Streaming services

Streaming services have a difficult business model. The cost of producing (or licensing) content is high, and the revenue from subscriptions or advertisements is low. Fortunately, the ratio of subscribers to movies is high, and the ratio of advertisements to movies is also high. Therefore, the streaming services can balance revenue and costs.

Streaming services can increase their revenue by adjusting subscription fees. But the process is not simple. Raising subscription fees does raise income per subscriber, but it may cause some subscribers to cancel their subscription. Here, economics comes into play, with the notion of the "demand curve", which measures (or attempts to measure) the willingness of customers to pay at different price levels.

Streaming services can decrease their costs by removing content. For licensed content (that is, movies and shows that are made by other companies) the streaming service pays a fee. If they don't "carry" those movies or services, then they don't have to pay. Cancelling their license reduces their cost.

For content that the service produces, the costs are more complex. There is the cost of production, which is a "sunk cost" -- the money has been spent, whether the service carries the movie/show or not. There are also ongoing costs, in the form of residual payments, which are paid to the actors, writers, and other contributors while the movie or show is made available. Thus, a service that has produced a movie can reduce its costs (somewhat) by not carrying said movie.

That's the basic economics of streaming services, a very simplified version. Now let's look at streaming services and the value that they provide to viewers.

I divide streaming services into two groups. Some services make their own content, and other services don't. The situation is somewhat more complicated, because the content-making services also license content from others. Netflix, Paramount+, and Roku all run streaming services, all make their own content, and all license other content to show on their service. Tubi, Frndly, and Pluto TV make no content and simply license content from others.

The content-producing services, in my mind, are the top-tier services. Disney+ makes its own content and buys (permanently) other content to add to its library, and is recognized as a top-tier service. Netflix, Paramount+, and Peacock create their own content (and license some) and I consider them top-tier services.

The services that don't produce content, the services that simply license content and then make it available, are the second-tier services. They are second-tier because their content is available for a limited time. They don't own content; they can only rent it. Therefore, content will be available for some amount of time, and then disappear from the service. (Roku, for example, had the original "Bionic Woman" series, but it is not available now.)

For second-tier services, content comes and goes. There is no guarantee that a specific movie or show will be available in the future. Top-tier services, in contrast, have the ability to keep movies and shows available. They don't, and I think that damages their brand.

Services damage their brand when they remove content, in three ways.

First, they reduce the value of their service. If a service reduces the number of movies and shows available, then they have reduced their value to me. This holds in an absolute sense, and also in a relative sense. If Disney+ removes movies, and Paramount+ keeps its movies, then Disney+ drops in value relative to Paramount+.

Second, they break their image of "all things X". When Paramount+ dropped the series "Star Trek: Prodigy", they lost the right to claim to be home to all things Star Trek. (I don't know that Paramount+ has every made this claim. But they cannot make it now.)

Third, the services lose the image of consistency. On a second-tier service, which lives off of licensed (essentially rented) content, I expect movies and shows to come and go. I expect a top-tier service to be predictable. If I see that it has a movie available this month, I expect them to have it next month, and six months from now, and a year from now. I expect the Disney+ service to have all of the movies that Disney has made over the years, now and in the future. I expect the Paramount+ service to have all of the Star Trek movies and TV shows, now and in the future.

By dropping content, the top-tier services become more like the second-tier services. When Netflix, or Max, or Peacock remove content, they become less reliable, less predictable, less... premium.

Which they may want to consider when setting their monthly subscription rates.

Libraries must become more than video stores

Libraries think of themselves as video stores. This is not surprising, as video stores thought of themselves as libraries. The two models are almost identical: a limited set of materials (with a limited number of copies), shared by customers (one at a time) for a finite period, with late fees.

Video stores failed. We moved to a different business model. Netflix, iTunes, Amazon.com, and YouTube introduced new ways of delivering movies and videos to customers. The 'old guard' of Blockbuster and Videotowne fell into the dustbin.

Libraries differ from video stores: they are not competitive businesses. Video store chains competed with other video store chains, and I think that they knew (on some level) that they competed with other media for customers. They probably thought that their main competition was cable TV, but certainly television, live events, and backyard activities were competing for customer time and attention. Video stores were businesses, in business to make a profit.

In contrast, libraries view themselves not as businesses but as a public service. Their purpose is to help people (and society), not to turn a profit. And libraries are often municipal-run monopolies. (Or county-run, or state-run.) They must balance their budget, but profit is not part of their thinking. (If anything, it would be considered inappropriate and counter to their mission.)

Nor do libraries view themselves as competing. One town's libraries do not compete with another town's, since their mission of serving the community (and community-granted monopoly) means that a library has no rival to outrun.

Which is not to say that libraries do not change. Libraries expanded from books and periodicals to books on tape (and later, books on CD), videotapes (and later, DVDs). Now libraries are expanding to e-books. Yet I believe that their thinking is muddled.

Libraries know that e-books are popular, and that they must offer them. But libraries have the mindset of e-books as another form of a book, a physical device in limited quantity. They jump through hoops to limit the number of copies that they lend out, and they mandate formats that automatically expire the books at the end of the lending period.

E-books are different things from paper books, periodicals, and all of the other things that libraries have lent out. They are not physical entities, and not subject to the scarcity of such objects. A library could lend out several thousand copies of "Harry Potter".

Part of the problem is that the publishing houses and the companies that supply e-book lending software reinforce the idea of e-books as scarce commodities. Publishers fear the loss of the sales market (if customers can borrow e-books with certainty, why should they buy?) and the software suppliers are simply taking advantage of publishers' fears and libraries' naivete.

Some company is going to come along and obsolete the libraries. Just as Netflix obsoleted video stores, a company will make libraries passe. Perhaps it will be Amazon.com. Perhaps it will be Google. Perhaps it will be a start-up. Whoever it is, they will make borrowing e-books easy and convenient. They will most likely tie into the book sales channel.

Once this new company comes along, libraries will be in a difficult spot. They will have lost their primary justification for their monopoly and taxpayer support. (I recognize that libraries perform functions beyond lending books and periodicals, but the communities that support they see these as their primary responsibilities. Lose that support and you lose the tax dollars.)

Since libraries see themselves as a public service, as not in competition with other activities or other library systems, and granted a public monopoly, I suspect very few (if any) will change.