Abstract
The growth of streaming Video on Demand and the decline of traditional mediums such as DVDs is affecting the film industry. Netflix is one of the giant streaming services globally, leading the ongoing change in the industry. Today Netflix is among the leading filmmakers globally (Kasper, 2022). In 2021 the company dominated 19% of the global online streaming market and 12% of the web traffic. Netflix affects consumer behaviours from what content they watch, how, and where they watch it. Streaming services seem to fill the gaps left by traditional distributors such as Hollywood, with Netflix venturing into local content (Binkyte, 2018).
Additionally, the company has brought to question the traditions of traditional distributors, such as the cinematic release of content. The disregard for the cinematic apparatus theory is one of the main conflicts between Netflix and Hollywood (Hadida, Lampel, Walls, & Joshi, 2021). Netflix is affecting Hollywood’s industry logic and business models through freedom in production and distribution. This research aims to help consumers understand the extent to which Netflix affects the film industry and suggest a way forward for other companies in the industry.
Introduction
Netflix is a world-renowned American movie streaming service for pioneering the subscription-based online film-sharing business model. It was established in the summer of 1997(Binkyte, 2018). This essay aims to determine how Netflix affects the Hollywood film industry, focusing on the business organization and environment topic of the Business Management course syllabus.
Hollywood’s success lies in the cinema industry’s ability to distribute movies to an audience. In 2020 the company’s revenue declined due to the Covid-19 pandemic, leading to the closure of large theatre chains like AMC (Johnson, 2021). In the same year, Netflix made much more than it had in 2019 worldwide Netflix produces films exclusive to its site. Several have received awards, such as the Academy Awards and the Golden Globes. The growing popularity of Netflix is apparent within popular culture, and it is a household name in most of the world (Cunningham & Scarlata, 2020).
Having seen these significant changes, the question of how the film industry will fare sparked my initial interest in the research question. Personally, as a subscriber to Netflix’s services, visits to the cinema are few and far between as there are movies available at home. However, streaming services may become the primary source of film content if this trend continues. Research indicates that modern producers such as Netflix will outdo traditional producers such as Hollywood if they are not keen (Kasper, 2022). This research will allow other film consumers to understand how Netflix affects Hollywood and accurately assess the film industry’s future.
Problem Statement
Digitization has a significant effect on the world’s film consumption. For instance, in the past decade, film consumption in Norway has become a less productive industry. Simultaneously, subscription-based film consumption has been on the rise. The increasing use of mobile devices, the internet and technological advancements enable people to watch films remotely. Therefore, film consumption in families is higher with more time and space, with the expansion of online streaming services leading the industry (Knobloch, 2021). The technological advancements not only affect film distribution but also create a tremendous impact on the industry. Online subscription services differ from traditional film companies. Most traditional film companies are looking into new ways of production and financing for their work. Generally, rapid developments affect how people consume and what they consume, a techno-cultural impact (Gaustad, 2019). This study evaluates the income of the local film industry as an indication of changes in film consumption.
Today’s audience has lower consumption of DVD and Blu-ray and more consumption of online subscription services. A study on a Scandinavian producer suggests that film subscription services are less productive. There is a decline in the home video industry and dependency on premier window and film production (Gaustad, 2019). Additionally, geography has an impact on film consumption. Different regions have different film consumption habits. The rise of subscription services creates a window for the rise of global film consumption. Therefore, producers prioritize films suitable for the global audience over local content. Therefore, the smaller or local content creators feel the more significant impact of the shift. National film production is a significant indication of culture, diversification and national identity. Most film producers look up to the film market for revenue generation. Therefore, project production may become a significant problem for local content creators in the film industry.
The new film consumption habits are low, yielding from the rise of pirate downloads and stream platforms and subscription services (Gaustad, 2019). Findings indicate that a large audience depends on illegal film distribution services. Illegal film distribution channels generate no income for original producers. In 2007, the global film industry lost up to $3 billion to film piracy. Low-yielding film consumption is mainly due to more illegal film consumption channels. Unlike film consumption, piracy subscription occurs with the producer’s regulation and authorization. Netflix creates an opportunity for producers to license their content. Limited content availability increases income generation for global content creators while reducing local producers. Content availability on low-yielding channels reduces revenue generation affecting the company’s finances for new projects.
Central Research Question
To what extent does Netflix affect the film industry like Hollywood?
