Netflix Is Killing the Movie Business

Unless you're a huge fan of superhero movies, 2013 has been an exceptionally bad year for film. Summer blockbusters like After Earth and The Lone Ranger bombed at the box office, while films such as The Hangover Part 3  and Jobs were universally panned.

But as bad as film has been in 2013, TV has been just as good. In large part, that's due to Netflix (NASDAQ: NFLX  ) . Both for its own original programming (House of Cards, Orange is the New Black) and for its catalog of shows from other networks (Breaking Bad, Mad Men, among others).

In a world where serialized TV series trump films, the winners look to be Netflix, AMC Networks (NASDAQ: AMCX  ) and HBO (whose parent company is Time Warner (NYSE: TWX  ) ).

The VOD revolution
If there's one factor that's driving TV's dominance, it's video-on-demand services. Breaking Bad's creator, Vince Gilligan, told Bloomberg that if it wasn't for VOD, his hit show might've been cancelled in its second or third season.

Breaking Bad is a highly serialized show, where one episode often picks up exactly where the previous one left off. It's almost impossible for a viewer to just start watching in the middle of a season -- if you're going to enjoy the show, you have to start from the beginning. Other popular shows like Homeland and Game of Thrones follow a similar format.

Netflix has benefited from this trend, making old seasons of currently running programs available to its subscribers. It has also pushed the format to its logical conclusion, offering its own original programming in full-season blocks.

TV shows to replace film
Kevin Spacey believes this format represents the future of video entertainment. In a speech at the Guardian Edinburgh International Television Festival, he argued that this kind of long-format, on-demand TV show was ideal for storytelling:

I predict that in the next decade or two, any differentiation between [film and TV] will fall away. Is 13 hours watched as one cinematic whole really any different than a film? Do we define film as something being two hours or less?...And the audience has spoken. They want stories. They're dying for them...they will talk about it, binge on it, carry it with them on the bus and to the hairdresser, force it on their friends, tweet, blog, Facebook, make fan pages, silly jifs, and God knows what else about it. Engage with it with a passion and an intimacy that a blockbuster movie could only dream of.

Obviously, Spacey is a bit biased, given that he stars in House of Cards, Netflix's new hit show. But he's also appeared in dozens of Hollywood movies, and has won two Academy Awards.

AMC's original programming is fantastic
House of Cards is a great show, but AMC's Breaking Bad and Mad Men are just as good, if not better. AMC doesn't have much of a digital-distribution platform but owns the rights to some fantastic content.

AMC has been a great stock to own over the last year -- shares are up nearly 60%. That rally has been prompted by impressive financial results. Most recently, AMC reported better-than-expected results for the second quarter, with net revenue increasing 16% from the prior year.

On its most recent earnings call, management cited AMC's original programming as being a key driver for the company's performance, citing Mad Men and The Killing specifically.

HBO started the trend
And while AMC may have risen to prominence in the last few years, HBO has been doing it for well over a decade, with The Sopranos starting the trend back in 1999.

HBO is just a part of Time Warner, but it's a pretty significant chunk. Unfortunately, Time Warner doesn't break out HBO's results from its other networks, but the last time it did, in 2009, HBO generated about 15% of Time Warner's revenue (as per Forbes). Granted, 2009 is several years ago, but given that HBO's base of domestic subscribers has remained relatively stable -- near 30 million -- over the past few years, HBO's performance likely hasn't changed significantly.

But perhaps HBO could grow its subscriber base if it offered the network as a stand-alone product similar to Netflix. HBO's app, HBOGO, is -- from an interface perspective -- every bit as good as Netflix, and can be accessed by anyone with an Internet connection.

But you need a cable subscription to sign up for HBOGO. There have been rumors that Time Warner is considering offering HBOGO a la carte, but to date, management has downplayed that possibility.

Investing in a post-film world
If 2013 is any indication, the future of video entertainment lies with television -- not film. The rise of VOD services like Netflix has made highly serialized programming possible, and from a storytelling perspective, a long-format TV show has advantages over a relatively short film.

Obviously, Netflix benefits both as an owner of content and a platform for older shows from other networks. AMC is more of a pure play on the actual content, while Time Warner's HBO subsidiary is a mix of both. Nevertheless, all three stocks should benefit if this trend away from film and toward TV continues to play out.

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Read/Post Comments (29) | Recommend This Article (3)

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  • Report this Comment On September 04, 2013, at 7:21 PM, 45ACPbullseye wrote:

    This has been the experience of our household, and most of our friends. Great insights. Best, Bill

  • Report this Comment On September 05, 2013, at 10:57 AM, alwayseeking wrote:

    What is the next Netflix? The founder is a visionary that should be considered in Steve Jobs realm of thinking and vision!

