers who can seek out the content they want.
Think about the lack of competition for airtime. On cable, there’s just one slot open every Tuesday night at 8:00 PM. If the show in that slot isn’t drawing viewers, it must be replaced.
On Netflix, if a show happens to draw fewer viewers, that’s OK. It didn’t displace any other show to be there!
A Disturbance in the Film-going Experience
The company is also pushing into new territory. It just released its first feature-length film, Beasts of No Nation. Interestingly, Netflix didn’t make the film. It was made by an independent group for about $6 million, and Netflix bought the distribution rights.
Because of the subject matter, large studios didn’t think it would draw big theater audiences, even though it’s considered a contender for an Oscar Award, so they passed.They were right. Netflix released the film in 31 theaters as well as online. To be considered for an Oscar, it had to be released in theaters. The film earned a mere $1,635 per theater on opening day, which is abysmal.
Well, it’s abysmal if you’re a major studio relying on ticket sales at theaters. If you’re Netflix, then it really doesn’t matter. The film received fabulous reviews, which means that the streaming company’s 60-plus million subscribers are more likely to hear about it and click on it. If it wins an Oscar, then the buzz will only grow louder!
This is exactly what happened with digital music, the iPod, and independent (or “indie”) bands.
Instead of requiring a recording studio to sign a band, cut a record, and hope for some coveted radio airtime, indie bands could record their music and then make it available through iTunes. If the bands were discovered by listeners, then their music would go viral without the limitations and hassles of radio airtime.
So as Netflix slides down the long tail of video content, subscribers are the real winners. We get access to shows and movies that would never have been made or offered without such a distribution platform. Sure, big studios and cable companies might suffer. But independent film makers and small production groups must be jumping for joy.
But none of this means that Netflix shies away from well-known names.
The company will debut the sequel to Crouching Tiger, Hidden Dragon in the first part of 2016, and is currently in talks to roll out the next installment of Star Wars. Netflix inked a deal with Disney for exclusive rights to all offerings created by Walt Disney Co ($DIS) after January 1, 2016. However, the new Star Wars rolls out December 18, so its future on Netflix is up in the air.
So, the next time you sign on to Netflix, know that you’re part of the digital nation. You’re helping the company break the chains of cable and offer a platform to independent producers…even if you choose to watch nothing but your old favorites.
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