Netflix and the Future of Entertainment

on August 8, 2016

I spent last Thursday night watching all eight episodes of Stranger Things, a new Netflix Original series. When Netflix releases a full season of episodes of a show, I tend to watch them all in fairly quick succession. I have had long debates with myself as to whether I prefer having a season’s episodes released all at once or weekly over the span of many months. I’m still not sure which I prefer but I do think Netflix is onto something which may give us a glimpse into the future model for entertainment.

The Future is Story as a Service
What made Stranger Things interesting was it felt like a story which could have been a two-hour movie but was made better from a storytelling perspective by being made into an 8-hour series vs. a movie. The story and overall entertainment value was better with it being the former. Stranger Things could end now or go another year but, either way, it had a satisfying end.

The full episode release of the season gave the impression of it being a great movie broken up into episodes that could be consumed in my own time — all at once or over time. This model allows writers to do more than they could in a movie given the time constraint. I’d even offer the viewpoint that this model allows for better storytelling overall. Which is why the glimpse we are seeing from Netflix is the future of entertainment — storytelling as a service.

Interestingly, in a recent cloud services study we did, 47% percent of consumers said they were more likely to pay for an internet service which was entertainment-based than any other kind of internet service category. Consumers like to be entertained and they are OK paying for it. This is not surprising.

But the model Netflix, and even HBO and Amazon Prime video, are using with their approach of original content investment is the beginning of this shift to storytelling as a service. Which means, their investment in original content and even the hiring of full-time story writers is essential to their futures. But it also positions them as the best versus network TV brands who are stuck in the “show a week” model.

Over the weekend, using our Survey Hound research technique, I took a quick sample of our panel and found 83% of consumers say they have binge-watched entire series or seasons and 40% said they do so monthly. Even more interestingly, 75% of consumers said they prefer the shows series/season to be released all at once vs. one per week.

TV networks are, in my opinion and analysis, not well positioned for this shift given their business model. Due to their advertising focus, they are incentivized to release content over long periods of time due to how they structure ad deals. Netflix, HBO, and Amazon are not subsidizing these shows by ads but by my consumer dollars, so I’m paying for these stories as a service. Which allows for this favorable model consumers prefer of releasing all at once. The challenge, as I see it, is their need to keep the stories coming. If I’m paying for it then I always want something to be on. The thing I dislike the most about binge-watching a series is when it is over. After you finish a series or season in a weekend, we need/want something else and, if we are paying for these stories as a service, we will demand it. Netflix, Amazon, HBO and any others wanting to compete here for consumer dollars need to be extremely aggressive in how much original content they release regularly. Again, the demand, if this future comes to fruition, is that we will always want a fresh story. That will be expensive.

I often emphasize a point that consumer markets are not generally “winner take all” markets. However, this may be one of those areas where it could be, simply on the point of economics to invest and create original stories at a frequent pace. The capital intensive nature of this business model means those who pull it off will acquire the most customers and can turn that revenue scale into investments in new content. Storytelling is not a commodity and quality production of content is not cheap. Even in the neutralizing era of the internet, not everyone can do this well. So it will continue to be an area less open for disruption.

This shift is just starting to happen but I do believe we are nearing a tipping point in the way consumers consume their content. This will have a major impact in incumbents today and could put companies like Netflix in dominant positions in the future of entertainment.