Business Models Come and Go

There’s something I have been predicting for some time: that not just the lifecycles of companies from birth to death but the lifecycles of whole industries and business models was accelerating. Blockbuster Video was founded in 1985. By 2013 it was gone. Its business model had collapsed.

Netflix.com was founded in 1997. Keep that in mind as you read these articles at the Washington Post:

Netflix Inc. and the soon-to-come HBO Max app need a little of what each other has. In the meantime, consumers may be the ones who lose out.

If you’re like me, you’ve started to realize that despite a vast number of video-streaming apps, none on its own offers the ideal mix of content best suited to your tastes. And if you’re like me, paying for more than a couple of these subscriptions would feel excessive and expensive. But the media giants behind these products sure aren’t making it an easy choice.

AT&T Inc.’s freshly acquired WarnerMedia division announced on Tuesday that HBO Max, its Netflix copycat, will launch next spring and exclusively feature the hit show “Friends,” which it’s yanking from Netflix. The sitcom hasn’t had new episodes in 15 years, but it’s a large part of Netflix’s lifeblood. Subscribers spend more time watching “Friends” than any other program on the service except “The Office,” according to Nielsen data for 2018. (Comcast Corp.’s NBCUniversal is taking “The Office” off Netflix, too, in 2021.)

As services like HBO Max and Walt Disney Co.’s Disney+ hit the market, it’s crucial for Netflix to try to maintain its standing as the necessary “base” streaming package – the minimum that most people need. Without “Friends,” “The Office” and other popular licensed content, Netflix risks becoming an add-on service instead – nice to have but not a requirement. Sure, it’s building a strong franchise in “Stranger Things,” but of Netflix’s top 20 programs last year by time watched, only six were Netflix originals, the Nielsen data show.

and New York Magazine:

Netflix’s main strategy to stay necessary is though its offerings of original content, which can’t be yanked away by a rival studio. But that’s a really expensive business, and Netflix will have to show, in a way it has not to date, how much of its original content is generating a return on investment by driving subscriptions and viewership.

Netflix’s traditional movie studio rivals have been complaining for years that Netflix (and Amazon) have been driving a “bubble” in content production, paying insane prices and inflating the cost for everyone to make movies and television shows. A key question for them is whether Netflix has been using its profitable old-content middleman business to cross-subsidize an unsustainable original-content business. By yanking away their old content, the studios don’t just have an opportunity to keep some of Netflix’s profits for themselves; they can also test their hypothesis that Netflix wouldn’t be such a bothersome competitor in the original-content business if it didn’t have other profits to rely on.

The middleman position that bootstrapped Netflix into existence is a tough business. IMO it’s possible for a company to succeed as a middleman in the streaming business but only by remaining a tech company and having the best streaming service, the best search engine, etc. and remaining very lean.

Netflix has clearly decided that’s not for it. It’s gotten into the content business which is an even tougher business. How do I know it’s tougher? Take Disney (please). Disney has been in the content business for 90 years. How creative are live action versions (or “live action versions”) of fully animated cartoons? Disney’s last real blockbuster was Frozen in 2013 and it’s had several big flops since then. So, Netflix, if Disney, the heavyweight champion of content, is having problems coming up with new ideas, what makes you think you can do it successfully?