April 27, 2022
The big news for the past week (outside of Ukraine, inflation, Macron, more US insurrection stuff, Musk taking Twitter, etc.) has been the hasty death of CNN+ and the drastic drop in share-price at Netflix, and oh yeah, ads. My feed, inbox and even my phone (actual calls!) have been inundated with people commenting on, prognosticating about or wanting me to do the same on Netflix and the future of indie film. But I don’t see these bigger changes as having much to do with indie/arthouse/quality films – we’ll see the same decline in that sector that we’ve been seeing all along, but more people will wake up to these declines and blame it on what happened last week, getting the story wrong. But here’s what I think.
The story remains the same. In brief: Netflix, Hulu, Amazon, Apple and the other major streamers decided long ago, presumably based on data but who knows, that no one was watching quality cinema and it wasn’t worth the investment. Sure, a CODA comes along every now & then, and is worth the spend, but for the most part, they could commission (though they don’t use that word) originals at an early stage, from a select few, and mainly with big names attached in some manner (as cast, EP’s, VO or biopics about) and then focus on series. And these didn’t have to be all that good. This has led to a serious crisis in the equity-financing model of American indies, and again with few exceptions, the foreign sales business (of agents selling films into the US, which has also disappeared). The war for talent for these bigger films and series, especially the latter, has also made it harder for producers to attach quality cast of any kind to a project, because they have a gazillion other offers and can demand top dollars, and not piss off their agents who see anything else as a waste of time. And crews – and crucially, editors (especially for docs) – feel about the same because they’ve never been in higher demand. Throw in Covid-protocols, and you’re seeing the disappearance of a sector.
A handful of producers have figured this out and are making films, series, or both from within this system. Some have been able to tap into the demand for more diversity, equity and inclusion behind and in front of the camera – and it’s about damned time. A few others hope to be the lucky few and sell their film at Sundance (good luck to you), and the rest seem to be calling me wondering if we’re the only ones awake to this dilemma and which job to take on the tangents of this industry. Some are holding out hope that the A24’s and Neon’s of the world will rise to the occasion and build an alternate system with the better, remaining exhibitors, but if you talk to folks actually in those sectors right now, they see a rough landscape ahead for non-tentpole movies. There’s also only 2, maybe 3 of these better distributors remaining and everyone assumes they’ll be bought soon.
This seems to be the end of this story. Until a new one takes shape in about three years, which is how often these cycles seem to last. But all of this happened before Netflix announced a drop in subscribers (that would be less than 1% if they hadn’t just kicked out 700K Russian accounts), and before Reed Hastings blood pressure caused him to blurt out “advertising” as a solution.
In case you didn’t hear, that’s what happened. As Netflix’s CFO was coolly explaining to Wall Street analysts that it was just those pesky password-sharers giving them problems, the stock price continued to dive. Reed was watching this and grabbed the mic – with no prior warning to his staff or anyone else, as it wasn’t in the pre-printed press release – and exclaimed that now they’d consider ads to stem the losses. Bomb. Shell.
Madison Avenue rejoiced; audiences cringed. Password sharing is akin to piracy, insofar as it’s a symptom of a failed business model more than it is a crime. Adding interruptive ads is another shitty business model. Sure, they aren’t switching everyone’s account to annoying ads, it will just be a way to reach new markets (internationally), monetize the password sharers and gain new audiences and revenue by taxing the poor’s attention. Worrying too much about the former and adding the latter are distractions. What Netflix need to do is focus on the fundamentals, both to right the ship and to solve these problems.
Weirdly enough, we know this because that’s what Reed has told us before, during the last time he had a little freak-out and launched Qwikster with no real planning. A quick recap – it’s July, 2011 and Netflix is at an all-time high of $299 a share. But Wall Street was getting antsy and this set Reed’s heart aflutter, so he blamed all problems on the need to shift from DVDs to streaming only, and in September of 2011 he announced Qwikster as a separate company for DVDs, completely divorced from Netflix from the consumer side. People freaked the F out. By September, Reed called it off and apologized. But the damage was done, and their stock dropped to a low of $53 by September of 2012, and it became an SNL sketch:
But funny thing, Reed learned from his mistake and re-focused on the fundamentals of delivering great content via great technology to audiences, and the stock price rebounded over 135% to reach $299 again by April of 2013. And onwards the rocket ship rose. That month, the NYT ran a gushing profile piece on Reed where he was surprisingly open about what went wrong, and how they corrected course and it’s eerily prescient for today and worth quoting in full:
“There were elements of panic in my reaction back then,” Mr. Hastings said. “We got desperate and we did some dumb things.” (He cited online advertising on the Web site; starting Red Envelope, an independent film producer and distributor, since shut down; and buying DVDs out of the Sundance Film Festival.) “After we eventually won the Blockbuster battle, I looked back and realized all those things distracted us. They didn’t help, and they marginally hurt. The reason we won is because we improved our everyday service of shipping and delivering. That experience grounded us. Executing better on the core mission is the way to win.” (…)
“There was amazing pressure to come up with the shiny object that would make everything better,” he said. “But the phrase I used was, ‘There are no shortcuts.’ We weren’t going to find an idea or gesture that would make people love us again overnight. We had to earn their trust by being very steady and disciplined. And we had to be careful because we were on probation. We had to stick to what we do well and not lose confidence. I couldn’t say for sure we’d recover. But I was confident that our best odds were to be very steady and focus on improving the service.”
