Netflix and Hollywood: An Unsustainable Alliance

Author: Eugene Jang, Graphics: Nina Tagliabue

The BRB Bottomline

Every movie and show Netflix produces nowadays seems to receive the media attention once reserved for exclusive Hollywood films from studios like Walt Disney Co. and Paramount Pictures. This article investigates this steady rise in popularity for streaming services, as well as the implications to follow suit for producers, actors, and the popular culture industry as a whole.

Duolingo, a popular language-learning app, reported a 40% increase in U.S. learners studying Korean compared to last year. This interest in Korean has also been seen in new Korean additions to the Oxford English Dictionary, a spike in BTS viewership, and other such phenomena. Without question, this sudden wave of attention to Korean culture is not due to chance, but is rather an implication of the rising popularity of Korean films and shows available on streaming platforms, including Squid Game, Parasite, and Memories of Murder, that have gained popularity recently. The list of Korean Netflix originals that have caught the international audience by storm and boastsStart-Up, Hometown Cha Cha Cha, and D.P. These are but a few of the many successful K-Dramas that have made it to the international stage.

Netflix asserts its position as a market leader in the streaming industry as it influences popular culture worldwide. Previously, this cultural influence was mainly attributed to films released by major Hollywood studios. Seeing this rise in Netflix’s global influence, it is clear that the film and show industry is undergoing a dramatic shift in market power. As an avid fan of both production groups, I had to take upon the task of investigating market trends and projections for the future of film.

The World, Pre-Netflix

Heading Out to the Cinema

Many relish the experience of going out to a movie theatre as an occasional pastime. The smell of buttered popcorn, $10 snacks, and worn-out leather seats strike a universal chord for those who grew up watching films in person. 

During the 20th century, movies were a vertically integrated business as major studios (in Hollywood) produced films and ran them on screens from theatres they owned. Box office sales for movies peaked in 2002 at 1.6 billion tickets

Nearly two decades later, the memories of theatre experiences may be a thing of the past.

[Source: Deloitte Perspectives]
No matter how fond these memories may be, this graphic portrays the reality of the status quo. Movie theatres, just like all industries in the present, are being disrupted by a rise in high-tech startups that constantly innovate. The sheer popularity of online streaming platforms is echoed by the 59 million subscriber growth between 2009 and 2017.

Major theatre companies like AMC and Regal USA are among those hardest hit by this downtrend. The decrease of movie tickets sold between 2002 and 2019 sums up to nearly 350 million movie tickets nationwide. This demonstrates an increasingly unattractive market for movies launching in “theatres-only” and the cast members involved in such films. Furthermore, with most of life going virtual as a result of the COVID-19 pandemic, it is clear this trend is likely to continue.

Ever Heard of an Oscar?

The entrance of Netflix as a potential candidate for esteemed Academy Awards and Oscars signaled its rise as a cinema behemoth. The company spent between $40 to $60 million on promoting its Best Director, Best Cinematography, and Best Foreign Film Roma in 2018 to prove it could stand beside the major studios that had enjoyed their oligopoly thus far. In the modern ecosystem of film production, such awards drive consumer attention and have created a snowball effect of popularity for the Netflix Originals that followed. Through milestones like these, Netflix proved it was no longer solely a streaming service and cemented itself in the industry.

Giving Rise to the Platform

A One-Sided Alliance

Ironically, the ones who gave Netflix its rise are the production giants being surpassed right now. In 2008, Netflix entered the streaming industry by purchasing the digital streaming rights of movies from Disney and Sony for the heavily discounted price of $30 million a year. By compiling these movies, along with other Hollywood films from the past, Netflix offered a unique value proposition for moviegoers directly in the comfort of their own homes. As the company skyrocketed in annual revenue and growth, these companies realized they were getting the short end of the stick and raised their prices for streaming rights.

This move was a direct response to the falling popularity of the DVD market which was shrinking year over year. Netflix stepped in to take over the role of the now-unfamiliar entertainment format and realized that the sky was the limit.

