How Netflix is ‘Chillin’ It

            Since the 1950s, television has been a staple in American households. For more than half a century, it has pervaded itself into basically every single living room, often with multiple TVs in a single household. But new technology allows for media to constantly be upgraded and replaced - originally storytelling was exclusively an oral tradition. Books eventually replaced oral storytelling, and then succeeded by radio, which was replaced by TV. But in 2016, for nearly two decades, purely digital media threatens Cable television: instant on-demand streaming from Netflix has revolutionized watching shows and movies. With its innovative streaming business model, Netflix has set the stage for the (eventual) demise of Cable TV.

            For more than half a century, and likely for a long time ahead, TV has been integral to American culture.  The average American spends four-and-a-half hours each day watching TV (Hu, 2013). That’s 20% of our 24-hour day, so it’s even more of a substantial chunk of our waking hours. But with Netflix, a subscription-based instant streaming service for television shows and movies, more and more viewers are turning away from expensive, monopolizing, traditional Cable TV services. CNET - a media journal - has found that more and more people have been ‘cutting the cord’ with Cable. These ‘cord cutters,’ viewers who abandon Cable for purely Internet content, have more than doubled the amount of ‘Zero TV’ households since 2007 (as cited in Hu, 2013). In fact, a survey conducted by FBR Capital Markets, a Wall St. investment management company, found that consumers preferred Netflix to Cable 57% to 43% (as cited in Haq, 2015). This is the “first major disruption of television” (Investopedia, n.d.). But why are people choosing Netflix over traditional Cable services? Well, Netflix has been doing more than converting viewers: Sandvine, a Canadian networking equipment company, found that nearly 37% of North American primetime bandwidth is used for Netflix (as cited in Fung, 2015). Netflix currently holds 60-plus million subscribers (Haq, 2015) and for good reason. With high-profile originals, instant streaming access, and at a fraction of the cost of Cable, Netflix certainly is causing concern among traditional Cable TV networks, and digital streaming (whether it be Netflix, Hulu, Amazon, or any of the newly emerging services) will replace traditional television.

            After spending about fifteen years solely providing streaming of previously aired content, Netflix won the bidding war to produce House of Cards (Dupont, 2014). This was the service’s first original show, which Netflix picked up for two complete seasons without ever seeing a pilot episode (Stenovec, 2015). This is very different from how shows are usually picked up. Traditionally, producers make a pilot show to send to a network, which, depending on ratings, may or may not be picked up fully. Netflix, in addition to allowing the showrunners to complete at least one season without fear of cancellation (Plaugic & Miller, 2015), has also afforded creators full creativity without micromanaging (Stenovec, 2015). With this innovative business model, creators now can see streaming services such as Netflix as a viable top option, rather than a last resort (Plaugic & Miller, 2015) (think Community and Yahoo Screen, which Yahoo shut down after two years for losing $42 million; Wallenstein, 2016). In doing so, they garner top quality television that rivals HBO and Showtime. And Netflix knows, “people only need to watch one or two shows to be hooked as subscribers” (Dupont, 2014). With as many originals as Netflix has, as well as a vast previously aired collection, subscribers have endless options, and new membership is enticed.

            With a large millennial viewership - 37% of new users are between the ages of 16 and 25 (Civic Science, 2015) - digital streaming is perfect for the company. According to John Baick, a popular culture history professor at Western New England University, “Millennials value Internet access above Cable access” (as cited in Haq, 2015). The instant accessibility and convenience makes Netflix popular, especially with people who are always online. As well, Netflix adopted a unique release system for its content, which works especially well for its originals: a season is released entirely at once (Hoyle, 2014; Dupont, 2014), which allowed for a binge-watching culture to emerge among viewers (Plaugic & Miller, 2015). And when viewers are hooked after binge watching top-notch television, they are likely to stay for the year-or-so until the release of the next season. But by that time, they’re likely hooked to a slew of other shows. By encouraging bingeing, Netflix doesn’t have to use each episode as a hook - the season can be the hook (Plaugic & Miller, 2015). This allows for episodic season story arcs instead of the traditional similarly structured episodes with an underlying seasonal arc, thus ensuring a second season viewer.

            Netflix also treats its employees spectacularly who in turn produce great work. With superb treatment and high expectations, Netflix HQ is highly efficient and highly retentive, with employees staying for a decade plus (Stenovec, 2015). As well, Netflix tracks subscribers’ preferences to personalize the viewing experience, likely increasing satisfaction and loyalty (Haq, 2015). Netflix certainly has its viewers’ trust, with subscriptions topping 75 million (La Monica, 2016). But it’s not just the excellent engineering keeping viewers happy, it’s also a fraction the cost of Cable.

            Netflix is a surprisingly inexpensive service. With no Cable box, lawn-digging for fiber optics, or dish satellite from Cable Providers necessary, the service has no need to charge so much. According to the FBR survey, Cable TV can cost on average $80 per month or more, with on-demand content prices being “quite substantial” (Younker, 2015), costing about four dollars per movie.  Netflix, on the other hand, ranges from $8 to $14 per month. That’s vital for “cash-strapped younger generations who have come of age in an on-demand world,” and not to mention that it is all ad free (Haq, 2015). The mass departure of millennials of traditional television to convert to less expensive digital streaming has been a product of the company’s outstanding service and inexpensive prices. Though, even with top quality service and inexpensive prices, Netflix can’t do everything. Traditional television still has one advantage: appointment viewing.

            Appointment viewing affords Cable networks the upper hand, especially networks such as CBS, Fox, and NBC, who host everything from the Olympics to American Idol to the NFL (Haq, 2015). With this advantage, until Netflix can compete to bid for live events (Yahoo hosted the first ever live-streamed NFL game in 2015; Barsanti, 2015), Cable networks will survive. As well, even with 75 million subscribers, Netflix only just surpassed HBO’s revenue for the first time, with $1.146 billion (Post Wire Report, 2014). Netflix still has a long way to go until it completely takes over traditional television, although with other companies such as Amazon, Google, Hulu, and Apple creating their own instant streaming platforms, Cable could be eradicated within years. It’s already common for Cable networks to provide instant streaming content (Plaugic & Miller, 2015), but Netflix is still beating CBS and Viacom combined on Wall St. with $44.5 billion (La Monica, 2016), and whose shares hit an all-time high at $546.80 in 2015 (Picchi, 2015). So, although likely a long time out, Netflix can certainly surpass and then replace traditional Cable TV.

            In order to replace traditional television, Netflix must obtain the rights to live broadcast, or, really, have to just want to live broadcast, which could be easily won. Otherwise, Netflix and other streaming services have the potential to completely oust traditional Cable broadcasting (though not premium content such as HBO), and have paved the way for full conversion to digital streaming content. With top quality content, superior service, and inexpensive prices, Netflix seriously is ‘chillin’ it.

Edited April 18 at 12:48am 

References

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