movies and television shows are equal on Netflix

Netflix CEO Reed Hastings recently stated that Netflix subscribers watch about equal minutes of movies and television shows.[1]  Those movies plausibly average 80 minutes in length, while the TV shows, perhaps 40 minutes.  Hence Netflix subscribers watch roughly twice as many TV shows as movies.   The secondary-market TV-show business developed largely as an adjunct to the secondary-market movie business.  In terms of viewers’ secondary-market choices,  TV shows are not, however, of little weight relative to movies.  More significantly, secondary-market developments are  eroding the distinction between movies and TV shows.

A key difference between movies and TV shows is advertising and promotional expenses.  Promotional expenses (advertising and marketing) for movies average roughly 50% of the total cost to produce the movie (“negative cost”).  Direct promotional costs for TV shows are much less.  Network executives’ choices for program placement in the TV programming schedule is a crucial promotional decision for a TV show.  That decision is not a direct monetary transaction.  More generally, movies are sold individually.  TV is sold to viewers through subscriptions to bundles of television channels.

old RCA television

The differences in how movies and TV shows are sold shape their different lengths.  Feasible theater showings per evening, perceived relation between ticket value and movie length, and economies of scale in promotion control movie length.  Regular, easy-to-remember program blocking and time-of-day scheduling economics determine TV show lengths.

Netflix subscriptions do not differentiate between movies and television shows.   Netflix’s subscriber acquisition cost has little relation to the difference in promotional expenses for movies and television shows.  Within a Netflix subscription, the factors that determine movie length and TV show length are irrelevant.   Netflix’s streaming service is growing rapidly.[2]   With streaming video, the economics of physical media capacity and physical mailing costs also do not matter for video content length.   How streaming video minutes are grouped into content works is economically irrelevant.

YouTube is incorporating a wide range of video content lengths.   Three months ago YouTube increased the maximum length of non-partner videos to 15 minutes.   YouTube also now hosts a growing collection of traditional movies and TV shows.  In addition, YouTube also serves independently created video shows with widely varying lengths and live webcasts, including at least one spanning 24 hours.

With its Kindle Singles, Amazon is experimenting with new lengths for textual works.  Amazon’s announcement of its Kindle Singles notes:

Less than 10,000 words or more than 50,000: that is the choice writers have generally faced for more than a century–works either had to be short enough for a magazine article or long enough to deliver the “heft” required for book marketing and distribution. But in many cases, 10,000 to 30,000 words (roughly 30 to 90 pages) might be the perfect, natural length to lay out a single killer idea….

Amazon currently indicates that it will sell Kindle Singles individually.   Because of economies of scale in marketing and diversity in user content preferences, subscriptions to content aggregates offer considerable business advantages.

Over coming years, the size distribution of content works is likely to be much different than the size distribution today.[3]

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Notes:

[1] Q3 2010 Netflix Earnings Conference Call, Oct. 20, 2010, Final Transcript, p. 2.

[2] According to Sandvine’s Fall 2010 Global Internet Phenomena Report, p. 14, “20.6% of all peak period [8pm to 10pm] bytes downloaded on fixed access networks in North America are Netflix.”  Netflix introduced streaming video in Canada on Sept. 22, 2010.  Id. p. 15, with a tendentious presentation, describes that business as obtaining “shocking levels of success.”  Netflix projects its Canada business, with large upfront content costs, to turn profitable late next year.  See Netflix Q3 2010 Call, Final Transcript, pp. 4, 8.

[3] According to comScore, the average duration of online videos viewed rose from 2.9 minutes per video in July, 2008, to 4.9 minutes per video in Sept. 2010.  Here are the relevant data and source links.

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