Why Movie Streaming Sites So Fail to Satisfy

Why Movie Streaming Sites So Fail to Satisfy

MARCH 26, 2014

Farhad Manjoo

A team of web designers recently released an astonishingly innovative app for streaming movies online. The program, Popcorn Time, worked a bit like Netflix, except it had one unusual, killer feature. It was full of movies you’d want to watch.

When you loaded Popcorn Time, you were presented with a menu of recent Hollywood releases: “American Hustle,” “Gravity,” “The Wolf of Wall Street,” “12 Years A Slave” and hundreds of other acclaimed films were all right there, available for instant streaming at the click of a button.

If Popcorn Time sounds too good to be true, that’s because it was. The app was illegal — a well-designed, easy-to-use interface for the movie-pirating services that have long ruled the Internet’s underbelly. Shortly after the app went public, its creators faced a barrage of legal notices, and they pulled it down.

But like Napster in the late 1990s, Popcorn Time offered a glimpse of what seemed like the future, a model for how painless it should be to stream movies and TV shows online. The app also highlighted something we’ve all felt when settling in for a night with today’s popular streaming services, whether Netflix, Amazon, iTunes, Hulu, or Google or Microsoft’s media stores: They just aren’t good enough.

“Netflix Instant Thinking About Adding Good Movie,” an Onion headline joked recently. It was funny because it was true — and it’s not getting better.

In the music business, Napster’s vision eventually became a reality. Today, with services like Spotify and Rdio, you can pay a monthly fee to listen to whatever you want, whenever you want. But in the movie and TV business, such a glorious future isn’t in the offing anytime soon.

According to industry experts, some of whom declined to be quoted on the record because of the sensitivities of the nexus of media deals involved, we aren’t anywhere close to getting a service that allows customers to pay a single monthly fee for access to a wide range of top-notch movies and TV shows.

Popcorn Time isn’t an achievable dream; it’s a cruel joke about a future we won’t realize any time soon

Instead of a single comprehensive service, the future of digital TV and movies is destined to be fragmented across several services, at least for the next few years. We’ll all face a complex decision tree when choosing what to watch, and we’ll have to settle for something less than ideal.

For those of us with even slightly selective preferences, we’ll have to pick between different rental and subscription services offering different catalogs of programs, none very extensive, at vastly different price points. This sort of hassle and inefficiency sounds antithetical to the ethos of the Internet, where it seems to be your right to get everything cheap and fast. But for now, the Internet has met its match: Hollywood.

“When I started in this business in the early 2000s, it was technology — the actual delivery of video in high-definition over the Internet — that was the impediment to creating these services,” said Blair Westlake, who until earlier this month was Microsoft’s executive in charge of media licensing. “Now the devices and broadband speed aren’t an issue. The problem is the business side.”

He added: “There is a little bit of never say never — as consumer tastes change, there is a path you can see this business changing, and maybe someday somebody will come along and say we’re going to create something like a Spotify for movies. But it won’t be over the next five years.”

The main reason you won’t see a comprehensive, all-you-can-eat movie plan soon is something called “windowing,” the entertainment industry term for the staggered way movies are released to various outlets.

Like salmon, Hollywood movies are governed by rigid life cycles. First, a movie is released in theaters. A few months later, it heads to second-run outlets like airlines and hotel pay-per-view, and later it goes to Blu-ray, DVD and digital services that allow you to purchase or rent films à la carte.

Then, about a year after a film’s theatrical release, trouble kicks in. That’s when a movie is made available to pay-TV channels like HBO, Starz and Epix. These premium periods are exclusive; when a movie gets to a pay channel, it often can’t be shown on any other streaming service. This usually means it gets pulled from à la carte rental services, too. Right now, HBO is showing “This Is 40,” “The Hobbit” and “Moonrise Kingdom,” among other titles. Because of the network’s exclusive hold over those titles, you can’t rent those films from any other digital service.

Windowing also explains why Netflix’s movies feel so old. It takes about five to seven years after a movie first hits theaters for all its pay-window restrictions to expire. Only then does it become available to all-you-can eat services like Netflix. These salmon aren’t spring chickens.

Why are movies released in this staggered way? And why can’t the system change to accommodate an all-you-can-eat plan? Money, of course.

HBO and other premium networks have agreed to pay billions of dollars for the exclusive run of major studio films. HBO has said that, despite the cultural cachet of its original programs, movies are its most popular content; consequently, it has purchased rights to about half of all the movies released by major studios in the United States until beyond 2020. At least in this decade, then, a monthly movie plan that offers all of the movies isn’t going to happen.

As Netflix has grown, it has begun to compete with premium channels for certain studio deals. This has led to speculation it’s aiming to snap up all such deals so it can one day create a truly great, comprehensive movie service.

But Netflix isn’t promising such a move. Last year, in a memo outlining its “long-term view” of its place in the future of media, the company said it “can’t compete on breadth of entertainment,” and instead described itself as a “focused passion brand.” Again, money is a hurdle. Snapping up rights to lots of movies will be expensive, pushing Netflix to raise its prices. It’s not clear if customers will tolerate that.

“People often ask us, ‘Why can’t you charge me $20 to give me everything I want?’ ” said Jonathan Friedland, Netflix’s chief spokesman. “The answer is, at $20 you still wouldn’t get everything you want — and we’d lose half our customers.”

This doesn’t even address the further complication of television shows, whose rights are governed by a completely different windowing regime from that of movies. Mr. Friedland noted that unlike movies, multiyear TV series could get more popular with age. This gives networks an incentive to gain long-term exclusive rights to popular shows, which is why Netflix and Amazon have been competing with HBO to create their own original series.

But exclusivity breeds fragmentation. The more companies we have creating exclusive content, the more different services you’re going to have to choose between or pay for.

“Just like there’s no one TV network that gives you everything, there’s not going to be one app that gives you everything, and we know that’s frustrating for the consumer,” Mr. Friedland said.

But there isn’t much Netflix can do to address that disappointment. If you want to get access to a lot of content — from top-flight TV dramas to new movies to sports — you’re going to have to pay for several services. You’ll choose between Netflix, HBO, Amazon Prime, basic cable, Hulu or Showtime. Or maybe you’ll just get all of them.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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