Friday, April 5, 2013

Is Exclusive Not Enough For Netflix?

Yesterday's CNBC report issued a warning to Netflix shareholders that its exclusive content, specifically its show House of Cards, was not exclusive enough to retain subscribers.  Of particular concern, that Netflix only had first window rights to the content after which it would likely be made available to other platforms.  And according to the analyst interviewed on the network, subscribers will likely churn to other sites.  "On CNBC's "Fast Money," (Wedbush Managing Director Michael) Pachter said that it was clear from the show's DVD sales on and its television-friendly 48-minute run time, Netflix only had a limited window from which to profit from the series." I disagree with his analysis and believe he is being short-sighted in his remarks.

For all subscription services with no penalty for early termination, quick and easy churn is inevitable.  And in fact, viewers are a fickle bunch.  Those that want it quick will indeed sign up to watch and drop when they are done.  Others will find value for the aggregate of content that Netflix and other subscription services make available.

Pachter does not see Netflix as comparable to HBO, but truth be told, HBO has had many more years to develop their brand.  As HBO and others have learned, it takes time to develop a pipeline of content, especially after having initial success with a series.  Consumers always expect a just as strong follow up and sometimes they get a dud.  No, Netflix cannot expect a longterm gain from one particular piece of content, regardless of the rights and length of the distribution window. 

Consumers have an insatiable appetite for content; the more they get, the more they want.  For Netflix and others to succeed in the space, they need to keep filling the pipeline with more original content as well as a large library of other TV and movie titles.  For Netflix, next up is Arrested Development, and like House of Cards, it should keep subscribers interested. 

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