The article ended with this: “What advice does he offer? “Don’t get distracted by the shiny object,” he said. And if a crisis comes, “execute on the fundamentals.”” (emphasis added)
And that’s what he needs to do again.
He might not. That’s the wager one has to make while the share price is low. What Netflix needs to do is focus on quality – in the content they offer becoming better again and more consistent; and in the customer experience, making it easier to find what you want and share it, and make your subscription worth the price so those password sharers graduate to customers.
But instead Netflix is looking to become cable, or Discovery, which means more of the lowest common denominator. Reality TV, cheaper shows, but a lot of variety. As Zaslav just said: “Our research shows that people who watch [HBO’s] ‘Euphoria’, their second favorite show is [TLC’s] ‘90 Day Fiancé.’” And just today, Zas started cutting back on scripted originals. But btw, Discovery is already for sale (Netflix might be too), and doesn’t have a history of making the better stuff. And if the audiences are flocking to the cheap stuff (Fiancé), you make more of that because it brings the eyeballs Madison Ave. will demand once you join the ad business.
It would be smarter for Netflix to become a universal jukebox, the new bundle, and let others take the risks producing the majority of the shows and building sub-brands within the eco-system, and only show the good stuff without interruption. They can focus their content spend on what’s missing, and smarter variety. And add brand funded films – good ones, that bring marketing, devoted audiences and lower costs (and is a booming sector, let me tell you…). But this is also unlikely because it’s harder work than buying an ad network and cutting costs with cheaper programming. And fewer bosses get fired for proposing a tried-and-true method over something new. Or something old, that’s new again – the fundamentals.
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Film
How Alamo Fought Back from Bankruptcy: At the height of Covid, Alamo Drafthouse announced its bankruptcy and people got scared. The reality was, they always made it clear that this was a move to shed debt and underperforming leases, and rebuild, and while it had to be scary for the team, no one really thought they would fold or anything. At the beginning of all this, founder Tim League moved into a Chairman role and they brought in Shelli Taylor as a new CEO, and she is a badass. Screen has an interview with her about all of the changes and what's next, and it's a pretty good read. I expect many good things to come from this new-ish team as things rebound as they're positioned to do well going forward. (BN)
Sundance Struggles and Cuts: In not unexpected news, Sundance has announced cuts to programs and staffing (with some consolidation). They got hit hard by Covid this round, having to switch to online only at the last minute, and that is never good for the books. But it's a strong organization with experienced leadership and a decent board, so while I expect more big changes to come, my hope is that they do well going forward. Same for those staff who will be leaving, as they're all great people. I'm surprised we haven't seen more and bigger cuts in the festival field, to be honest, and imagine this is just the beginning of a few similar developments in the sector. Variety reports. (BN)
Rise of streaming ushers in a golden era for Asian Storytelling and How much can Netflix grow in Asia Pacific?: Not too long ago, “Asian cinema outside the region was largely the realm of the cinephile. Dedicated fans would prowl stores in areas with a large Asian diaspora, trading VHS tapes…”, writes Luke Kang, president of the Walt Disney Company Asia Pacific (Nikkei Asia). Today, however, “Asian cultural influences [on the Western entertainment world] are unmistakable. South Korean drama and science fiction series are multiplying across channels, while Japanese artists are collaborating on anime versions of Western classics.” Kang explains that it’s thanks to streaming that an entire generation of Asian filmmakers can have a voice on the international stage. Two big takeaways here are: (1) “The capital, distribution platform and audience are now all in place for Asian content creators to compete on a level playing field with those in the U.S. or Europe” and (2) It’s only a matter of time until a giant such as Disney turns to Asia to create a global franchise.
