The other night, I watched one of the worst movies I’ve ever seen.
Normally at this point I would say "spoiler alert," but this film can hardly be spoiled.
"Open House" is a horror movie that just went up on Netflix. It involves a recent widow and her son who move to a relative’s mountain house (currently on the market, which is where the title comes from), in order to get back on their feet financially. The only requirement is that they allow the real-estate agent to hold open houses.
The standard horror movie hijinks ensue: strange noises, things that inexplicably move, a pilot light that keeps going out. These events are about as scary as your average episode of “This Old House.” But none of it goes anywhere: They are sad; there are noises; they are still sad; there are some more noises. There is no development of the parent-child relationship or the characters … no escalation of the suspense … the whole thing feels like a series of almost-unrelated events.
Then, suddenly and for no apparent reason, a villain appears. We don’t know what relation he bears to them, or why he might have become obsessed with the pilot light of their furnace. We don’t who he is, or even what he looks like, because his face is always cut off by the frame, or blurred out in long shot.
The world’s scariest HVAC technician is certainly villainous enough; he spends the third act torturing Mom and kid. Eventually Mom dies. Eventually kid dies. The end.
The audience is left without any of its questions resolved: Who was that man? Why did he torture them? How did anyone agree to greenlight a movie that was totally without a narrative arc? Why did I just fritter away an hour and a half watching it?
And now you may have a question as well: Why would I torture you with details about this execrable film? Well, because Netflix released its earnings estimates this week. And this movie illustrates, I think, the challenge facing Netflix in its battle to dominate the future of streaming.
My colleague Joe Nocera recently outlined what that battle looks like -- taking on lots of debt and effectively “betting the company” every year by binge-spending on content and hoping that that’s enough to drive subscriptions. Like my colleague, I think that’s a smart strategy. As long as it was dependent on leasing streaming rights from studios, Netflix was a victim of its own success: The bigger it got, the more content providers worried that the company would murder its rivals, leaving them the only game in town for studios looking to sell streaming rights. So studios made it very expensive for Netflix to acquire rights -- which is why, for years, Netflix’s streaming movie inventory kept going down.
Owning content keeps Netflix in the game. And so far, at least, this strategy is paying off. Netflix added 8.3 million net subscribers in the fourth quarter -- higher than estimates, and the most in the company’s history.
But as my colleague Shira Ovide notes, those subscribers come at a cost: specifically, the mountain of debt that Netflix is taking on in order to fund its content binge. Equity investors may be thrilled to see Netflix growing its subscriber base and consolidating its market position, but bond investors don’t really care about the stock price, and they don’t even care that much about the total number of subscribers. What they want to see is “free cash flow,” which is to say, they want to know that Netflix will have enough cash on hand to make its future bond payments.
At this point, however, Netflix is shoveling cash out the door as fast as it comes in, acquiring and creating content to add to its library. And it should give us pause when one result of this spending binge is a horror movie where the scariest moment is the audience’s discovery of the shimmering, pulsating void at the center of the film -- the one where the plot is supposed to be.
The company has said that it will spend up to $8 billion on content this year. Many commentators have asked whether this is too much for financial stability. But I think we may need to ask whether this is simply too much, period.
The iron law of economics is that almost everything, eventually, reaches the point of diminishing returns. The last French fry doesn’t taste as good as the first; Warren Buffett’s final $1 billion probably hasn’t brought him as much joy as his first million did. And eventually would-be content kings simply run out of good projects to make; after that, they must either stop spending or make some terrible stuff that no one in their right mind would want to watch.
This moment arrives even sooner because Netflix isn’t the only company on a buying binge. Everyone is hoping to build a streaming empire. And many of them, like Amazon and Disney, have deeper pockets buffered by other revenue streams.
Nearly 500 scripted original television shows were made in 2017, and pretty much everyone agrees that that was too many. It takes time to make a good writer, a good showrunner, a good producer; the industry simply didn’t have enough talent to staff all those productions, and the audience didn’t have enough time in their day to watch them. Movies are just as hard -- harder, in some ways. With a 10- to 20-hour drama, you have some room for error, for slow pacing or weak plotting. When you’re working with 120 minutes or less, every second has to count.
Of course, bad movies and television got made in every era; as screenwriter William Goldman once wrote, the truth about Hollywood is that “nobody knows anything.” But what you might call a “normal” bad movie is usually a dreary rehash of some thoroughly strip-mined formula; "Open House" manages to be dreary without the formula, and thereby makes you long for the homey comforts of bland protagonists, predictable jokes and plot development the audience can see coming from clear over into the next county.
Against these, of course, we have to set the wins. I’ve watched a number of fine Netflix shows in the last year: "Stranger Things," "The Crown," "Mindhunters," "Ozark" and probably some others that just aren’t springing to mind at the moment. All of these create value for the company right now, and also in the future, as new audiences rediscover them.
But surely no one at Netflix headquarters thought "Open House" was on par with "The Crown." It's hard to see how spending money on nigh-unwatchable content does Netflix any good. Especially with those all-important bond investors watching closely. They may be the only people who get a scare out of flicks like "Open House."
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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