Will Netflix stick around for an encore?

The applause for Netflix’s recent success is still ringing in everyone’s ears. Yet beneath the din, there is whispering about whether this star of streaming can sustain its story of success.

I think not. And the reason is fundamentally simple: companies do not understand how expensive it is to run a video platform.

Netflix created a marketplace in which it can no longer survive. The business model has changed. And will evolve even further.

Disney’s recent, blockbuster announcement of their purchase of Fox – for $52.4 billion – will likely stand as the single largest threat to Netflix. Having popular films and TV shows emanating from just one company will only provide more content for Disney, who have already announced a streaming service to go live in 2019.

Plus, Disney’s deal to purchase a large portion of 21st Century Fox Inc.’s assets would double its 30% stake in Hulu. There is an imminent threat that Hulu will not exist as a streaming service, as Disney holds more content on Hulu then all other partners combined post deal. And it too has its own platform opening up in 2019. Why would they not move the content? It’s conceivable the Hulu business will soon switch gears, tailoring content to a specific genre or audience.

Netflix, Wall Street’s once-upon-a-time hero, is looking at huge implications regarding fragmentation, content demands, and fierce competition as the economics of the media industry reconfigures. Just think how dramatically the ways we consume news and entertainment has shifted. Online video is always on-demand. This means more opportunities for people to watch all kinds of content. And the only digital video network that operates at-scale and for free is YouTube.

YouTube is the only network to respond to this increase in demand. There’s content available any time, on every type of topic, for every type of audience. You want current affairs? YouTube’s got it now. You want cat videos? YouTube’s got you covered in cat fare. This is a consistent, massively gratifying experience for the end-user. To pay for content in today’s always-on and accessible marketplace, you’d better offer an exceptional value trade. Think personalization, extraordinarily high quality, and well, what else you got?

YouTube is the second largest search engine platform in the world. It has a unique offering. And it’s even created a culture with unprecedented influence on mainstream pop culture. Think about it. Millennials spend more time than ever on VOD. In the US alone, viewership is expected to hit 209 million by 2021, up from 181 million in 2015. Still, the real power of YouTube is this: every 60 seconds, 300 hours of video are uploaded here. Imagine, there is more content created in one day, than by the major broadcasters over the past five years.

What’s on tap and how much it costs tells us everything. The current Netflix model sits with an increased premium subscription price of USD $13.99. Now remember, the majority of content on Netflix is old. And even though they’ve invested heavily in original content programs, to the tune of $8 billion, they primarily offer back catalogue re-runs.

Still, the most important element of content today is discovery. This is where the opportunities lie. Especially in today’s highly fractured distribution channels. Companies that can figure out how to push discovery of their content to consumers – or help them discover it for themselves – will likely have a leg up in this competitive space.

Naturally, Netflix will face competitors from all sides. Disney’s appetite for new properties won’t be satiated by their purchase of Fox. Count on them to undertake a massive buying spree to expand their SVOD offerings. They will then offer more hours than Netflix. And parents will continue to pay for the Disney name in order to protect their kids. Disney’s success will, of course, also depend on price. If they open at $2, they’ll attract mammoth business. Should they open at $10, they may need to licence extra content as Netflix does. Remember also that a lot of Disney content will never be obsolete – because kids watch their content over and over and over again. This is why Netflix should be purchasing intellectual property, not just licencing it. Or even hoping to create it.

Now that Amazon Prime Users can get Amazon Prime Video, they will begin to gnaw at Netflix. This premium experience, is an extension of Jeff Bezos’s on-going battle for Netflix’s market share. With Amazon moving into the premium content game, expect them to push hard with faster, better, and even cheaper options after with the Disney/Fox deal.

Just recall think about the arc of Yahoo and other search engines prior to Google. The giants are winning and will continue to lumber forward – unstoppable as Google, like Amazon, delivers faster, better and cheaper. Mix in a social layer and imagine the powerhouse created by a merger of mammoths like Amazon, Google and Facebook – to control content, community, and distribution.

It’s possible Netflix might see Google or Amazon as saviours down the road. Especially as both already own the infrastructure to build a video-based platform. But the massive debt held by Netflix would hobble any hope for profit.

While short-form content creators like Vloggers and PewDiePie  have redefined the medium and extracted real revenue, I anticipate a revenue drop. That is unless they – and even some gaming companies – explore selling directly to the customer. A proof of concept can be found in Michelle Phan – who already sells directly to her audience from her $500 million company.

The signs look promising for studios, distributors and producers in the long-form content category. Craft matters in content and experience. In general, creators must ultimately offer a good story, lighting, and slick editing to compete strongly. Movie theatres should examine an SVOD model. And, just like sporting or concert event, offer reserved seating.

That’s because, quality is king to customers. Once they’ve tasted it, their appetite for it grows, rather than diminishes. Which is good news for audiences everywhere.

Long live the lure of excellence.

Suite of Free Tools

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Note: The accepted formula that Auxiliary Mode Inc. uses to calculate the CPM range is $0.45 USD - $25.00 USD.

The range fluctuates this much because many factors come into play when calculating a CPM. Quality of traffic, source country, niche type of video, price of specific ads, adblock, the actual click rate, watch time and etc.

Cost per thousand (CPM) is a marketing term used to denote the price of 1,000 advertisement impressions on one webpage. If a website publisher charges $2.00CPM, that means an advertiser must pay $2.00 for every 1,000 impressions of its ad. The "M" in CPM represents the Roman numeral for 1,000.

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