Netflix Is Not An Internet Business

With the release this month of Netflix’s first official feature film Beasts of No Nation, the rental-turned-streaming service continues to prove itself a fierce competitor in the filmed entertainment industry—not only as a producer of award-winning projects, but as the preeminent, game-changing distributor having a dramatic influence on both traditional distribution models and viewer habits. This is particularly true with works we would normally call television programming, but it should be no surprise to see Netflix, Amazon, and other streaming services jump into the production of feature-length motion pictures. Still, even as Netflix reshapes the producer/distributor landscape, it would be a mistake to call it an “Internet business.”  It’s not. It’s a filmed-entertainment company—one that has followed almost the exact same business model as most cable networks, which built revenues on syndication (very similar to rentals) until they had the resources to begin producing original programming. Hence AMC makes Mad Men.

Naturally, the most profound change in TV viewing effected by streaming technology is the ability to “binge watch,” which is itself a neologism with an unnecessarily negative connotation. Speaking as a guy who abandoned “by appointment” television more than 25 years ago, I have to say that I now do watch TV shows again because of the opportunity to view an episode or two in sporadic moments of free time, though I wouldn’t really describe this as “binging” per se.  It’s really just a more dynamic and more convenient version of time-shifting (first made possible by the VCR), hence it’s easy to see the business logic in releasing whole seasons on a single day rather than one episode per week.  In a subscription model using on-demand technology, time no longer matters to the distributor as a point of access in order to retain revenue from viewers, but this is really the only distinction between a Netflix and an HBO as producer/distributors. And assuming HBO replicates the same model in the near future, this will not make it suddenly an Internet business.

But what is an Internet business anyway?  It may seem obvious, but not if we pay attention to both the colloquial, and even some of the formal ways in which we talk about the Internet. For as long as I can remember, friends and colleagues have been referring to the Internet when it isn’t quite what we mean at all. And I am sure I have been guilty of this lapse in clarity more than once on this blog, though I do try to use the expression Internet industry when writing about behaviors, motives, or agendas of a specific group of major corporations as subjects distinct from the technology itself.

Consider the expression Don’t believe everything you read on the Internet, a cliché that predates our digital times, but one that seemed to take on a new connotation during the dot com days when those bubbly, revenue-free business ventures were grist for a justifiable mill of cynicism.  Of course, neither then nor today would it make sense to dispute the veracity of information that comes through any particular set of wires. If a 20-year news veteran writes a story, it certainly does not matter if her work is published in print, online, or both. In this sense, there is no the Internet, there is only the journalist, her integrity, and her talent.  But that doesn’t stop us, it seems, from occasionally thinking of the Internet as a subjective noun, which can entertain, produce, deliver, swindle, amuse, enlighten, or lie; rather than as something more akin to a prepositional phrase, which creates an association between the individual and one form or another of human enterprise, action, or even folly and predation.  Still, we often say in casual conversation, I got this off the Internet, Look it up on the Internet, or Buy it from the Internet, and so on, entirely dissociating the information, content, or product from the extraordinarily complex, capital and labor-intensive processes behind the ephemeral page.

We talk about connections and awareness in the digital age, but real awareness is often not a byproduct of the consumer-convenience and ad-driven design of Web 2.0. Consider the reductive nature just in the act of buying a smart phone online.  A single click represents mining five metals in at least four countries as well as eight rare earths found mostly in China; international trade agreements; human labor working in conditions of varying degrees of quality; global shipping protected by multiple state navies; and a legal framework of mind-boggling proportion. In the same way many schools and parents have in recent years found it worthwhile to teach children that food doesn’t come from the supermarket, it is perhaps even more necessary to teach them that absolutely nothing comes from the Internet.

With entertainment media, it clearly does not matter whether HBO’s True Blood transmits to a viewer’s TV via one type of signal while Netflix’s Orange is the New Black uses a different transmission technology. This has absolutely nothing to do with the viewer enjoying either program and even less to do with the process of producing these hit shows. And this is perhaps an oversimple, yet relevant, example as to why I think it’s about time we stop reporting the story of the copyright debate as one of Internet businesses vs legacy media producers, or Hollywood vs The Digital Age, or most especially as Creators vs Technology.  As with the smart phone example, copyright is just one component of a legal framework that enables the production of Orange is the New Black and, by the way, the Google search algorithm that makes it convenient to look up information about author Piper Kerman.

It should be abundantly clear that for all the shiny newness of the “Netflix effect” on the industry overall, none of these developments imply any clear mandate for substantive change with regard to a producer’s copyright interests in the works—or with their interest in mitigating the influence of illegal distribution networks (piracy). To the contrary, the fresh diversity of programming and flexibility of viewing options advanced by these new producer/distributors may be even more dependent upon protecting their distribution, derivative, and merchandising rights than with so-called traditional media business models.  Whether the cable plugging into your TV is coaxial or ethernet, the legal foundation that enables production of the shows and films you watch remains fundamentally unchanged—to say nothing of the fact that the technologies themselves are dependent on many of the same legal frameworks.

Nevertheless, the ideological battle rages on, attracting “Internet activists” toward a broad anti-copyright, anti-IP agenda, perpetuating the myth that there is a central conflict between technological or creative innovation and the purpose of protecting intellectual property. The rhetoric of these squabbles distracts from the more subtle—easily misunderstood—points of actual conflict among leading entities. Meanwhile, technological similarities among major players seem to cloud some very important distinctions in business strategies and practices.

Netflix built its business entirely within the regime of licensing existing works, providing a better rental service, staying ahead of consumer demand as high-quality streaming became technologically feasible, and then migrating into original programming.  That’s called being competitive and innovative. And with its production of excellent works in just the past few years, the company has grown its number of paying subscribers to nearly 60 million; it now has a market value just behind that of CBS; and it is rapidly expanding into multiple markets around the world.

The bottom line is that neither individual creators nor major media producers have any quarrel with technology, the Internet, or the future. To say otherwise is just silly. Filmed entertainment in particular is a medium driven from its inception by a robust cycle of technological innovation. Moreover, the major players in the changing market are simultaneously symbiotic and competitive.  Hence nothing about the IP interests of a Disney should be misrepresented as a generic rebuke every line of business in which Google has an interest, let alone as a rejection of technology in general.  It ain’t the tools, it’s how you use them.

© 2015, David Newhoff. All rights reserved.

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