Sub-Question
How will film companies adjust to upcoming changes to remain competitive?
Literature Review
Disruptive Innovation Theory
The theory argues that with innovation sometimes comes unintended disruption. Disruption occurs when a new entrant in an industry challenges more prominent industries. Disruption takes place due to changing consumer behaviour (Knobloch, 2021). The key disruption indicator is when a new company begins selling its products. The smaller business also aims to fill existing gaps and meet unmet needs. Eventually, established organizations lose clients to new entrants. In the case of Netflix, it was initially not a threat due to its dependence on more prominent companies. However, when the company began producing its clients, it increased competition in the film industry (Kasper, 2022). The company also aims to meet the needs of minority groups and fill the gaps left by Hollywood. Generally, modern film disruption has a disruptive effect on the industry.
The Conflict Between Netflix and Hollywood
Initially, Netflix was a platform hosting the content of others. However, in 2008, the platform officially began hosting its content. The content on Netflix simultaneously consumes a lot of money despite its availability to consumers at affordable prices (Hadida, Lampel, Walls, & Joshi, 2021). The affordability of the channel is the primary driver for a larger audience. Netflix’s priority is to provide consumers with the quickest possible access to content unless its counterpart is awaiting theoretical release (Joo, 2020). Hence the conflict between the two platforms. The lack of content theoretical launch is in contrast with theatre privilege. The potential of Netflix to lead in Oscar and academy Awards is also a significant threat to Hollywood (Joo, 2020). Revenue generation via DVDs is on the decline. In Hollywood, the leading producers do not dominate the industry despite setting the pace for other producers.
According to Kasper (2022), Hollywood’s position as a big name is facing new opposition. For more than a century, the company has striven to meet the needs of its audience. Initially, Hollywood gave Netflix authority to host its films. However, the change in production by Netflix was the primary indicator of a shift in the industry. When Netflix began producing its content, competition in the film industry rose. For instance, at the beginning of this decade, Hollywood made most of its income from DVDs and theatre releases. The rise of subscription services saw a decline in revenue for this platform (Kasper, 2022).
The Effect of Netflix on the Film Industry
Disruption of Consumer Behaviour
Joo (2020) studies and explains the growth of streaming services and the conflict between Hollywood and Netflix. Netflix pays no attention to theatre releases contrary to Hollywood films. The priorities of Netflix and Hollywood in distribution vary. Unlike Hollywood, Netflix focuses on providing consumers with global films. The study by Joo (2020) concludes that the shift in the film industry is permanent. The rise of Netflix has been a significant threat to Hollywood by providing consumers with flexible, mobile and remote services.
The shift comes with various challenges in the film industry. One of the main conflicts between Netflix and Hollywood is the disregard for their release of creations.
Disruption of Traditional Production and Distribution
Simply Netflix creates a platform for films that other studios face sceptics. The platform plays a significant role in the industry’s rise of democracy and equitability. On the other hand, opposition by Hollywood raises questions about the diversity and inclusivity of the platforms. Limiting Netflix’s access to Academy Awards means celebrating less diverse content. The opposition to the rapidly growing label by Hollywood appears undemocratic, which may receive a negative response from the audience. The rise of streaming services and technological advancements leads to more competition in the industry. Future collaboration between Hollywood and Netflix seems inevitable as their similar gaols of more profit bring them together (Joo, 2020). Hollywood needs to accept that the shift brought about by Netflix is permanent. in turn, consider collaboration for better prominence in the industry.
Disruption of Established Film Companies
Netflix has a licensing policy that provides for the purchase of DVDs and subscriptions by consumers without copyright infringement (Kasper, 2022). Today Netflix purchases rights to a film that ends when its license time outs. The company, therefore, considers whether or not to renew a license depending on its marketability. The main takeaway is that Netflix does numerous valuations before deciding to purchase a license of certain content. The licensing policy implores competitors to adopt policies that limit their competitors. Hollywood provides its consumers with unique content while limiting its reach and competition. The exclusive policies may create a misevaluation of creations signed by the company.
Hollywood has been a global leader in filmmaking for the longest time. The company not only dominated the industry but also had an unassailable influence. With the rise of subscription and digital distribution, the company’s dominance has been challenged (Knobloch, 2021). The rapid development of Netflix is creating an identity crisis for Hollywood. The system and policies of Hollywood have become questionable in the face of new practices and guidelines by Netflix. Netflix challenges the organizational philosophy of Hollywood. New players such as Amazon Prime ad Netflix come with different philosophies, policies and distribution mediums.
