If the company can make some money or win some awards by releasing its movies in the theaters, that’s great. In the traditional business model, messing up the theatrical release window puts the entire business at risk. Compared to the studios, they have very little to lose. If a seller can accurately predict the average value a subscriber is willing to pay for all the movies in the bundle, then it can set a price just slightly below that value and extract the maximum value possible from its audience.Īs we note in our book, this is why streaming platforms like Netflix pursue unorthodox strategies for theatrical releases. Not every consumer assigns the same values to the individual movies in the bundle, but in a large bundle that doesn’t matter: the differences in the individual values average out. In brief, the more products a seller can offer consumers in a bundle, the better that seller can predict the average value of the bundle across different consumers. We’ve written about this at some length in Streaming, Sharing, Stealing, a 2016 book about the changing nature of the entertainment industry. The bundle does that for them-very profitably.īundling works in an interesting way.
#Netfits utility movie#
The company doesn’t have to figure out how much a consumer values any individual movie on the service.
Bundled subscriptions allow Netflix to practice a different kind of price discrimination from the movie studios. Instead, it’s in the business of selling many different movies to individual customers-in bundles. Netflix is not in the business of selling individual movies to many different customers. But then why does Netflix release its movies in theaters on the same day it makes them available for “free” on its streaming platform? The answer is that Netflix is pursuing a fundamentally different business model from everyone else in the industry. Why else would anyone pay $15 for a theater ticket if they could rent the same movie for $4.99 a few weeks later? Making a movie available exclusively on “the big screen” allowed studios to segment their (impatient, quality-conscious) high-value customers from the rest of the market. The theatrical release was the key to making this price-discrimination strategy work. Studios figured out a long time ago that the most profitable way to accomplish this goal was to strategically vary the timing, quality, and usability of their movies, so that high-value consumers would voluntarily pay a high price for a movie that other consumers will see for less. Studios obviously want to extract as much value as they can from each group without cannibalizing sales to the other. Some might value it at $15 (“I’ve got to see that new Star Wars movie today!”) others might value it at only $5 (“I wonder what I should rent tonight?”). And this starts with an important insight: consumers place radically different values on watching a movie. To answer that question, it’s important to understand why, for decades, Hollywood studios used an exclusive “windowing” model to release their films.
How can Netflix be so successful while rejecting the most important part of the business: the theatrical release? And on the rare occasions where Netflix movies are shown first in theaters, it’s only a few weeks before Netflix makes them available for streaming online-nowhere near the 90-day exclusive window used by every other major Hollywood studio. Instead of using an exclusive theatrical release, Netflix movies are almost always available to stream the same day they are released in theaters. Sure, occasionally you can see a Netflix film in a limited showing at your local art-house cinema, but even then Netflix breaks with industry norms. Well, in every way but one: Netflix still doesn’t “release” its movies in theaters. In just over a month, Netflix solidified its position as an insider in the theatrical business in every way. And on Sunday night, it had arguably its biggest night ever, by winning four Oscars - tying it with Disney, Fox, and Universal for the most Oscar wins by a major studio in 2019. That same day, it received 14 Oscar nominations, more than it had received in all its prior years combined. On January 22, the former DVD-rental company became the seventh member of Motion Picture Association of America. This is shaping up to be a breakout year for Netflix.
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