Netflix is bad for the film business.

Emily Best
Aug 31, 2018 · 10 min read

There. I said it.

This is meant to ruffle some feathers and stoke what I hope is a meaningful discussion. But, like, keep it cool in the comments and stuff. We’re all just here to play make believe, at the end of the day.

The film business has never been good at audience data. Permit me a very, very simplified version of film history, for data’s sake:

100 years ago, you pushed a nickel through a window for admittance to the movies, so producers had no idea who was coming to the movies. Also, things like massive segregation and Jim Crow laws would have corrupted any audience data you gathered in the first place. If certain people who might have been interested in going to the movies simply weren’t allowed, or didn’t have financial or geographic access, you’d miss some important data. (Has much changed, really?)

Image via Shorpy.com

CUT TO: a few decades later, they put these boxes in everyone’s living rooms called televisions, and you could watch whatever you wanted and nobody would really know.

Fun fact about me: I have seen Wizard of Oz about 200 times.

Nielsen started aggregating viewership behavior on tv in 1950 so a producer/studio/advertiser might be able to know roughly how many people were watching something, but not really who was watching what. They planted spy boxes (I mean, people volunteered to be spied on) and then some extrapolations were made from the data gathered, but none of it drilled down to who was watching, and how they decided what to watch. It was fine data for selling ads against shows in a really general way, not for really driving audience behavior. Aggregate data is only sort of useful — until really specific data exists.

It was in this environment where nobody really knows what the audiences really cared about or how they found what they wanted to watch, or how they would prefer to watch things that film marketing emerged using a lot of gut instinct, social bias, and historical data. And that historical data was also already corrupted by things like social bias, so the “tried and true” methods for marketing films have been based on a corrupt data set that has led us to films about white guys being for EVERYONE and films about anyone else being “niche.” Even films about, like, women, who are 51% of the population.

So we ended up in an environment where film marketing was really about how much was spent to market a given movie or show, and that spend was allocated based on how other movies and shows had performed before. And those things performed before based on spend, which was determined by historical data which was corrupt, and so on, and so on…

Then the internet came along, and this should have solved all the really expensive problems of the business of film — we’d be able to understand our audiences in real time (!), build better content green-lighting models, better and more efficient ad spend models, and even more efficient production mechanisms that respected the changing viewership habits and the actual demographics. (I say actual demographics because a lot of films are marketed based on assumed demographics and they’re flat wrong — if you were paying attention to actual film ticket purchases, you’d be paying a lot more attention to women, and specifically Latina women.)

But the people in charge of the business of film got a taste of what was to come when the internet’s powers hit the music business first. Almost overnight, it decimated the kind of IP protections and CD profit margins the powers that be had enjoyed. (Who among us did not expand our musical taste thanks to that glorious year or two of Napster?)

Oh how this changed my college experience overnight. (This is not an image from MY Napster use.)

Hollywood was just SO enjoying those $12 per DVD profit margins and dictator level control of information and IP rights. So rather than adopting the internet as a huge opportunity to reduce costs and create more efficient and effective marketing models (that relied on data instead of some head honcho’s gut instinct), they looked at what happened to music and attempted to fight against the internet, considering it a threat to their big business of IP and DVDs.

Netflix saw this shit coming, you guys, and they were ready. They had helped the studios expand and extend the profits of DVDs with their rental business, so when they went to them to license content for this crazy “streaming only” idea, they were well positioned to do so. And the timing was right. Global syndication deals were drying up at the end of the 2000s, so when Netflix came knocking to license those rights and pay handsomely, the studios signed up.

And those deals came with an important clause: just like all your other syndication deals, we (Netflix) will ALSO not provide you any audience data.

And the studios were like, Yeah, so what? We’re IP businesses, not IT businesses — leave the data to the nerds!!

And that set the precedent we have today. The platforms have the data. The producers do not. In fact, the distributors don’t even have it. And this is a big, big problem.

It isn’t a problem reserved for the publicly traded companies or mega distributors alone — if you’re working in the business of making films, it’s your problem. Here is the thing. Starting in the late late 2000s, film distribution, especially independent distribution, was in for a big surprise: SURPRISE! You are internet companies now! The vast majority of the sales of your films will happen online (ticket sales, digital sales, etc). And there is ONE THING you need to be a successful internet company: you have to have transparent access to your sales funnel. You need to be able to see the who, what, when, where and why of purchases of your product in real time so you can effectively and efficiently iterate your marketing tactics.

If you’re an independent creator, producer, distribution company — even if you’re a studio — and you are distributing your content on a platform you don’t own, you don’t have that data. Sure, the platform might tell you how many views you got, often three to six months after the fact. But you won’t know which marketing channels were effective, which ads people saw that motivated them to buy, which expensive marketing campaign is yielding NO sales whatsoever. You will also not learn anything about the behavior of your audiences you can put in your pocket for next time. You will not capture their information when you sell them this movie so you can be sure to let them know about the next one. You start from zero with every new film.