Gaustad (2019) concludes that the rise of streaming services leads to more consumption of cinemas. The film industry audience has also shifted to subscription services as they are more economical for consumers. The change in the industry calls upon authorities to look for new measures to support local filmmakers. Local filmmakers and producers are receiving minor income in Norway. Simultaneously the audience for series and films is on the rise. Gaustad (2019) calls upon governments to shift some of the higher consumption from low-yielding channels to higher for progress, especially for local producers.
Production of Diverse and Creative Content
Netflix is a risk taker by venturing into a variety of films. The Irish man, a costly film, got funding from Netflix, while all other platforms refused to fund it(Joo, 2020). Netflix creates an opportunity for minority or upcoming brands to showcase their art. With numerous black creators and content and foreign languages. Netflix seems to fill a significant gap that Hollywood has been leaving. For instance, unlike other studios, Netflix has numerous romantic comedies that are less profitable in the industry.
Online stream services also allow creativity through diversion into different film formats—short films and episodes (Hadida, Lampel, Walls, & Joshi, 2021). Digital services are top-rated among the youth, whose decisions are affected by social media and the internet. The youth show greater interest in short films and content on the internet and social needs.
Online streaming creates an opportunity to reach a bigger audience. Streaming services are an excellent platform for producers with global content to reach the desired audience. The changes in the industry call upon producers to increase the visibility of their content to have successful distribution. Netflix has an interest in partnering with producers at local levels and is famous for its interest in original content. The company is among the best for producers to publish due to its broad audience reach. Producers either receive 25% of finances or coproduce with Netflix but, in turn, split copyrights with the company. Netflix is a big label. Therefore collaboration with such organizations sends a clear message about a producer’s good quality content.
Lower Visibility for Local Content
Global producers such as HBO and Netflix have thousands of content. Therefore, producers strive to ensure their content is visible to the target audience. In most cases, the most watched content is that that appears on the homepage. Cornet advertisement is not standard on the new streaming services. Additionally, most local content barely appears on the front page. A priority is given to international content. On that note, local producers must maintain cinema launches despite collaboration with online streaming services. The cinematic release heightens exposure through publicity in local news and advertisements. Local producers that skip the official release dates may continue to suffer from a lack of visibility.
Additionally, producers also need to utilize social media platforms for more visibility. Adversities and campaigns via social media are pretty inexpensive. Social media is a platform where content makers can create a community with their admirers and engage in content discussion to understand customer needs.
All producers must identify the current state of the film industry: challenges and opportunities created by technology advancement. All producers need to have an accurate definition of their market and competitor (Binkyte, 2018). Consequently, they are changing their strategies to be on par with upcoming trends to remain relevant. With technological advancement, SVOD services have created a significant shift in the film industry, calling upon producers to understand the change (Knobloch, 2021). Despite the tremendous change, producers can view the shift as an opportunity to grow their business and reach a new audience. As the shift barely threatens the main elements of production.
Convenient Access to Films
One of the theories becoming less famous with changing times is the cinematic apparatus theory (Vielen, 2018). The approach was popular in the 1960s. The cinematic apparatus theory gave insight into how an audience reacts to a film. The main elements of a cinema are seen as narrative mediums. Exposing an audience to new content via cinema is an opportunity to analyze the settings and the mood. The cinematic apparatus theory is also applicable in the gaming sector. Like cinema, games create an opportunity where the audience is in a dark room with the content. Games give the audience control over occurrences, creating a dream-like state.
Similarly, cinema can simulate a dream-like state. The cinematic apparatus theory relates more to Hollywood’s theatrical release philosophy. The cinnamic effect is dependent on the audience’s static position. On the other hand, the Netflix audience can move and settle in comfortable locations. The opposition by Hollywood towards Netflix implies that film production and exhibition should occur in a particular manner (Vielen, 2018). However, all producers should be able to produce content in different forms and showcase it in different mediums. Every producer should adopt a medium that best suits their needs instead of dominating the theoretical release approach.
Case Study
The Ministry of Culture in Norway researched how cultural technology advancement affects the film industry. The study’s findings better evaluate the perception of income generation in the film industry. Film production papers are a low-income generator today.
