Netflix’s Power in the Entertainment Industry Network
Netflix has seized the entertainment industry by storm. One attribute of Netflix’s rise can be pointed to its production of original content. Its production of 30 original series this year, compared to only 1 in 2013 (House of Cards), makes Netflix the top producer of programming among all cable stations and networks. Along with Netflix’s dominance in original programming came their rise in stature and budget. Currently, Netflix spends $6 billion a year on content, most of which comes from its 83 million global subscribers. Netflix’s dominance in the entertainment industry also reflects overall changes in the industry such as viewers turning away from live television to digital streaming, preference for original and exclusive programming, and an overall decline in television viewership. Netflix’s dominance in the industry has led to some in Hollywood to predict a Netflix monopoly on television and entertainment. Netflix’s supposed monopoly is represented in its interactions with not only content producers but also with consumers.
To view how Netflix monopolizes content producer’s negotiations with various networks, it may be best to simplify this exchange network as a 3 node graph of network exchange. In the standard example of a 3 node graph, the edges have a value of 1 where the 3 nodes negotiate how to split the values. However, if we characterize node 1 as Netflix, node 2 as a content producer, and node 3 as a Netflix competitor we can see that the edge values are not equal. Because Netflix has such a large budget to spend on content the value they can negotiate with the content producer is much larger than the value the content producer would negotiate with Netflix’s competitor. Because node 2’s outside option of Netflix is much greater than node 2’s option of Netflix’s competitor, Netflix will always win in these negotiations, leaving there to be no possibility of an unstable network. However, unlike a standard 3 node graph where the middle node is the most powerful, Netflix actually has a lot of power in this network as they are connected to many other “nodes” they can do business with. Here Netflix has power in its network due to its exclusion power and its betweenness. It is also important to note that there are other factors such as creative control, work environment, etc. that may contribute to the “value” in the edge between Netflix and the content producer.
Netflix can also be characterized as a monopoly when acting as the intermediary between an exclusive content producer and a consumer. Because Netflix is the only intermediary between its exclusive original content and the consumer who wish to consume the product they can set an “ask of 1” or essentially any price they wish to the buyer/consumer. Here, however, it is important to note that Netflix is only in a monopoly position relative to the buyer and not the seller. However, due to their “power” in content producer (seller) networks they may essentially be the only trader “available” to the seller.
http://www.businessinsider.com/hollywood-fears-the-netflix-monopoly-2016-9
http://www.hollywoodreporter.com/features/netflix-backlash-why-hollywood-fears-928428