Netflix seems to have gone a bit crazy since their last quarterly earnings reports indicated that they lost a million subscribers over the past few months. There was the whole Qwikster debacle, which ignominiously ended last week with Reed Hastings announcing that the whole "two companies, two CEOs" plan was through (I can't tell if I'd be upset or relieved if I was the guy who was supposed to be Qwikster's CEO), and of course the price increase that preceded it. Then everyone was reporting last week, in a headline that I had to re-read a few times to make sure I wasn't somehow mistaking what it said, "Netflix pays $1 billion for CW streaming rights." That's right - a billion dollars over four years for the rights to a bunch of shows from a network I literally cannot remember ever intentionally tuning into. At 24 or so million subscribers, that's almost a dollar a month from every subscriber's fees going towards providing us with reruns of Gossip Girl.
That's crazy, and it's certainly far more than the content is worth (especially on a non-exclusive basis, as this deal is), but something else happened last week that should also spell trouble for Netflix, even if they don't quite know it yet. The news broke that Google and Youtube are about to announce a deal that would bring channels to Youtube with professionally-produced content. 25 channels of various sorts will be part of the initial package, with Google spending around $150 million on them initially. No word yet on the kind of content that Google is going to be broadcasting (I would assume a couple of news channels, a few entertainment-focused channels, and a bunch of short fictional shows), but Deadline surmises "if the financial model works, then Google could launch countless channels to make it the destination of choice for people who want to explore passions or interests that are too specialized for mass media including broadcast and cable TV."
This is something that Netflix should have been exploring over the past couple of years, in my opinion. With the number of people who have cut their cable in favor of Netflix and other internet sources of content (myself being one of them), Netflix should have been involved in the professional content business a long time ago. (Granted, they are beginning to buy the rights to original television series, but they're not producing them, merely buying the rights to them from the studios that are making them.)
If cable-cutters don't have cable news anymore, hire an anchor and a few videographers to produce a daily 10-minute news recap that can play on demand. Make your own Project Greenlight-style show and give someone a million bucks at the end of it to create a feature film. Find a group of young but talented comedians and give them the budget to produce a sketch comedy show. Get a conservative and a liberal commentator and let them butt heads for half an hour a week. Do something other than sign deals for way too much money to stream unimpressive content. All of this is complicated, of course, and would require Netflix to expand into the content creation business (which would likely entail a fair amount of overhead), but they can afford to spend the money to track down ever-more-marginal pre-produced content for their service; why not try to make some on their own? They have almost as many subscribers as HBO does, and HBO manages to profitably make some of the most prestigious shows on television.
Netflix obviously has the budget to make major deals, but they seem to be focused on hitting the homeruns, as in their $100 million/year deal with Relativity last year or their desire to pay $30 million per movie for the Dreamworks Animation catalog. With their subscriber base dwindling, though, they should be looking for any way to shore it up that they can. I'm sure their ability to pitch deals over multiple years rely on subscriber growth, and if their estimates of another 600,000 subscribers leaving at the end of their next quarter are true, then they seem to just be raising the pricing bar for all other content providers, but may not be able to reach it themselves by the time these content deals are up. The math would be pretty simple for a major network now: the CW's shows get Rating X, ours get Rating Y, therefore if you want to stream our content you'll have to pay us (Y/X) times a billion dollars. That's going to be a big bill for Netflix to pay in the future.
Google's ability to turn Youtube into what is effectively an a la carté cable service is probably helped by the fact that they have long been organizing content into channels that users can subscribe to; it's had a history of encouraging web series like The Guild with unique channel layouts for them (to differentiate them with the viral and user videos that are the main currency Youtube trades in), and even has a little-known (to me, at any rate) page at youtube.com/tv where they collect episodes of Youtube shows and lightly curate them for ease-of-discovery. Netflix really doesn't have much that's similar, aside from an ability to search by fairly specific genres. Still, Google's investing an amount of money that Netflix easily could afford to experiment with in the hopes that the channels will also enable them to attract higher-end advertising companies, which apparently have a harder time justifying purchasing ads for Rolex watches that'll air alongside videos of people lighting themselves on fire and struggling to put it out. Netflix has different needs, of course, but the need to attract new eyeballs is certainly similar to their situation.
Although I use Netflix and Youtube in entirely different ways, they're not that different when you think about them technologically. Youtube might be ad-based, but it does offer some movies at rental prices(including many for free), and might not have as much of a reach on consoles or home theater setups, but that could be remedied by Google if they really desired to do so. They have all the pieces in place to compete with Netflix's streaming service should they wish to do so: they have Google Checkout to process subscriptions, they have studio relationships in place thanks to Youtube and their rental services, they have world-class data centers around the world to support the streaming load, and they have the massive financial resources to outbid Netflix on almost any streaming rights deal they wish to pursue.
I'm not saying that Google wants to be in the same business as Netflix, or even should be, merely that they could be if they really desired to compete with them. (A more likely outcome would be for them to watch Netflix bleed a little bit and to buy them.) Netflix's future is a bit hazy, what with their insistence on overpaying for content (which is a spiral they might not be able to break out of) and the subscriber bleed, but in my opinion, they should pay attention to all of the people who say they're cutting cable in favor of Netflix by encouraging them, and perhaps providing a bit of what they're now missing.
Do you think Netflix should try and expand into creating their own content, as Youtube is doing? If so, what would you like to see them produce? Or are you happy for them to spend crazy amounts of money on reruns of Nikita?