This is massively inefficient for everyone from the independent creator all the way up to the studios. The difference is, the studios have $200M marketing budgets they can use to overcome these inefficiencies. (And, if you look at their hit rate, they’re not that good at it…)

Netflix, meanwhile, has all this data and more. And they’re not just using it to make better content greenlighting decisions and building recommendation algorithms that are as good as predictive machine algorithms will ever get for human content consumption (which is to say: meh), they’re eating everyone’s lunch in programmatic ad buying. Buying ads on the internet to surface content to consumers is largely based on bidding. The price goes up for popular, effective keywords as demand increases. That bidding gets more efficient the more you know about your audiences because you can get more specific and targeted with your keywords. So having your audience data in real time actually helps you beat out your competitors not just in ad targeting but even in pricing.

Awww shiiiiittt. Competitive advantage, dudes. (Article from AV Club)

So, what has happened in the last year? Massive consolidation. In order to compete in an environment where audience data is needed to keep up, studios are joining forces with internet service providers (see: AT&T merger with Time Warner) or gobbling up platforms (Disney acquisition of 21st Century Fox ) so they have their own competitive advantage. And can anyone name a point in history where the massive consolidation of the big players in a business was good for the little guy? Maybe for the shareholder, sure. But not for the creator. And not really for the consumer. (If you don’t yet understand or care about net neutrality, now would be a good time to read up and get fired up.)

To someone trying to sell a movie or show to a platform, it might feel like there are a lot of buyers in the marketplace right now, but at this current rate of consolidation, there could be really only a few major buyers inside 5 years. (Imagine, if you will, that Netflix decides the only way they can really pay off their $20+ billion in debt and liabilities is to sell to Apple or Google. Imagine.)

So where does that leave the independent creator, really?

We believed that the internet would be the promised land for empowering the independents to be truly independent. And in some ways, it has been. We’ve been able to build audiences behind webseries that become popular network television shows. But those are the exceptions, of course. The creators do not own the relationship to the audiences they’re building on most platforms. Youtube owns those audiences. Youtube knows a lot about those audiences that could be crucial to a creator building their career. But Youtube gets to decide how much data you get about your audiences, and then it also gets to decide how much ad revenue you get against your content — and they can change those rules at any time. Ditto Amazon. Etc. Etc.

Netflix owns every piece of audience data around what you distribute with them. They share none of it. So if you’re negotiating with them (and you’re not already a big name), what on earth is your leverage? If they want to renew a license, how can you fairly evaluate the price they’ve set? If you make a small original movie with them that doesn’t garner a prestige festival slot or a major marketing campaign, what will you have to show for it? You point to a buried title? What will you say to your next investor? Look, I did that!

We thought the internet would make us wildly more independent, but in an environment where the buyers own all the data, and massive consolidation is reducing the number of buyers, are we really independent? Or are we getting increasingly dependent on a narrowing number of buyers whose power is consolidating the more IP they buy, audiences they gather, and data they collect? All creators are internet entrepreneurs now, only we don’t have the most basic tools typically available to an internet startup to measure and understand our audiences. A direct connection to your audience that you can measure, expand, make more efficient, and repeat is how business is won on the internet. The data about your audiences is also how you garner investment and brand deals for your next film. If you gather enough audience, you can also sell directly to them, but only if only you know who they are.

The internet should allow us, as creators, to stop being in the business of competing for market share (deals, agents, networks) and allow us to be in the business of creating markets. This is why years ago I staked my professional life on crowdfunding. It’s still one of the only methods filmmakers have to build a clear, monetizable relationship with an audience in advance of a film or show getting made. It’s some leverage. And it’s an audience that doesn’t disappear from you once you sell your movie or show. That’s YOUR audience. If you’re making something for an underserved audience, or about a geographic region we don’t see on screen much, or you’re making something so new you’re bringing together an entirely new interest group — you’re creating a market. And I’m of the unpopular opinion that that new market you create should belong to…you!

It’s why at Seed&Spark we’re choosing to be transparent about our streaming data with our creators, so if they wanna hook up Google Analytics to learn more about how audiences are finding them, they can do that. We want to be a platform for small internet companies of creators to create new markets and build sustainable businesses of them. We’re fighting for this opportunity for true independence because we’re scared that if we don’t, we’ll lose it altogether.

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So what do we do? What CAN we do? I want to leave with you a few radical propositions for fighting data consolidation. I know they are pipe dreams, but just dream with me for a moment.

1. SAG-AFTRA puts a clause in all performer contracts that performers are entitled to access to the streaming data of anything they perform in. Imagine if your SAG residuals could actually meaningfully track streaming use. IMAGINE IT. YOU CAN’T. IT’S TOO MAGNIFICENT. After the inclusion rider, you attach your data rider. That could force transparency on the industry, like, tomorrow.

2. Blockchain-enabled IP management for all content so every creator has an iron-clad record tracking use worldwide. Why studios are not pushing hard for this, I still don’t know. There are entrants into this marketplace, and it will require consumers to get on board also, since blockchain requires all participating parties to be on board. There are entrants in this marketplace, we’re watching closely!

3. Create a national day of action. No creator sells or distributes their content in a deal that doesn’t include data transparency. The thing is, you guys, there is no film business without the creative content. We CAN set the rules, we’d just have to do it together.

Comment below with your most radical ideas. Then let’s start working on them together.

Emily Best

Written by

Founder&CEO @seedandspark. Mom. Persistent AF. Co-Creator of @FckYesSeries