  • Report this Comment On September 05, 2013, at 10:21 PM, SuntanIronMan wrote:

    After Earth was predestined to be an awful movie. The movie was created by Will Smith, Jada Pinkett Smith and Jada Pinkett Smith's younger brother for the purpose of turning Jaden Smith into a famous movie star.

    I can't remember a major Hollywood movie that had this level of nepotism. I am surprised they didn't try to give Willow Smith an executive producer credit.

    Somehow though, After Earth was a box office success. It apparently made $240 million worldwide with a budget of $130 million.

  • Report this Comment On September 10, 2013, at 6:47 PM, xocjc2002 wrote:

    So, how do you reconcile your theory with the fact that the 2013 Summer box office has brought in a new record of more than $4.672 billion domestically and that 17 of those "films" (soon to be 19) have crossed the $100 million mark domestically? That's also a new record, by the way.

  • Report this Comment On September 10, 2013, at 6:59 PM, Sharbecca wrote:

    The movie business has been killing itself since 1963. When Elizabeth was paid one million for Cleopatra then every star wanted big bucks and this was eventually passed on to ticket prices for movies. People just can't afford to go to movies like they used to, I know I can't. I may have to wait for new movies but I watch an average of 12 a month for 12.99 and don't have to drive anywhere to use gas. Movies cost more to make which includes the ridiculous amounts paid to some stars whether they can act or not.

  • Report this Comment On September 10, 2013, at 7:28 PM, jhs39 wrote:

    There is nothing in the body of the story to support the headline. The movie business is basically killing itself by making it too expensive for the average family to enjoy on a regular basis. One woman at work I know took her daughter to see the last Silent Hill movie for her birthday because they're all big horror movie fans. She allowed her to bring two friends since it was a birthday gift. Between the tickets, the 3-D surcharge and refreshments she ended up spending close to eighty dollars. She took her family to see one movie all summer because movies are for holidays, birthdays and other special occasions. They aren't a regular form of entertainment anymore. Even so, the box office supposedly set a record for total revenues this year and there were a large number of hits films so the premise that Netflix is somehow killing movies doesn't really hold up to scrutiny and there is no attempt to really make this argument in the article. Are people staying home because there are good things to watch on television? Not if there's something they actually want to see in the theater and they can actually afford to go.

  • Report this Comment On September 10, 2013, at 7:36 PM, JoeLemon wrote:

    Movies are breaking records every year with how much they make, but the movie industry is being killed.

    Does anyone on here do more then 5 mins of research?

  • Report this Comment On September 10, 2013, at 7:57 PM, MarkHoppus wrote:

    Then why did 5 comedies break the $100 million mark this summer?

  • Report this Comment On September 10, 2013, at 8:24 PM, Nocturneking wrote:

    I believe that there could be some truth to this however i also feel as if the movie industry is hurting itself by producing all the crap they put out.It seems all they want to do these days is come out with remakes of movies from the past that were fine the way they were and stupid comedies (Don't get me wrong i like comedy,however there are only so many times i can see an Adam Sandler film) for example.I also feel that that are either afraid or unwilling to take risks like independent films do.

  • Report this Comment On September 10, 2013, at 9:12 PM, Speedracer69 wrote:

    Lets face it, the cost to go to the movies anymore is insanely high Netflix is a better alternative to sit back with your family without being bombarded with non stop commercials. You can't fix greed which is why I enjoy Netflix :)

  • Report this Comment On September 10, 2013, at 9:18 PM, Burstedbladder wrote:

    Netflix Is Killing the Movie Business

    -----------------------------------------

    Typical of the Hollyweird people to blame someone else for their lousy films not making it.

    jussayin-

  • Report this Comment On September 10, 2013, at 9:24 PM, JennyBeds wrote:

    Here is a short list of the things "killing the movie biz":

    1) Ridiculous box office ticket prices combined w/ insane refreshment prices.

    2) Poor scripts (seriously ... a studio could invest in writers rather than rebooting another old tv show).

    3) A complete disregard for quality, integrity, or respect for the intelligence of the audience.

  • Report this Comment On September 10, 2013, at 9:51 PM, centuryparakeet wrote:

    I agree with JennyBeds fully!

    The studios are stepping in and trying to 'adjust' movies to be acceptable to the wider market. They are downgrading everything to PG-13, and adding in as many things to make it palatable to EVERYONE that it ends up that NO ONE likes it!!!!!

    It is a tragedy how they are ruining their own movies and blaming Netflix. In a few short years Netflix will fail because all they have for us to view is the crap Hollywood is putting out now. That is why they are taking matters into their own hands. Think about it.

