Ahhhh Netflix. Nothing quite says “hangover sunday” like mindlessly watching 3 seasons of Friends in your closed-curtain sweat-den. The disruptive video streaming company quickly became a house-hold name in the early 10’s, expanding it’s reach further every year and demolishing cable conglomerates as it does so. With it’s growing capture of market share, the now multi-billion dollar company has been churning out original content since the 2013 debut of Political Drama “House of Cards” starring Kevin Spacey. The lineup of netflix original shows now includes dozens of heavy hitters such as “Orange is the New Black”, “Stranger Things”, and my personal favorite 1930’s Brit-Grit series “Peaky Blinders.” But how is it that their good:shit ratio is so much better than networks like AMC, NBC and too a much lesser extent HBO? There’s a little bit of out-dated business practice here, mixed with some interesting behavioural economics.
Netflix has one source of income. You. Well not you personally, but the collective you’s paying your $10/per month to enjoy their audio visual smorgasbord. Cable networks, on the other hand, make their money in two ways. Firstly, they charge you a subscription fee as part of your TV package. Secondly, and to a greater extent, they are paid by advertisers. A 30 second advert on a national network during a popular TV show can range from $50,000 for almost unheard of shows such as CW networks “Supergirl” to north of an eye-watering $400,000 for a 30 second slot during Fox’s “Empire”. Those these figures seem huge, Empire’s weekly viewer base of just under 5,000,000 means that advertisers are paying less that 10c to force-show you a 30 second video – I’m not an advertising executive, so can’t tell you whether this is money well spent, but we will assume so. Say you pay $2.50 per week (or $10 per month) to get fox, exclusively to watch Empire. The show itself has a 42 minute run-time, with 18 minutes of adverts. For the 42 minutes of runtime that entices the viewers to watch, Fox receives 5,000,000 * $2.50 = $12,500,000, with a cost of production of $3,000,000 netting the network a gross profit of $9,500,000, or $3800 per second. Advertising on the other hand, can rake in $14,500,000 in just 18 minutes – or approximately $13000 per second, more than triple what the show makes. Now, these numbers are loose, but you understand my train of thought. TV advertising is BIG MONEY and the networks want to keep their advertisers around.
When we watch an advertisement, over and over and over again, we begin to subconsciously relate it to it’s surroundings. For some brands, this can work in wondrous, for example Dyson Vaccums, High level make-up brands, and Diane Sawyers books were all advertised a long side “Desperate Housewives”, and sales soared due to their synchronous target demographics, in turn appreciating the “advertising real-estate” and making the network a packet. Now this is all well when the advertisers and producers want to convey the same message, but what happens when they don’t? If a show starts promoting ideologies and lifestyles that do not convey the same message as the brands advertised in the ad-breaks, advertisers can (and will) back out of agreements – costing the network hugely. This burden limits the kind of shows the traditional networks will risk producing, where as advertising-free Netflix can operate without this burden.
The next key difference between the two mediums is viewer retention. A network wants you to watch their channel, right now, in an hour, tomorrow, all the time. Regardless of what is playing. They want to be the most appealing network to the most people possible at any given time, even though they are only playing ONE SHOW. If you don’t like what’s playing, you just change the channel and they lose your viewership. This causes them to produce easy to watch content, that sits somewhere between “Two and a Half Men” and “Greys Anatomy” – I’m not saying they are bad, I am just saying they are widely popular, predictable and safe. Think of all the idiots you meet, all the terrible senses of humor and “instant gratification” that is now common place. Cable networks do not differentiate the tastes or quality viewers, only the number of viewers, and they always want more.
Netflix on the other hand has you in their clutches. If you are watching Netflix, and decide you don’t like what you are watching, you don’t go back to regular television and mindlessly channel surf, no, you find something else on Netflix and watch that instead. You never miss something, it’s always available. They have a much more captive audience than traditional cable channels, which allows them to cater to a much move varied audience, much more specifically. Series like the Pablo Escobar pseduo-biography “Narco’s” convey this point perfectly. It’s a high budget american-made series, that is 80% in SPANISH with English subtitles. If this was a network show it would be in English, without a doubt. Don’t believe me? The LifeTime series “Devious Maids” is about Latino maids, who speak almost exclusively in English. Spanish is only used to add emphasis and variety. A captive audience has allowed netflix to explore, hire creative directors, and get some highly compelling series made as a result. After all, Netflix is asking “Is this worth making” where as networks are asking “Is the the MOST worth making.”
Thanks for reading!