The rise of the streamers created a new kind of drought for the media industry (Graphic by Mark Zimmerman)
The second week of January, 2007. The iPhone, of course, had just been announced at Macworld, but right next door in Los Gatos, something else entirely was brewing. That week, founder and CEO of Netflix Reed Hastings demonstrated the ability to play a movie or TV show from their vast library instantly over the web.
Prior to this, watching something "on" Netflix — which required renting physical discs — was a commitment.
Over-the-mail DVDs faced a combination of traditionally-delayed home video releases and disheartening shipping times. Competition from Apple iTunes, cable video-on-demand and Amazon DVD also scared Netflix’s investors, worried now that the innovative startup was asleep at the wheel.
That was, until Hastings clicked that fateful play button, and Netflix entered a new age of media.
A believer in innovation over efficiency, Hastings was not averse to risk. Netflix was hewn from the same time and locale as Salesforce and Google, after all. The Bay Area was a place for outsized investment and radical ‘web 2.0’ horizons, not a hideout for timid bookkeepers.
Thus, Netflix had to psychologically engineer studios and shareholders to survive. Frances Manfredi of NBC Universal – an early partner with Netflix – told the New York Times in 2007 that cable on-demand was still number one.
The $3 to $5 fees of cable video rentals seemed far more sustainable than magically unlimited streaming for an equally-magical $7 monthly fee. This was not optimization, however, but a Zuckerberg-esque growth-hacking bid. Netflix assumed time and scale would heal all wounds, but underestimated how much scale it would need to break even.
Over the next decade, Netflix struggled to keep the illusion up. Their model severed entertainment from advertisements, cable fee payouts and even a la carte video revenue. Record amounts of show writing talent would pour into Hollywood to satiate new demand brought on by subsequent streaming services.
Studios hiked licensing fees to make streaming financially justifiable, thus forcing Netflix to invest millions into hastily-greenlit shows, movies and comedy deals, passing costs on to subscribers to make up for production. Studios — reluctantly responding to consumer expectations and Netflix’s monopoly – vertically integrated into new streaming ventures.
By 2019, analysts were already declaring streaming saturation. Through the pandemic, traditional cost-related wisdom surrounding scale and competition became a punchline. Moments such as 1980’s infamous “Who shot JR” saga were sacrificed at the altar of targeted recommendation systems and paywalls – fragmenting shared cultural experiences. Netflix, along with the rest of the industry, drowned in expenses.
By the time 2023 rolled around, the vastly over-hired profession of screenwriting buckled under long waits for contracts and precipitous declines in recurring residuals. Viewer data obfuscation and the death of set broadcasts made residual calculation opaque. Netflix sat undisturbed by domestic production woes created by the Writer’s Guild strikes — later including the Screen Actors’ Guild-American Federation of TV and Radio Artists — but traditional media giants caved when Hollywood stopped to a halt for many months.
Studios now ache from demands that streaming created — not to mention the eyeballs online content houses stole — and are lost in a desert of tech.
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