More from Netflix’s shareholders letter from Monday:
There are various ways to evaluate the content of a video‐streaming service. One way is to focus purely on quantity, but that leads to the licensing of thousands of rarely watched titles. At the other extreme is concentrating solely on quality, as measured by the number of Oscar‐nominated or Emmy‐nominated titles we have. Instead, we think about the value of our content as a function of how much a given movie or TV series gets watched relative to other titles, for how long and by how many members. From that perspective, an Oscar‐nominated film may be of less value to Netflix subscribers than “Pawn Stars,” because subs are watching the reality show more than the Oscar‐nominated movie.
They’re definition of quality seems tacitly incorrect1, but I’m willing to let it slide for now. What concerns me is the last part of of this paragraph regarding the value of Netflix’s content. There’s some circular reasoning going on at the company that is going to be a big problem for movie lovers as the company begins its “comeback.”
Netflix’s thought process in one sentence: People aren’t watching the movies we don’t have, therefore they don’t want to watch them.
This ideology stems from the fact that Netflix wants to be a television network that you get through the Internet instead of through a cable company. This is what led to their acquisition of David Fincher’s “House of Cards.” They explicitly state this intention elsewhere in the shareholders letter:
In episodic television, exclusives are also the norm. Netflix doesn’t license “Deadwood” from HBO because they see strategic value in keeping it exclusive. Netflix licenses “Mad Men” and “House of Cards” exclusively for much the same reason.2
They want to be in the original programming business; they want to follow the traditional network model. The only way they can figure out what to stream is to figure out what people are watching. Think of them as a channel, just like HBO, and you’ll start to see that the idea of Netflix as a gateway to every film available isn’t their business model anymore. The Netflix we once knew, that massive video rental store in the cloud, is gone. Or at least their executives wish it were.
The reason why it hurts to move into acceptance of this fact is that we all jumped aboard Netflix at the expense of our local video stores. Those little red envelopes destroyed the rental industry and there is blood on our hands. The war is over but the game has changed. Is this what we signed up for?
Netflix’s streaming library will, likely, never be analogous to its disc library. They’re getting out of the rental business they killed. What are the rest of us to do? I’m not sure yet.