Tag: Netflix

Box Office Blues

Posted on September 5, 2012

Looking at the disappointing summer movie season that finally wrapped up Labor Day weekend, Timothy Corrigan, a University of Pennsylvania professor of English and cinema studies, sums it up: “There just aren’t that many good movies coming out now.”

The numbers support him. According to an article this week in The Wall Street Journal, attendance at movies declined 3.93% compared to last year, the lowest since 1993, and box office receipts were down 2.8%, from $4.4 billion in the summer of 2011 to $4.28 billion this year.

“The kinds of movies Hollywood is churning out now suggest that [studios] have surrendered to, and continue to exploit, the ‘high concept’ formula,” says Corrigan, referring to movies that are based on short and simple premises that “can be reduced to about three sentences.” Examples, he says, would be the remake of an earlier successful movie, or the adaptation of a successful book or the decision to produce yet another Batman or Bourne film. “It’s hooking the economic future of the movie on some notion of a quick hit that connects with lots of audiences.”

Compare a high concept film with “great movies from China, Iran, South Africa and Europe,” Corrigan says. “Technology today allows people to explore what else is out there. What’s good about films like A Separation [from Iran, which Corrigan recently saw on video on demand] and Moonrise Kingdom [from American director Wes Anderson] is the writing. Hollywood has never much cared about the writing, and it’s starting to show.”

Not that movie theaters are going to become obsolete, he notes. “You go to the movies to go out – on a date, to get out of the house,” to break up a routine, and so forth. “That’s why movie theaters will always stay alive and attract audiences — not as big as before, and not the same kinds of audiences. But we often go to the movies for reasons that have nothing to do” with what’s being shown.    

Wharton marketing professor Jehoshua Eliashberg explains the box office blues by noting that not very many movies are “aiming at broad audiences and have legs – i.e., manage to attract viewers’ attention for a long time period.” Nor are there very many good 3D movies, which can command higher ticket prices, he adds.

Both professors note that theatrical screenings are rapidly being undermined by the shift to numerous other platforms, “from Netflix to illegal downloads to iPads and so forth,” says Corrigan. “That’s been happening for a while and will continue to happen.”  According to Eliashberg, “faster spread of word of mouth — often not positive — on social networks also draws away consumers from the movie theatres. In addition, the unfortunate shooting event in Colorado [at the opening of The Dark Knight Rises] may have had some, albeit hard to measure, effect.”

Neither Corrigan nor Eliashberg think the struggling economy affected the lackluster summer season. “One of the boom decades for Hollywood movies was the 1930s,” says Corrigan. “And that was a much worse depression” than the current downturn. Eliashberg describes movies as “a recession-proof business. In fact, my hypothesis is that the hot weather has helped the industry. It could have been worse if the summer had been cooler.”

Eliashberg is “not terribly optimistic” about the fall lineup. “I have not heard about too many movies that have generated very positive ‘must see’ buzz, although some sequels – like Taken 2, Paranormal Activity 4 and Twilight: Breaking Dawn Part 2 — are likely to attract loyal fans.”

Wharton marketing professor Eric Bradlow adds one thought: “All media distribution channels, movies included, are fighting for customers’ attention.  At the end of the day, content will drive that attention, and in some ways big brands are more valuable than ever. Why would someone go to a movie starring the Avengers? Because there is brand value in the actors and in Marvel Studios.”

 

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Not So ‘Qwik,’ Netflix

Posted on October 10, 2011

Last month, Netflix announced that it was planning to split into two businesses: The company would continue offering subscribers streaming content, while a new service, “Qwikster,” would manage mail-order DVDs.

But Qwikster died a fast death. Today, Netflix announced that it was going to backtrack on its strategy to divide up its services. In a statement, CEO Reed Hastings noted: “Consumers value the simplicity Netflix has always offered, and we respect that. There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.”

Hastings’ comments reflect the volume of criticism the company has received since it announced its plans on September 18. According to The New York Times, “tens of thousands spoke out against the plan on Netflix’s web site and [other sites]” following the announcement — which came on the heels of price increases for streaming and DVD rental services that already had Netflix subscribers on edge.