Revenue generation through multiple channels becomes one for distributors indicating an economic change in the industry. The shift in scope and scale in the industry leads to the domination of a few distributors. For instance, the most prominent film distributors in Norway account for up to 85per cent of the revenue generation in the industry (Gaustad, 2019). On the other hand, theatre cinemas account for a minor market share. In changing film consumption, only license fees go directly to the producers. The rest of the income passes through distributors who deduct distribution fees for content creators. The producers receive royalties and film rentals via distributors. Higher revenue collection for distributors is an indication of changes in revenue streams. Distributors act as mediators by providing access to numerous films from different producers. Norway has two leading film distributors Nordisk Film Distribution and Sf studios (Gaustad, 2019). One of the major distributors’ revenue data in the past decade undergoes analysis. The average consumption of Norwegian films in 2016 undergoes analysis to indicate changing trends for the other company.
Streaming services include Electronic Selling Trough, where consumers buy on a film-by-film basis much similar to DVD consumption with permanent access to bought films. Other streaming services are Transactional Video on Demand and Subscription Video on Demand, where Netflix falls. Transaction Video on Demand is where content is bought for a specific time limit. The case study involves a model of the Norway Film industry, following from the audience to the producer. In Norway, revenue follows from the audience through various distribution channels to distributors and producers (Gaustad, 2019). The distribution channels include Cinema, DVD, Bluray, Streaming services with EST, TVOD and SVOD, pirate, pay TV and Free TV.
Findings
The case study involves revenue data from Norway’s distributors between 2010 and 2016. Cinemas help a market share of 18-23 per cent, and DVD and Bluray only had 5 per cent of the market at the end of the study period (Gaustad, 2019). Subscription services (SVOD)rose to 31 per cent, with a significant increase attributed to the introduction of Netflix in 2012. Electronic Streaming Through (EST) and Transaction Video on Demand (TVOD) streaming services grew slower than SVOD, from 1-6% by 2016. Revenue from Home video shows a decline from 132% in 2010 to 83% in 2013 and 51% in 2016. Cinemas rise to 29% by the end of the study period. In 2013 DVD/Bluray films had 43% of the revenue, dropping to 11 per cent by 2016.
Discussion
The study of the Norway film markets indicates the shift to low-yielding consumption habits. In the previous decade, DVD and Bluray were no longer leading channels of consumption but the least (Gaustad, 2019). While the number of Netflix members has been rising, the number of cable users in America is declining. Netflix is now a critical layer in providing affordable and diverse packages for consumers (Joo, 2020). Therefore, cable Tv users dropped from 100.5 million in 2013 to 86.5 million in 2019. The rise of Netflix comes with a new content creation and distribution culture. The changes in production and distribution mainly affect traditional producers (Hadida, Lampel, Walls, & Joshi, 2021). Netflix affects the relationship between consumers and distributors through the provision of content conveniently. Netflix customers do not require to watch films away from home. Technology has always been a significant change driver.
The internet provides multiple storage platforms for numerous films that people access continently (Hadida, Lampel, Walls, & Joshi, 2021). Online streaming services are characterized by the ability to access content in any region, any time zone and from any device. For instance, Netflix has content meeting the needs of diverse consumers based on language and locations in up to 190 countries globally. Netflix uses data analytics to create content according to user needs and recommendations, focusing on specific audiences. The internet makes it one of the best platforms for alternative content distribution much quicker. Therefore, entertainment is more accessible through various channels. Recently more films have launched without a theatrical release. Today film producers make more content than ever before, making it difficult for some filmmakers to settle on perfect release dates (Joo, 2020). Film distribution is not an easy venture in America. Native language films are much more difficult to distribute than English films.
Conclusion
In summary, the extent to which Netflix affects the film industry ranges from the disruption of significant organizations to production and consumer behaviours. Netflix is responsible for numerous locals in multiple regions (Pekárková,2019). Netflix affects the traditional distribution approach that was highly popular and profitable for producers. Hollywood and other traditional producers believe that film production and distribution must occur in a particular manner, emphasizing cinema (Joo, 2020). However, Netflix defies this belief and has proved a success by reaching a larger audience and rapid growth over recent years. The company also questions the cinematic apparatus theory by enabling users to enjoy content from multiple mobile devices. The rise of modern and digital streaming services calls for strategic measures by film companies. Most researchers claim that collaboration in the changing film industry is a window for reaching a new audience. Businesses need to adopt strategies based on Demand to remain relevant in the competitive industry.
