Sunday, November 25, 2012

Cannibalizing future profits - so to speak

The last envelope I returned to Netflix came emblazoned with the following image:

Edward Cullen. As if we don't see enough of his handsome mug.

Now, I certainly understand the instinct to partner yourself with a wildly successful franchise, and the positive byproducts of that might be immeasurable.

But don't you think it's a little strange that a company that relies on people not seeing movies in the theater is telling them to go see a movie in the theater?

Unlike Blockbuster, which recently tried to dupe its unsuspecting email audience by intimating that the new release End of Watch was available for rental in its stores (see discussion here), Netflix clearly states that Twilight: Breaking Dawn Part 2 is "only in theaters" (as that small text above the release date reads).

But the more people who catch it in theaters, the fewer people there will be to rent it from Netflix later on. This advertisement has a direct, though probably small, impact on the company's bottom line.

Perhaps this is just an acknowledgement by Netflix that the movie's zeitgeist moment is now, not three months from now when it comes out on DVD. The Twilight movies probably get a higher percentage of their viewings in the theater than any other successful franchise out there. Whereas most other successful movies have a significant number of people who rent them "just to see what all the fuss is about," you can't really say the same for the Twilight movies. Most people already know what the fuss is about. Either they're into the fuss, which means they see the movies in the theater (perhaps multiple times), or they can't get far enough away from the fuss, and they never see them at all.

Let's anticipate the first year of existence for Twilight: Breaking Dawn Part 2 and for another wildly successful movie, The Avengers (which I was in the minority by not seeing in the theater). Let's say that in this first year, The Avengers gets 75% of its viewings in the theater and 25% on video. I have no idea if that's correct, but it sounds plausible. That 75% would represent its peak, because from now until the end of time, the only way for most people to see The Avengers will be on video. So the percentage will start at 75% and keep dropping a little bit every day. Eventually, if the movie endures in popularity through the decades, more people will have seen it on video than in the cinema.

While the percentage will also drop for Breaking Dawn Part 2, it doesn't seem likely to drop as much. Its first year will probably be more like 90%/10%, and it will fall only very, very slowly. It may take a generation to get down to 80%/20%. There are always going to be young girls who are going to come of age and seek out the Twilight books, but fewer and fewer random other people will watch these movies as their zeitgeist moment gets further and further in the rear view mirror.

I'm probably belaboring a fairly obvious point, but the point I'm trying to make is that Netflix is probably just fine with advertising Twilight on their return envelopes, because there was never going to be a particularly sizable rental market for this movie anyway. Sure, three months from now will be a good time for some of these folks to see it again -- but they're not going to rent it. If they loved it, they'll just buy it.

The real risk with this marketing strategy is that it will do more harm than good from a "coolness of brand" standpoint. After all, the effect of being associated with Twilight is not a universally positive one. Some people (like me) will see this ad campaign and think "Lame." And Netflix will have suffered, however infinitesimally, in my estimation. 

The other explanation is that this is just a brand new marketing venture for Netflix, and Edward Cullen just happens to be the first of many faces we're going to see gracing our return envelopes.

As is often the case with my theories, time alone will tell.

Of course, much of this discussion is made moot by the following important little detail: Netflix is a subscription service, not a pay-by-rental service. They don't care if users are renting Twilight: Breaking Dawn Part 2 or One Flew Over the Cuckoo's Nest or Breakin' 2: Electric Boogaloo, as long as the monthly subscription fee is being automatically debited from their bank accounts.

So maybe they're just trying to limit the number of Breaking Dawn DVDs they'll have to stock to meet the demand.

And now we're getting to the truly measurable impact on their bottom line.

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