Good afternoon!
The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
With all the Netflix headlines from the past two weeks, it is worth contrasting them with a series of events that began with former Netflix Co-CEO—and now Executive Chairman—Reed Hastings’ book tour for “No Rules Rules”. Then, he told the New York Times in an interview that two of the best authors in the entertainment industry were Neal Gabler, who wrote the definitive biography of Walt Disney, and Bob Iger, who had been running Disney. The not-so-subtle message: Netflix was building a library to be the next Disney.
In 2021 Hastings added a competitive angle in this story to investors: “We’re very fired up about catching [Disney] in family animation, maybe eventually passing them, we’ll see.” Netflix was building its own “Storytelling Moats”—the storytelling expertise and the deep content libraries of studios—to produce blockbusters to compete with its legacy media competition.
Three years later, a “Storytelling Moat” is not longer an existentially important long-term corporate objective. Netflix’s animation division has been reduced by one-third. Co-CEO Greg Peters—who replaced Hastings—recently told Stratechery’s Ben Thompson that “we are able to invest in some kinds of storytelling that others are not immediately disposed or well suited to produce.” He offered the example of “Casa de Papel” or “Money Heist”, in which a local producer had "pretty modest success" in Spain, then Netflix picked it up and made it a global show. “Squid Game” is another example.
Effectively, the lesson Netflix learned before any of its competition mirrors my conclusion from last week’s “Monetizing Mickey Mouse, "Superman" and "Batman" In The Public Domain”: “Blockbusters seem to be a relic of decaying linear and theatrical business models.” The paths to recouping its 2021 "Storytelling Moat"-type investment in Roald Dahl Story Co.—which owns characters and creations like “Charlie and the Chocolate Factory” and “Matilda” (in the top 1% of titles streamed in last December's “What We Watched” report)—for $700 million are a bit wonkier and less tried and true than the blockbuster model in linear and theatrical.
Key Takeaway
Netflix is educating the market towards the conclusion that the blockbuster model for "Storytelling Moats" is antiquated. The concept of a "spectrum"is winning and the Zeitgeist seems to be fragmenting towards the local.
Total words: 1,000
Total time reading: 4 minutes
Blockbusters & Broadcast TV
At the Netflix Upfront—something that Hastings had strategically ruled out until its Q1 2022 earnings call two years ago—Netflix touted originals like “The Umbrella Academy”—three titles in the top 6% of “What We Watched”—and “Cobra Kai”—four titles in the top 4%—that were in their fourth and sixth seasons. Those shows may not be blockbusters in the traditional Hollywood sense—they have lower budgets and no A-list stars—but mathematically on Netflix they are very much blockbusters.
By comparison, the blockbuster Spider-Man movies all fell somewhere between the top 6% and 9% of content watched. There are advantages to popular IP with expensive budgets (“Spider-Man: Far From Home” grossed $1.13 billion on a $160 million budget or $320 million including marketing), but those advantages are fewer in a world where streaming is increasingly replacing traditional pay windows like DVDs and cable.
Netflix also seems to be pursuing a broadcast network model. Two weeks ago, it delivered users a live-streamed broadcast TV with a six-episode run of comic John Mulaney’s live talk show “Everybody’s in LA”. Last week, it announced a three-season deal with the NFL for Christmas Day football games, and that the Jake Paul vs. Mike Tyson match streaming live on Netflix on July 20 will be sanctioned by the Texas Department of Licensing and Regulations (TDLR).
The NFL appears to be the only blockbuster property in that mix, but it is sports and not IP and its value to Netflix is limited to Christmas Day. It seems to be more like a tentpole event than “Storytelling Moat”. The broader message seems to be that the largest and most profitable streaming service in the world needs some expensive IP to succeed, but only in the instance of live sports. For its "Storytelling Moat", blockbuster IP is valuable but not a do-or-die value proposition.
The Spectrum vs. The Blockbuster
Netflix’s message to the market sounds more wonky than traditional: Expensive blockbusters have significant value in their ecosystem, but they are not the end-all-be-all of their business model. The payoffs do not come from “a few likely winners”—as Harvard Business School professor Anita Elberse argued in her book “Blockbusters”. Greg Peters offered Ben Thompson a perspective with an alternate framing: “there’s all sorts of different forms of development and production, whether it’s completely ourselves, with a partner, or a license — it’s on a spectrum and I admit that.”
Against the backdrop of struggling Hollywood studios and streaming services, there seems to be little upside to Netflix bidding for Paramount Studios—worth $11 billion in a previous bid from Apollo Global Management—or Lionsgate despite their availability.
The exception seems to be intellectual property that those studios own which can perform well locally and be taken globally. But even that is not as straightforward as the outcome of a merger or an acquisition: All available evidence suggests studios seem to prefer to license rather than sell titles to Netflix, and all data in “What We Watched” (unsurprisingly) reflects how Netflix-owned titles perform better on the platform. Netflix seems more positioned to henpeck smaller, cheaper and l0cal-language titles from "Storytelling Moats" than it is to buy Paramount for "Mission Impossible".
In a mere four years after Reed Hastings promised a Disney-like "Storytelling Moat" for Netflix, the company has flipped its script and reversed the paradigm. The best returns are less from historically popular 20th century IP and more from content that can resonate locally, first, and then globally, second.
Whether we are thinking about valuable 20th century IP behind walled gardens or entering the public domain, Netflix is educating the market towards the conclusion that the blockbuster model for "Storytelling Moats" is antiquated in a retail-first, consumer-first world. The concept of a spectrum—less winner-take-all and more nebulous in outcome than a blockbuster—is winning, and the Zeitgeist seems to be fragmenting towards the local.