Netflix isn't a monopoly. It's just in a changing industry

Beware the Netflix monopoly — that’s the message the film and television industry is spreading, according to a feature this past weekend in The Hollywood Reporter.

The streaming company’s power is growing to the point where everyone should be nervous, according to talent agents, cable executives and creative types. The future of entertainment is apparently in danger of falling into the hands of one company, they say.

Such fears make good headlines but it’s difficult to see how Netflix is even close to becoming a monopoly in any sense of the word.

Some of the complaints levelled against the group are understandable and possibly even actionable, but even in aggregate its doesn’t add up to a monopoly.

Let’s start with the cable networks, the standard-bearers of traditional TV and therefore Netflix’s direct rivals. Their gripe is that the streaming giant is spending a pile of money — US$6 billion this year alone — on creating and acquiring content from studios.

There aren’t many networks in the world that can compete with that kind of spending, so yes, they have a problem. If networks can’t acquire the best shows, more subscribers will continue to ditch traditional TV in favour of streaming. Their rhetoric is pointed as a result.

“I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 per cent share in storytelling,” said John Landgraf, the president of FX Network, at an industry conference in July.

But that’s not at all what’s happening. Netflix has plenty of competition in its major markets and new rivals are popping up in many countries at a rapid pace.

In its key US market, Netflix is up against fellow heavyweights Amazon and HBO. Amazon is spending about $3bn on content this year and HBO at least $2bn. In the UAE, there’s OSN Go, Starz Play Arabia and icflix — smaller players, but they’re all also spending cash to acquire content.

There’s no monopoly at play here. Cable networks are just mad because they’re not necessarily the studios’ main customers any more.

Talent agents are also complaining that Netflix is cutting actors and directors out of lucrative after-the-fact royalties in exchange for upfront payments. Creative types aren’t happy that the company isn’t allowing them as much freedom with their shows as it used to. They also don’t like how jealously Netflix guards its viewing data.

On that last point, the company will probably have to make changes. It will indeed be difficult for creators to negotiate deals if they can’t tell how many people are watching their work.

The rest of the complaints, though, sound like the typical pains of a changing industry.

That does not make Netflix a monopoly.

A monopoly is a single entity that, through its tight control of a market, can arbitrarily set prices and other terms of service for suppliers and consumers. That’s not happening on either end because Netflix is feeling its own pinch.

The company is having to spend billions on exclusive content to differentiate itself from other streaming services. It also can’t raise prices too much or subscribers will revolt. It’s facing a natural ceiling — albeit an unknown one at this point — on how much it can spend, and therefore outspend, its rivals.

Netflix is still adding subscribers and has some room to raise prices, but at some point its natural growth opportunities will end. As a publicly held company, there’s a likelihood it will then have to move into other businesses to keep growing.

In the long run it could end up a lot like Amazon, a company that was also once feared for its supposed monopoly of books.

Amazon last year negotiated new deals with publishers that gave them more control over e-book pricing. Digital sales have dropped since and print books have rebounded.

In the meantime, Amazon has diversified into numerous other businesses, including cloud infrastructure and even grocery deliveries.

It’s increasingly looking like books don’t even matter much any more. So much for the monopoly fears.

One test of whether a company is a monopoly or not lies in how it is viewed by its customers. Amazon and Netflix are both beloved brands that consistently score well in customer satisfaction surveys, largely because they efficiently deliver products and services at fair prices.

Has the traditional TV industry, so concerned about a Netflix monopoly, ever done that?

The week’s winners and losers

Winner of the week: Self-driving cars. The future is arriving faster than most people thought. Uber has deployed self-driving taxis in Pittsburgh — with human ­engineers still along for the ride, just in case — and the United States government has published rules that will govern autonomous vehicles, finally giving structure to the rapidly emerging market.

Loser of the week: Pokemon Go. It was the smash-hit game of the summer but Pokemon Go seems to be in decline. Not only has the game lost millions of players since its launch a few months ago, it was booted out of the top spot in the iPhone app store this week by Clash Royale, another game from Finland’s ­Supercell, according to the ­analysis company Sensor Tower.

Peter Nowak is a veteran technology writer and the author of Humans 3.0: The Upgrading of the Species.

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