Original Productions

Using Hollywood films from the past, Netflix offered a unique value proposition for moviegoers directly to the comfort of their own homes. As the company skyrocketed in annual revenue and growth, these production studios realized they were getting the short end of the stick and responded in one of two manners. The first response was to increase prices for streaming rights, which is what Disney did in 2012. Compared to the $30M price tag they secured in 2008, Netflix had to pay a yearly total of $300M a year for Disney’s films and shows. Out of the companies that raised their prices, a fraction of them went one step further and released their own streaming platforms thereafter: HBO Max and Disney+ being a few.

This sequence of events proved Netflix and Hollywood couldn’t coexist forever. Although the former offered a solution for decreasing ticket sales, both were fighting for limited consumer demand. This move choked the supply of popular content for the rising tech giant, pushing them to consider alternative value propositions for customers. The conclusive decision to create original content was the start of shows like Squid Game, today. 

Consumer Choices and Producer Freedoms

A Buffet of Options

From a consumer perspective, intense competition in the film industry is a positive sign. After all, the battle to capture streaming demand is what brought us Baby Yoda from Disney+, Marvel’s Titans on HBO Max, and You on Netflix. The success metric for streaming platforms centers on whether or not they can keep their viewers subscribed, which pushes companies to supply original content and stay relevant.

How extreme is this supply of new shows and films? In 2019, Netflix released a combined total of 371 movies and shows as originals. For perspective, that figure is larger than the number of original releases by the entire US industry in 2005. In order to please as many customer demographics as possible, this plethora of content draws from numerous genres like Horror, Comedy, K-Drama, and Documentary. Total production spending by Netflix was upwards of $10 billion USD in 2020, covering about 40% of the company’s budget. Furthermore, the release of Netflix originals allows consumers to experience media they would have otherwise overlooked in the pre-streaming era. As long as money is no issue, a myriad of original content is available for film lovers everywhere.

New Opportunities for Producers

The increased supply of movies and shows through streaming services has impacted another group of individuals: filmmakers and producers.

For many filmmakers, Netflix has introduced and funded projects that would otherwise not have been possible or considered. Take, for example, The Irishman: a Netflix original nominated for 10 separate Oscars in 2020. According to director Martin Scorsese, The Irishman was a “risky film” that drove away other production studios until “Netflix took the risk.” Similar situations like these allow creative writers and directors to explore the boundaries of their craft by putting out niche pieces. As a streaming platform costs nearly the same as one movie ticket per month, the pressure is on to constantly churn out hits that can keep customers satiated. In other words, the focus for Netflix is not to create generational films (which are extremely hard to break into for new actors and producers), but to keep the movies coming. This alternative business model means there are more opportunities to hand out.

Not only are many original films more niche than Hollywood pictures, but they are also becoming increasingly diverse. Streaming services allow foreign producers to showcase their work and culture, such as what Squid Game has done for South Korea. As Netflix cannot rely on the content of other studios, it is increasingly creating originals from a number of foreign countries including France, Italy, and Japan. Money Heist, a Netflix original from Spain, is set to wrap up its 5th season after accumulating an impressive fan base, despite being filmed in a non-English language. This season was watched by 69 million households worldwide, a phenomenon that would baffle the Hollywood-dominated 2000s. Aside from foreign films and producers making use of the spotlight, work by African American directors and stars is also getting the attention of streaming subscribers.

Who Comes Out on Top?

The boost in Netflix’s popularity does not necessarily spell the end of Hollywood’s studios. Spectacle movies and theatre-only releases are offerings that major studios are utilizing to keep people going to the cinema. Furthermore, when it comes to box office hits, original studio productions are definitely the ones leading the pack. 

The relationship between Netflix and Hollywood simply comes down to a competitive alliance, wherein the former provides older/less competitive films from the latter to the general public. Hollywood will continue to produce high-grossing films and Netflix will continue to introduce new projects to their growing audience. Although they no longer are working hand-in-hand with one another, they still hold irreplaceable positions in the entertainment industry for now.

Take-Home Points

  • Hollywood films are what gave rise to Netflix’s success.
  • The entertainment industry has shifted from annual box-office hits to monthly original releases.
  • Increased production offers niche content for viewers in all genres.
  • Opportunities for foreign producers and actors are created through competition in the film industry.

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