If you talk to a fan of the early days of MTV, it won't take long for them to start ranting about how the channel sucks now because they "don't play music videos." From one perspective, it's a valid complaint. What most people don't understand is that no matter how powerful MTV was at its peak, it was always going to be in danger if it depended on programming that it didn't own (or at least control). Viacom executives understood that at some point the music labels were going to hold them hostage and withhold the videos until the network forked over a huge sum of money. That's just what happened to Google-owned YouTube in 2008, when Warner Music pulled every artist on their massive group of labels off of the streaming video clip web site until YouTube agreed to begin sharing advertising revenue. It's really a well-worn business approach: when you see someone making lots of money, figure out a way to cut yourself into the revenue stream. And it was only a matter of time until it happened to MTV.
Streaming media giant Netflix has been battling some of the same market forces over the past couple of years and unlike YouTube, Netflix has several viable rivals in its space. Once Netflix began building a massive subscription base, owners of the content driving the company's growth began looking for ways to increase their revenue stream and limit what they accuratelty perceived to be competition for eyeballs. In February, 2012, Starz let a streaming deal with Netflix expire and nearly 1,000 titles disappeared from the service. Warner Brothers pulled nearly 2,000 titles off the service in 2013 and launched the Warner Archive Instant streaming service. It's not a coincidence that HOUSE OF CARDS premiered in February 2013 or that Netflix has substantially increased its budget for content over the past three years.
But that increase in spending comes at a price for fans of several genres of television and movies. Original programming is expensive and even Netflix has a finite amount of money it can use to produce and license content. So as the number of original productions has increased on Netflix, the company has been aggressively pruning its catalog and making some hard decisions on where its money can most effectively be spent.
Netflix programming executives have access to enormous amount of viewer data and have been using it to determine the potential worth of any piece of content. The company has lost several large catalogs of television content to rival streaming services in recent months, with a huge number of Cartoon Network programs moving to Hulu and several hundred PBS titles shifting to Amazon. In both cases, Netflix made the determination that the shows weren't worth what the content owners were asking to sign a new deal.
Netflix executives apparently realize that this exodus of programming is bad PR and the company has been less than transparent with customers about when their favorite title might expire. Netflix closed its API in 2013, locking out access to the title's expiration dates from third-party companies. And an ongoing UI change on Netflix's web interface has removed the minimal expiration data that viewers were previously able to glean from the individual title pages. The expiration question is controversial enough that Netflix now releases an edited list of major titles set to expire. But the "official" list only hints at the large number of titles exiting the service each month.
For instance, nearly 400 titles expired from Netflix on July 1 and another 200+ expire on July 6th. While some of the individual titles are leaving because they're moving somewhere else, Netflix seems to be making decisions based on overall viewing numbers and habits. When nearly 800 A&E Networks titles exited Netflix in Sept. 2012, Netflix explained that they hadn't been willing to pay a contract increase for the titles because their viewer data showed that reality programming was less viewed and less "sticky" than scripted shows. That was the same group of metrics that sent much of the Discovery Networks programming to Hulu late last year. Given those decisions, its fascinating to follow the list of soon-to-expire titles from Netflix. Several trends become apparent, and while this is basically just informed speculation, it's more insight than Netflix is willing to share about its programming philosophy.
Several genres of movies and television shows seem to be especially hard hit by recent expirations. Classic films - particularly those before 1950 - are nearly completely gone from Netflix. Second-tier televison shows, such as single season series or Universal TV shows that are also available in other places have also been exiting in large numbers. While there is some reality/non-scripted programming, it's arranged in small episode "collections" that only appear on Netflix for several months before exiting to be replaced by another "collection."
Netflix has shifted that content money into fewer, high-impact acquisitions. Both M*A*S*H and FRIENDS were added in recent months and on the drama side Netflix added the new HAWAII FIVE-O, BLUE BLOODS and the first eleven seasons of the powerhouse NCIS. Add to that extensions of deals that bring the new seasons of THE BLACKLIST, MARVEL'S AGENTS OF SHIELD and GOTHAM to the service.
Based on all of this, it's clear that Netflix is making an effort to weed out lower interest programming or content that would cost too much when compared to the upside of having it available for customers. That's the same equation that convinced Netflix executives that they could walk away from negotiations to nab streaming rights for SEINFELD. Yes, having that show would have been great. But it's not a deal that would have substantially impacted the subscriber growth rate and that's likely the most important metric at the company.
While Netflix doesn't release an official number of titles available for subscribers, some estimates can be gleaned by examining the API data still available to outsiders. Based on those numbers, Netflix had about 9,000 movie and television titles available for streaming in mid-July, 2013. It will have about 8,700 available on July 7, 2015. That's a net loss of 300 titles but what's just as important is that the perceived quality of the titles has been increasing.
These moves are very rational ones but they also open up some opportunities for rivals. As I've previously argued, there's a place for a rare and classic television streaming service (and if you decide to launch one, give me a call). A former Discovery executive has launched the documentary-heavy CuriousityStream, cable channel AMC is helping to launch the thriller-centric Shudder and Lifetime just announced this week that it is launching a Lifetime movie streaming service called Lifetime Movie Club. None of these services are likely to ever have millions of subscribers and it's likely most of them will ultimately fade away. But as Netflix continues to grow and prune its catalog, it faces the same market challenges as any other veteran media company. As you increase in reach, you walk away from small segments of your user base. And in the same way that cable TV channels took advantage of audiences undersved by broadcast television, these upstarts will figure out ways to build a business out of market segments that are no longer big enough for the major players.
I wish that Netflix was more forthcoming about their programming philosophy. I get the feeling they see public discussions about their programming as a no-win PR situation. But increased transparency would be a positive move for the company, especially compared to some of its rivals. After all, we still don't even have any official subscriber numbers from streaming rival Amazon Instant Video.