The deluge of complaints was perhaps no surprise. Wharton marketing professor Raghuram Iyengar points out that having a separate mail-order operation would be “extremely burdensome” for consumers in multiple ways. “They would have to sign up for two different services for getting the DVDs and streaming. Most companies try to bundle services rather than spread them apart. In addition, there are no price discounts if someone signs up for both services. Again, this is quite contrary to discounts given to bundled services.” There are also “higher mental costs,” he adds. “Consumers would have to create two separate movie lists for their DVD and streaming options.”

Kartik Hosanagar, a Wharton operations and information professor, agrees. “The decision to abandon the plan feels like the right one at so many levels. Netflix, to most of its users, combines the best of offline and online methods of watching movies. That is part of its appeal. There are no structural or operational inefficiencies tied to combining both channels under one roof. So, the Qwikster [addition] was unjustified to Netflix’s users.”

What is notable in this case, however, is that those “tens of thousands” of unhappy voices got through to Hastings and other Netflix executives — and very quickly, thanks to social media. “Today’s decision by Netflix merely acknowledges that the management is listening to [the service's] users,” Hosanagar says. “Twenty years back, a poor decision such as the [addition of] Qwikster would have resulted in consumers slowly dropping out of the service and moving on. The firm would have found out about its poor decision too late. Today, Netflix makes a decision, consumers react instantaneously on twitter and Facebook, and Netflix can assess mass user reaction instantaneously and reverse its poor decision. That’s the power of social media.”

What will be the next twist in the Netflix plot? According to Iyengar, the company may try changing its pricing for the streaming option. “The current flat fee — ‘all you can eat’ — pricing for streaming will be extremely difficult to maintain,” he says, adding that the company might scale its pricing according to the number of movies subscribers want to see, or the type of content — for example, older films versus first-runs.

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Netflix: Two Companies, Double the Headaches?

Posted on September 20, 2011

With Amazon, Apple, Hulu and others quickly gaining ground in the distribution of online video content, Netflix is making a concerted effort to strengthen its Internet streaming service. According to a report in the Wall Street Journal, on Sunday, company CEO Reed Hastings announced that Netflix will be split into two businesses: The original Netflix will now only offer streaming content, while a new company, “Qwikster,” will manage Netflix’s original mail-delivery DVD service.

The move follows a separation of both services by Netflix and price increases for each earlier this summer, which angered customers and caused subscriptions to plummet. (Prior to the split in services, subscribers could view unlimited videos on demand and receive DVDs in the mail all for a flat rate beginning at $9.99. Once the services were divided, fees for each started at $7.99.) In fact, the company stated that it expects to have one million fewer subscribers than it had projected for the third quarter of this year.

In his blog post, Hastings acknowledged that the strategy comes from a realization that streaming video is the wave of the future. “For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming,” he wrote. “Most companies that are great at something” shy away from new products that people want “because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

But in this case, moving too quickly might only double the headaches for the company. On the customer side, the potential problems are clear: Viewers will now have to visit separate websites and juggle two accounts if they want to keep both services.  According to Stephen Shankland, a columnist at CNET News, the division also highlights the weaknesses in both services. Although subscribers may like the instant gratification of viewing content on demand, the selection is still thin compared to the mail order service. “DVDs offered a better selection, while streaming video offered better convenience,” Shankland writes. “Now, instead of one service with two facets that compensated for each other’s weaknesses, there are two services that each looks half-baked.”

Perhaps more critically, on the company’s side, letting go of its original “legacy business” of mail order DVDs might ultimately harm it, according to Wharton management professor Emilie Feldman, who studies the effects of divestitures and spinoffs. For the time being, Qwikster will operate as a wholly owned subsidiary of Netflix, but the split “exhibits many of the classic features of legacy divestitures,” Feldman says, including “the separation of a business operating in a weak or declining industry (physical media) to focus management attention on businesses operating in relatively stronger or faster-growing industries (digital media)”; “a symbolic shift in the identity of the parent company” (as evidenced by the renaming of the DVD-by-mail business); and “a potential underestimation of the value of the legacy business being separated” (as demonstrated by strong customer sentiment against dividing the services).  

