Why Not Maximize Profit?
Lauren Goode of Recode writes about Netflix CEO Reed Hasting’s prediction that movies will eventually be available in theaters and streaming simultaneously:
Netflix’s chief executive officer has made no secret of the fact that he’d like movies to come to Netflix almost as soon as they’re released in theaters. Today at Recode’s Code Conference, he offered a rather optimistic view of how people will still have their in-theater experience and stream it, too: by likening the theater experience to going out to dinner, as opposed to cooking at home.
Netflix’s chief executive officer has made no secret of the fact that he’d like movies to come to Netflix almost as soon as they’re released in theaters. Today at Recode’s Code Conference, he offered a rather optimistic view of how people will still have their in-theater experience and stream it, too: by likening the theater experience to going out to dinner, as opposed to cooking at home.
I know that movies are not physical products, but I don’t see why movies are exempt from universal business law. More specifically, smaller convenience sizes are always more profitable for the seller.
Many companies offer their bread-and-butter products in small convenience packages for travel, like shampoo or drinks, if there is a demand. They’ll do this because even though the sell price is much lower, the profit margin is much higher. Most people are willing to overlook the higher cost per ounce if they only need a small size. They are paying for convenience. Businesses don’t have to decide between offering larger bulk sizes and smaller convenience sizes. They offer both to maximize profit.
To my manufacturing mindset, I don’t see why movie studios can’t follow the same plan. They could sell their movies in “bulk” through the movie theatres and sell their convenience sized portions via streaming to individual homes. It seems like the best of both worlds.
The only reason a company wouldn’t offer smaller high-profit convenience sizes is because there isn’t a demand for it. Movie studios don’t have that issue. Movie goers are clamoring for streaming as soon as possible. They could either price movies so that streaming brings in more revenue per viewer than movie theaters or they price it low enough to bring in more total viewers.
The only losers would be smaller movie theaters that couldn’t absorb the resulting downtick in ticket revenue. But hey, times are changing. This shouldn’t impact the movie studios if they handle their streaming pricing correctly.
Many companies offer their bread-and-butter products in small convenience packages for travel, like shampoo or drinks, if there is a demand. They’ll do this because even though the sell price is much lower, the profit margin is much higher. Most people are willing to overlook the higher cost per ounce if they only need a small size. They are paying for convenience. Businesses don’t have to decide between offering larger bulk sizes and smaller convenience sizes. They offer both to maximize profit.
To my manufacturing mindset, I don’t see why movie studios can’t follow the same plan. They could sell their movies in “bulk” through the movie theatres and sell their convenience sized portions via streaming to individual homes. It seems like the best of both worlds.
The only reason a company wouldn’t offer smaller high-profit convenience sizes is because there isn’t a demand for it. Movie studios don’t have that issue. Movie goers are clamoring for streaming as soon as possible. They could either price movies so that streaming brings in more revenue per viewer than movie theaters or they price it low enough to bring in more total viewers.
The only losers would be smaller movie theaters that couldn’t absorb the resulting downtick in ticket revenue. But hey, times are changing. This shouldn’t impact the movie studios if they handle their streaming pricing correctly.
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