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Netflix Hit-Rate Takes a HitNetflix announced last week that it was canceling Sense8, an unusual science-fiction drama about eight people who become mentally connected, according to a report in Variety. It wouldn't be news if it was another content provider -- shows get canceled and renewed by channels regularly, based on their ratings and attractiveness to advertisers. But it's the fourth canceled show from Netflix Inc. (Nasdaq: NFLX) in the past seven months, a content provider that has had the Midas touch in recent years. Since it started developing its own shows, Netflix has pretty much hit the ball out of the park with everything it has produced. Shows like House of Cards, Orange Is the New Black, Stranger Things, The Crown and Narcos have shaken up the foundations of Hollywood and sent ripples of disruption through the entire TV value chain. Netflix's uncanny ability to predict consumer interest, creating shows that immediately feed into water-cooler conversations and build massive fan followings, has amazed traditional content providers. Everyone recognizes that the company has invested hugely in their shows, recruiting A-list talent and producers. But analysts have also looked to Netflix's data gathering and analysis capabilities, concluding that at least part of the company's freakish success-rate in a high-risk business comes from the insight and precise visibility provided by an all-digital platform with unprecedented data-mining capabilities. Netflix's answer to Game of Thrones from Home Box Office Inc. (HBO) , Marco Polo, was canceled after just two seasons (and a reported loss of $200 million.) But six months ago it was seen as an aberration -- a one-off failure in an otherwise stable of successes. Since then, the OTT provider has shelved Sense8, The Get Down and Bloodline. That's not a huge failure rate though, compared to most channels. Broadcast networks, traditionally the home of premium hour-long dramas, cancel many more every year. It's noteworthy only because it's Netflix, and it just hasn't got it wrong before. It could just be a function of scale, with the company now simply producing so many shows that the law of averages is starting to affect it. Or it could be part of a broader set of issues that Netflix will need to address. As a service that is not ad-supported, Netflix has long refused to provide ratings or viewership data for its shows, so it's difficult to know what drove the decision to drop these. But there are some metrics offered by third parties. According to analysis from Variety, these are some of Netflix's most expensive shows. The Get Down reportedly cost $12 million per episode, Sense8 and Marco Polo both cost $9 million per episode and Bloodline was $7 million per episode. This compares with broadcast network dramas that are typically in the range of $2.5-$3.5 million per episode. So Netflix has been spending between two-three times the budget of a typical broadcast prime-time drama, and having gained the benefits of that spend through the headline-grabbing success of its shows, has perhaps realized that it's better off spreading its risk a little. In particular, investing in a broader slate of reality and comedy series, which are usually cheaper to produce than expensive dramas. The shows have also not been particularly successful, according to analysis from analytics provider 7ParkData. It uses a proprietary approach to track streaming of popular OTT video shows. According to its data, Marco Polo, The Get Down and Bloodline were the least streamed new seasons of any hour-long Netflix original series in the US. However, other Netflix shows, such as Stranger Things, Orange Is the new Black, Marvel's Luke Cage and 13 Reasons Why were the most streamed shows in the past 12 months. Netflix is clearly using original content as the key to its plans for global expansion. It has invested in original European series and is expected to spend almost $6 billion on original content production annually. But that is why its shows must be successful -- it's more dependent on the success of each show than the typical broadcaster. (See Netflix to Double Down on Original Programming, Says UBS.) It's a risky, expensive strategy, and Netflix's ability to support it is based on sustained subscriber growth, at or close to the levels it has delivered in recent years. It's clear the opportunity is starting to flatten in the US, where Netflix has already captured most of the market. So it is international growth that the company is now focused on. Can it keep growing both subscribers and revenue worldwide, to sustain such an aggressive original content strategy? It's possible, but certainly a high-risk approach. It might be that Netflix, having reviewed its numbers, is now tweaking its strategy somewhat. Firstly, it's looking at producing more international content to comply with local content requirements (in Europe, for example) and equally importantly, appeal to non-US audiences. (See Amazon, Netflix Forging Ahead With Original Content.) But it's also reviewing its production costs and seeing where it can spread risk, and reduce the average cost of production per show. And it's probably going to be ruthless with shows that don't perform in the future. It's going to be a tricky balancing act for the OTT provider over the next few years, as competition intensifies and new markets pose new challenges. Netflix isn't a disruptive challenger anymore. As the OTT market matures, it is fast becoming the incumbent -- and those are the ones with the biggest target on their back. — Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation |
Contentious issues that are likely to fuel lawsuits and angry blogs in the coming year.
Content producers are unhappy with the advertising approach and revenues they are getting on Facebook Watch.
OTT video usage is driving the penetration of various Internet connected devices to help view online streams on the larger TV screen.
Major Hollywood studio to trial 'virtual' movie theaters using head-mounted displays.
Network technology vendor Sandvine has found that piracy isn't only hurting network operator profits – each pirated set-top box is also using up 1TB per month in 'phantom bandwidth.'
On-the-Air Thursdays Digital Audio
ARCHIVED | December 7, 2017, 12pm EST
Orange has been one of the leading proponents of SDN and NFV. In this Telco Transformation radio show, Orange's John Isch provides some perspective on his company's NFV/SDN journey.
Special Huawei Video
Huawei Network Transformation Seminar The adoption of virtualization technology and cloud architectures by telecom network operators is now well underway but there is still a long way to go before the transition to an era of Network Functions Cloudification (NFC) is complete. |
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