The Unfolding Story of Entertainment: Netflix, YouTube, and the Shifting Landscape

For the past quarter-century, the entertainment industry has undergone a seismic shift, largely driven by the rise of streaming and user-generated content. Two companies, Netflix and YouTube, stand as prime examples of this transformation, reshaping how we consume film, television, and video. While Netflix revolutionized the distribution model, YouTube democratized content creation, both leaving an indelible mark on the modern entertainment landscape.

Netflix: From DVDs to Domination and Diversification

Netflix's journey began with a simple concept: renting DVDs online and delivering them by mail, directly challenging established players like Blockbuster. Dr. Joel Meyer, former marketing director at Netflix, recalls Blockbuster's initial dismissal of the online rental model, viewing it as a mere 5% of the market. This underestimation proved to be a fatal flaw. Early on, Netflix made a crucial pivot away from DVD sales to focus solely on rentals, a move that sacrificed 95% of revenue but ultimately proved prescient.

The company's true revolution came in 2007 with the introduction of streaming. Investing heavily in data centers, Netflix's "watch now" feature was an immediate hit. Leveraging a market where studios weren't initially focused on licensing for streaming, Netflix secured cheap deals for existing content. They aggressively pursued "stacking rights," the ability to offer entire libraries of shows at once, something previously reserved for studios selling box sets or cable companies. This strategy fueled rapid growth, with revenue and subscriber bases growing by an average of over 30% per year.

By 2012, Netflix ventured into original content with its first TV show, Lilyhammer, pioneering the "binge" model of releasing all episodes simultaneously. The success of House of Cards in 2013 solidified Netflix's position as a streaming powerhouse, driving stock prices, revenue, and subscriber growth to new heights. Wall Street encouraged this growth by urging Netflix to spend more and more on content acquisition, essentially prioritizing subscriber acquisition over immediate profitability, a stark contrast to the mandates placed on traditional media companies. Netflix became an aggregator of content, disrupting the legacy media model.

However, the landscape began to shift as traditional media giants like Disney, NBCUniversal, and WarnerMedia recognized the threat and launched their own streaming services. They began pulling back licensed content from Netflix, forcing the company to accelerate its production of original programming. This transition was costly, and Netflix's subscriber growth slowed in 2022, leading to a significant stock drop and raising questions about its future dominance.

To regain momentum, Netflix is exploring new strategies, including introducing an advertising-supported tier and cracking down on password sharing. The company hopes to reach a potential global market of 800 million subscribers, even in the face of increased competition. The future success hinges on its ability to innovate and adapt in a rapidly evolving streaming landscape.

AMC Theaters: Adapting to a New Reality

Movie theaters experienced a massive blow during the pandemic. The pandemic saw a drop in domestic box office numbers to over $4 billion as of August 2022. With movie releases delayed and studios prioritizing streaming services, theater chains like AMC faced near-bankruptcy. AMC has also invested in a gold mine and launched their own popcorn business. As of Q2 of 2022 AMC raked in $1.2 billion in revenue.

YouTube: Democratizing Content Creation and Redefining Entertainment

While Netflix was changing how we watched professionally produced content, YouTube was revolutionizing how content was created and shared. Founded in 2005, the platform quickly transformed from a dating site for videos to a global phenomenon. YouTube democratized access to digital space by allowing content creators to earn money through channels without advertising sales. It is the most powerful platform in video for content monetization. The algorithm aided in the success of the platform, along with discovering content you may be interested in. YouTube expanded into paid subscriptions in 2007 with Youtube Partner Program, now known as Youtube premium, Youtube music, and Youtube TV. It now has over 30 million music and premium paid subscribers.

From the start, YouTube focused on user-generated content (UGC), giving rise to viral videos and catapulting the platform into the mainstream. YouTube's rise was not without its challenges. The company faced copyright lawsuits, particularly from the music industry. Through various solutions like Content ID, YouTube has allowed rights holders to track and understand their content online.

Despite controversies, lawsuits, and growing competition from platforms like TikTok and streaming services like Netflix, YouTube remains a juggernaut. Its strength lies in its massive scale, offering unparalleled visibility for content creators and generating significant revenue for Google. The platform's success is rooted in its free, accessible content, its global reach, and its ability to adapt to changing trends, such as the rise of short-form video with YouTube Shorts.

The Future of Entertainment: Coexistence and Adaptation

The stories of Netflix and YouTube illustrate the dynamic nature of the entertainment industry. While Netflix has faced recent challenges, it still holds a significant position, YouTube continues to dominate the user-generated content space, The rise of streaming has not spelled the end of traditional entertainment, as theaters are finding themselves needed as major streaming services learn that they need audiences to return to the theaters first. As Adam Aron puts it, “There's no reason why theaters can't coexist with streaming. People all have kitchens in their houses, but they go out to eat in restaurants. " Ultimately, the future of entertainment will likely involve a coexistence of different models, with consumers choosing what best suits their needs and preferences. The key for all players will be adaptation and innovation, constantly evolving to meet the ever-changing demands of the audience.