On average, “companies which undertake legacy divestitures experience a sharp decline in their operating performance in the years following those divestitures,” Feldman says. Factors contributing to that decline include a “disruption of the uniquely valuable interdependencies between a company’s legacy business and the remaining segments in its portfolio” and “a dissipation of key intangible resources, such as reputation and name recognition … linked to the legacy business.” For example, Netflix has always been known for its red envelopes in which DVDs were delivered to eager subscribers — but those envelopes are exactly what Hastings wants to move away from.

“These issues [of legacy divestiture] are clearly quite salient to Netflix’s decision to separate, and ultimately to divest, its DVD-by-mail operations,” Feldman notes. “This suggests that the Netflix split … may be a harmful strategy for the company.”

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When Oscars Bring Fame — and Fortune

Posted on January 27, 2011

Hollywood’s awards season kicked into high gear with Tuesday’s Academy Awards nominations. For studios and distributors, a ticket to the big show means a lot more  than a chance to walk the red carpet — it means the potential for big box office and a better chance of recouping costs in today’s more fragmented media landscape.

“Before the Oscar nominations are named, you will find that there are subtle and not-so-subtle efforts to get a film nominated through advertisements and other methods,” says Timothy Corrigan, a University of Pennsylvania English and cinema studies professor. “Once the nominations occur, if they have the money, the studio will go for it [in terms of investing in marketing] because winning an Oscar means money.”

Although this year’s winners won’t be announced until February 27, the boost from the nominations is already evident at the box office. According to The Hollywood Reporter, The King’s Speech — which leads in the nominations with 12 — saw its domestic receipts jump from $635,465 on Monday to $1.1 million on Tuesday, the day this year’s contenders were announced. That’s a 66% increase. Other Oscar front-runners saw similar upticks, with revenues for True Grit up 41% on Tuesday and The Fighter increasing by almost 46%, The Reporter said.

Meanwhile, the distributor of The King’s Speech, the Weinstein Co., is unleashing a new advertising campaign and even considering excising some of the rougher language from the film in order to rerelease it with a lower MPAA rating. Currently it’s rated R, but distributor Harvey Weinstein (known for his aggressive Oscar marketing campaigns — Chocolat anyone?) told the Los Angeles Times Company Town blog that a PG-13 or PG rating might be the gateway to a broader audience.

The “Oscar bump” isn’t limited to the run-up before the red carpet, however. The New York Times Carpetbagger blog reported data from research firm IBISWorld showing that the average Best Picture winner over the last four years experienced a 22.2% increase in revenue after being named a nominee and an additional 15.3% boon following a win on Oscar night.

“When you have a big blockbuster like [2010 Best Picture winner] Avatar that was already making millions of dollars, the profits from an Oscar are going to seem less extreme,” Corrigan points out. “If you’re talking about a smaller film, like one I loved that’s been nominated for four Oscars this year called Winter’s Bone, that’s a movie that an Oscar can do remarkable things for in terms of its continued life in theaters and beyond.”

And it’s the beyond part of that equation that might mean more to Hollywood than the immediate gratification of a box office boost. “Theatrical distribution for most movies is not bringing in large portions of their profits, and so getting a movie theatrically released with good reviews, from one very convincing point of view, is just a way to promote sales on DVD, video, on-demand, Netflix and so on,” Corrigan notes. “What Oscars do is simply add tremendous icing on that promotional cake.”

In a recent interview with Knowledge@Wharton, filmmaker James Kerwin shared similar thoughts. “If you’re making a $200 million blockbuster, the studio is going to put everything they can behind it, advertisements will be all over the place and you’re going to make money on DVD sales,” Kerwin told K@W. “With the theatrical box office, you’ll probably break even once the marketing costs are taken into account, even for huge films. But with DVD sales, you’re just making gold there.”

Low budget films are also easy to turn profitable because the upfront cost is so small, Kerwin added. “But there’s no real business model for a $200,000, $500,000, or even a million-dollar film. It cost too much to make its money back from a small amount of DVD sales, but it didn’t cost enough for a distributor to put a huge marketing campaign behind it.”

That’s what makes the Oscars such an important piece of the puzzle, Corrigan says. “With digital technology, anybody can make a movie and many people can make good movies, but the game is to get it seen. That’s where the struggle is and that’s where marketing comes in and it’s everything from the Oscars to the kind of [MPAA] rating you attract.”

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