  • Report this Comment On September 10, 2013, at 9:52 PM, atrudd00 wrote:

    You said that "The Sopranos" started the serialized storytelling trend.....??? Do your research, pal! "The X-Files" was doing it 20 years ago (1993).

    Silly rabbit, Trix are for kids....

  • Report this Comment On September 10, 2013, at 9:59 PM, BLOGGERSUCK wrote:

    As a thriving member of the film community? You've done so little research for this article it's sad. Every year the film industry thrives... don't get me wrong? Television makes quite a bit of money as well? But they have and always will work in tandom. The popularity of television series today isn't much different then ten years ago... and it still has to face the blades of cancellation if seasons don't fair well.

    Not to mention each episode often costs as much if not more then one movie in many cases.

    There are more films out there banking incredible ROI that don't have a studio badge, what you didn't bother to research is how the indie realm is banking incredible returns for investors right now. Four major studio releases do NOT define the industry enough to condemn the entire collective... your comment, "If 2013 is any indication, the future of video entertainment lies with television -- not film." is BS.

    Just so it's easy for the headline readers that are as lazy as this guy? Check the numbers here: http://www.the-numbers.com/market/

    2013 is already 1.2 billion ahead of 2012... and we haven't even hit the Christmas Season.

    Stop treating your sorted opinion as fact if you can't do your job right as a blogger. $11.16 Billion in revenue and growing sounds pretty successful to me...

  • Report this Comment On September 10, 2013, at 10:03 PM, BLOGGERSUCK wrote:

    @Atrudd

    What about Zena, Hercules, Star Trek (1970's anyone?), CSI, Dr. Who (first version), 21 Jump Street... etc etc.. HBO started it... yeah.. o.O

  • Report this Comment On September 10, 2013, at 10:10 PM, BLOGGERSUCK wrote:

    Oh and side note... you don't just "invest in a TV series"... but you would know that if you'd done that silly research thing I mentioned.

  • Report this Comment On September 10, 2013, at 10:46 PM, Sevenpenny wrote:

    Honestly? The movie industry have no one to blame but themselves. They continually put out the same tired drivel year after year.... How many sequels of a movie do we need? Movies need to engage and entertain an audience... not just be mindless entertainment where you have to leave your brain at the door.

    I am glad that television executives have woken up to the fact that its audience is sick of all the dumb game shows that attempt to mimic each other with less and less success. How many more years of Survivor and American Idol will be forced down out throats? All these "reality" shows that have a winner are NOT reality shows... In fact they are Game shows...

  • Report this Comment On September 10, 2013, at 10:59 PM, myka1319 wrote:

    Ticket prices,concessions, annoying people talking or texting during a movie & crappier over-hyped movies is what's killing the movie business. Home Theater has been slowly hurting the business since DVD'S came on the scene in the late 90's & now with Blu-Ray Home Theater systems properly set-up can rival movie theaters. Release dates of movies are so short now lots of people just wait until it's available to watch at home. Netflix is a added bonus that continues the trend of people preferring to stay in the comfortable area of their own home instead of spending mass amounts to just go to a movie.

  • Report this Comment On September 11, 2013, at 12:34 AM, Skillet06 wrote:

    If you like Netflix, then you should try Hulu. I wasn't a big fan at first, but when i realized i could watch any episode of a T.V. show i missed the day it aired the following day i was hooked. I still really like Netflix

  • Report this Comment On September 11, 2013, at 12:35 AM, Skillet06 wrote:

    Oh yeah, I don't go see movies at the theater often either because of the outrageous prices.

  • Report this Comment On September 11, 2013, at 12:45 AM, joshag wrote:

    2013 has been a GREAT year for film.

    Year-to-date figures show 2013 has finally caught up with and passed 2012′s box office numbers, in both gross receipts and ticket sales. Audiences are also showing up at a rate 7% ahead of 2012, and the summer in particular has been an enormous success — up more than 10% over last summer.

    (per Forbes article dated 8/17/2013)

  • Report this Comment On September 11, 2013, at 1:37 AM, atrudd00 wrote:

    I will say this... I'm in the film business, and I say this article is wrong in many ways. Netflix isn't killing the business... Here's what is...

    The prices of tickets to a theater is getting embarrassing... The food... Yeah... But the ticket prices! Here's the mindset to movie-goers... I can wait two months for it to come out on blu-ray (at the same price of a movie ticket), own it forever, and watch it in super high-definition on my 60" at screen all in the confines of my own couch where I don't have listen to @$$holes talk or forget to turn their cell phones off.