Future Research
The internet or technology, in general, comes with pros and cons. Netflix is simultaneously an opportunity and threat in the film industry. Technology advancement blurs the line between opportunity and treatment (Binkyte, 2018). One of the significant threats in the film industry is film distribution through illegal channels. Currently, there are inadequate measures to curb content piracy in many regions. The internet needs regulation to avoid intellectual theft. Local, national and international bodies need strategic measures to curb illegal film distribution. Debates on new laws and policies in the film industry are on the rise. The need for laws and content regulation is one of the critical areas for future research. Researchers need to determine ways of integrating local, national and international efforts to ensure the film industry’s success.
The film industry is undergoing rapid and progressive growth and change. The frequency of new disruptions in the industry is increasing more than ever (Pekárková, 2019). The film industry links its progress to technology. At the same time, technology comes with higher competition every new day. The rise of new distribution channels such as YouTube may contribute to more competition in future (Binkyte, 2018). Therefore, researchers need to investigate how the upcoming platforms can be utilized as opportunities for growth.
Recommendations
The expansion of Netflix is an awake-up call for other producers to adapt to changing customer needs and technological advancements. The company has attracted millions of members in a few years, and other producers need to see the company as a role model in the industry (Binkyte, 2018). Other companies need to follow the steps of Netflix by taking advantage of opportunities that come with online streaming services and the internet. Established companies such as Hollywood will be more successful when they look into collaboration with Netflix. Netflix will keep growing, so the only way forward is to view the global leader as a pacesetter in the film industry.
In the future, demand for audio-visual content will keep growing with more diverse clients. Therefore, producers should view the change as an opportunity to meet the arising needs and reach new audiences. As noted, Netflix looks forward to collaborating with local and international producers (Pekárková, 2019). The film industry needs to utilize the opportunity to invest in content that is in line with changing consumer needs. The disruption caused by Netflix can simply be defined as progressive change (Binkyte, 2018). Progressive change calls upon traditional organizations to adjust their products to new needs in the market. Most importantly, collaboration with streaming services reduces the risk of piracy while distributing content at an affordable cost.
References
Binkyte, G. (2018). How are the Major Streaming Services Reshaping the Film Industry? Copenhagen Business School. https://research-api.cbs.dk/ws/portalfiles/portal/59779720/433283_Final.pdf
Cunningham, S., & Scarlata, A. (2020). <? covid19?> New forms of internationalization? The impact of Netflix in Australia. Media International Australia, 177(1), 149-164. https://doi.org/10.1177%2F1329878X20941173
Gaustad, T. (2019). How streaming services make cinema more critical. Nordic journal of media studies, 1(1), 67-84. https://doi.org/10.2478/njms-2019-0005
Hadida, A. L., Lampel, J., Walls, W. D., & Joshi, A. (2021). Hollywood studio filmmaking in the age of Netflix: a tale of two institutional logics. Journal of Cultural Economics, 45(2), 213-238. https://doi.org/10.1007/s10824-020-09379-z
Johnson, M. (2021). Hollywood survival strategies in the post-COVID-19 era. Humanities and Social Sciences Communications, 8(1), 1-8. https://www.nature.com/articles/s41599-021-00776-z
Joo, J. S. (2020). Netflix and Changes in the Hollywood Film Industry. Journal of Industrial Convergence, 18(5), 36-41. https://doi.org/10.22678/JIC.2020.18.5.036
Kasper, A. (2022). A New Studio Era: How Netflix is Becoming a Threat to the Film Industry. https://pdxscholar.library.pdx.edu/honorstheses/1271/
Knobloch, P. M. (2021). Business Model Innovation in the Film Industry: How Nordic Film Studios Adapt to a Changing Market. https://www.diva-portal.org/smash/record.jsf?pid=diva2:1592832
Pekárková, Z. (2019). The Consumption of Foreign Netflix Originals by American Audiences. https://thesis.eur.nl/pub/50725/Pekarkova-Zuzana.pdf
Vielen, D. H. (2018). The Netflix Effect? On updating the cinematic apparatus theory (Master’s thesis). https://studenttheses.uu.nl/handle/20.500.12932/29106
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