The growing market for storytelling coming out of Asia means streamers are doing everything they can to capitalize, though some streaming giants are struggling more than others (Netflix is in the former category): As detailed in a Streamlined article by Liz Shackleton (a new-ish must-read for many in the biz), while Netflix added 1.09 Million subs from Asia Pacific this quarter, they’re denied access to the biggest market — China. They’re also not faring too well by comparison in India where Disney+ is dominating thanks to their recent acquisition of Hotstar. Netflix also has a lot of ground to gain back in Indonesia (they were blocked in Indonesia up until 2020 for “inappropriate” content). Netflix and other big streamers face big hurdles, including that they “compete with local streamers and broadcasters that have a much deeper understanding of local audiences…[and] the infrastructure is not there in Asia to produce” massive shows. “Ironically, [Netflix] has made Korean and Japanese content hugely popular in the West, but back in Asia is up against massive competition without an identifiable niche.” (GSH)
Amid losses, Netflix bets on a bold strategy around video games: Creating an ad-supported tier and cracking down on families sharing passwords with each other isn’t going to cut it. So Netflix is putting their money on video games. They’ve already put out the mobile game, “Stranger Things: 1984” and most recently, Netflix is converting a popular card game — “Exploding Kittens” — into both a mobile game and a TV show. Clearly, Netflix is starting small to get a lay of the land, but their acquisition of 3 game studios — Boss Fight Entertainment, Next Games, and Night School Studio — suggests big plans on the horizon. Netflix is starting with mobile games and will have around 50 by the end of the year. Shannon Liao for The Washington Post brings us the news. (GSH)
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Branded Content
The power of storytelling: What nonprofits can teach the private sector about social media: How can brands effectively engage with audiences online to create real-world impact? One case study, pulled from a book called The Dragonfly Effect by a Stanford marketing professor and a Stanford marketing strategist gives us some answers: (1) Tell a story; (2) Empathize with your audience; (3) Authenticity is key; (4) Where and how you say something can be as important as what you say. How to do these things is where it gets difficult. Check out this link for an interview with the authors of The Dragonfly Effect, where they discuss the core building blocks of good storytelling, how authenticity can be communicated over social media, what businesses can learn from folks in the social sector who depend on social networks, and how brands can shine through the online clutter. A special thanks to one of our readers, Dan Satorius, for bringing this piece to our attention. (GSH)
Why The Metaverse Is A User Experience Challenge For Brands: Designing the metaverse, and designing their future presence of the metaverse without knowing what it should or will look like is a true challenge for brands. What’s clear, however, is that brands “will need new skills, processes and technologies because designing assets and interactions for 3D is much more complex than for 2D.” They’ll also be tasked with making these metaversal experiences user friendly — extended reality experiences mainly attract gamers and techies which is obviously an issue if brands want to reach beyond these niche communities. What’s more, brands haven’t yet figured out how to create an interconnected metaverse (which is kind of the point of the metaverse), where users can seamlessly hop around from one organization’s experience to the next. As of now, users can only really operate on an island, so to speak. AdAge’s David Truog urges brands to start experimenting with XR experiences in the metaverse so as to familiarize themselves with the tools and skills to survive in this new space. And “don’t trust anyone’s enthusiasm or skepticism about XR unless they have direct experience of XR”. (GSH)
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Miscellany:
 David Cronenberg, the Master of Body Horror Films, Is Selling His Passed Kidney Stones as an NFT: David Cronenberg, the Canadian director and actor of films in the body horror genre is pushing the boundaries of the NFT with his kidney stones. Yes, you read that right. Starting at $30,000, Cronenberg’s NFT — Inner Beauty — features his recently passed kidney stones (and the winner of the auction may get his physical stones too). Why? Because “they’re too beautiful to be destroyed.” Taylor Dafoe for artnet has the story. I don’t really have any takeaways for this one…. The stones speak for themselves. (GSH)
‘Everyone just got addicted to it’: How kids are using Roblox, in their own words:Roblox, once just a video game platform and now the platform where the metaverse is taking shape is home to a growing array of branded experiences. And a huge chunk of Roblox’s users (~50%) are under the age of 13. Alexander Lee and Sara Patterson (Digiday) share an illuminating interview with a 10-year-old Roblox regular named Mia to learn more about the average kids’ experience on and relationship with the platform. Some key insights are as follows: (1) Kids are using Roblox to experiment with their physical identities; (2) Kids are happy to engage in brand experiences that are engaging; (3) iPads, rather than computers may be the preferred form of accessing Roblox – they’re more user friendly; 4) Kids are okay with spending Robux (Roblox $$) to change their physical appearance; 5) The Pandemic was a driver of increased time spent on Roblox. 6) While Mia and her friends got addicted to hanging out on Roblox, she thinks she’ll grow out of it. (GSH)
GSH = Articles written by Sub-Genre's Gabriel Schillinger-Hyman, not Brian Newman (BN)
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