    Because of this... Movie theaters are potentially going to be a thing of the past in 10-20 years. They'll be as easy to find as a drive-in theater (remember those?).

    Here is what is killing television (even in a golden age)... Lack of commercials... Let me explain the Nielsen Ratings system... Cable companies talley which shows have how much viewership at certain periods of time. The more viewers, the more it cost to pay for a commercial spot for that program. The commercial companies pay the networks, the networks pay a portion of that to the studios, the studios pay the directors, producers, crew, and actors (me) for our product....

    With people trying to get away from watching commercials, there's less dollar being given for productions... It's a cycle, folks.

    If I could of made a modest living doing stage acting in Seattle, then I would of. However, if I want to make a living doing what I love, the. I have to go to Hollywood to do that. If the commercials go, then there's not going to be any real pay involved, and the willingness to risk my entire future on a pipe-dream that would pay NOTHING (because nobody wants to watch the commercials) would go down the tubes.

    Eventually... No television/film...

    So I guess I'm saying... WATCH THE DAMN COMMERCIALS!!!!!! :)

  • Report this Comment On September 11, 2013, at 4:23 AM, RMengineer wrote:

    So to all you people who think you are so clever to point out how GROSS revenue is at record levels - one simple question is what is the NET revenue? That is, after subtracting record production costs from record gross revenues artificially inflated by record ticket costs, how much is actually left in actual profits? And don't forget to also subtract out all the distribution and advertising costs.

    So a film pulls in over $200 million in GROSS revenue, what good is that when it cost $200 million to make, and had a multi-million dollar advertising campaign? So GROSS revenue means _nothing_ as to whether a movie is a winner or a _loser_. Even record GROSS revenue can still end up being a NET loser if those GROSS revenues are outstripped by costs to generate that revenue.

    A quick search has not turned up numbers for actual NET profits. But it did turn up a list of box office bombs. There are FIVE listed for 2013 - a 3-way tie for most number of losers in a year, and 2013 isn't even over yet. All of them brought in over $100 million and yet they LOST money for the studio. And in inflation adjusted dollars 2013 has _two_ bombs in the top 10 biggest bombs of all time - no other year has more than 1.

    In fact going back John Carter, it drew in over $280 million in GROSS revenue yet still LOST over $100 million.

    And that is part of the problem - studios are putting record budgets to movie production thinking they are going to _manufacture_ a franchise. _The Lone Ranger_ is the poster child for this failure. The production budget was over $225 - $250 million. The simple reality is that most movies that actually make money for a studio _and_ generate a franchise are almost always made for far less. But the studios are _now_ gambling they are going to manufacture a franchise so they sink massive budgets into the endeavor, like with _The Lone Ranger_. And then it fails. And the result is that despite the fact that it brought in well over $200 million it was still a NET LOSER.

    So despite "record" _gross revenue_, Hollywood is still starting to look like a sinking ship when you consider the epic failures and losses they have been racking up.

  • Report this Comment On September 11, 2013, at 8:25 AM, BigDadd132 wrote:

    Horrible movies, lack of imagination and originality and gouging at the theater is what is killing the movie industry, not Netflix. I'm done paying 11 bucks for a ticket to eat 9 dollar popcorn while watching the big screen adaptation of some cheesy 70's TV series or remake of an 80's classic that was good enough it didn't need to be remade.

  • Report this Comment On September 11, 2013, at 9:58 AM, tito283 wrote:

    @joshag "WATCH THE DAMN COMMERCIALS"? what are you a dinosaur? Commercials are becoming a thing of the past. Smart TV's are now capable of utilizing Product placement as a replacement for "regularly scheduled commercial breaks. google MTEVideo, if that technology is integrated into all smart tv's everybody wins. I will no longer have to watch dumb commercials and hear annoying jingles. networks will get paid for ads, and advertisers will have that impulse buyer drooling over that nice dress that their favorite actress is wearing. the entertainment business should catch up with the new millennium, they are still using the same techniques that were used when TV programming first came to be.

  • Report this Comment On September 11, 2013, at 4:47 PM, atrudd00 wrote:

    @Tito, I wrote that. Get a clue. Commercials pay the bills. But you know everything don't you? Because you're in the industry, right?

  • Report this Comment On September 11, 2013, at 7:22 PM, xocjc2002 wrote:

    GROSS revenue is a reflection of how many people go to the movies and since prices haven't changed much since 2012, it looks like more people will go to the movies in 2013 than did in 2012. That hardly seems like a sinking ship.

  • Report this Comment On September 11, 2013, at 9:40 PM, DevonShire123 wrote:

    No idiot, obscene ticket prices are killing the movie business.

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