Following Netflix’s announcement to shut down its DVD rental service we need to ‘watch’ this space closely as the changes are not over yet, writes Dr Adele Smith-Auchmuty and Aaron Delahunt, School of Business 
     

    Since 2020, Ireland has seen a dramatic shift in how an audience consumes films. This has transformed the industry's business model by bypassing cinema releases and going straight to streaming platforms. Now that cinemas are fully operational again and general admissions are on the increase, will both cinemas and streaming platforms be able to co-exist?

    The pandemic certainly impacted the film industry in a significant way. Film productions were halted during lockdowns, cinemas closed following government guidelines and new film releases were shelved by studios to an unknown date.

    However, one man's misfortune is another man's opportunity. As the traditional business model of the film industry was not a viable option during that feeder, we witnessed what used to be the final cycle for a film’s release rise to the top. With most of the population at home, it was not surprising that on-demand TV and streaming services would become the main form of entertainment for the masses. The growth in online streaming services over the last five years, the near total demise of the (beloved?) video store and the huge fall-off in cinema admissions meant this outcome seemed inevitable.

    In Ireland, the most popular streaming service and the juggernaut in the field was and is Netflix and the company hit a high of 200 million global subscribers in 2021. While the pandemic was the driving factor that made this increase possible, it was nonetheless a tremendous feat to accomplish.

    By comparison, Irish cinema attendances were at a historical low during this time. Figures from the Film Distribution Association (FDA) for Ireland and the UK showed a 76% decrease in box office sales for 2020, generating only €374 million. This decrease was clearly due to the disruption in business caused by the pandemic. 

    The following year, when cinemas re-opened, there were sceptical predictions that cinemas would not be able to compete with what streaming services provided their subscribers. But, as shown by FDA box office returns, admissions rebounded in 2021 with an 84% increase in general admissions that generated nearly €692 million. In the last quarter of 2022, cinema box office continues thriving and is outperforming global figures.

    So what was behind cinema's turnaround in performance? Well, filmmakers and studios were no longer solely reliant on streaming services and could return to their traditional release cycle for new movies. This meant starting with theatrical release in cinemas before moving to on-demand TV, DVD, and then down to streaming services as the last release window.

    This has had a catastrophic effect on streaming services' projected growth. During the pandemic, Netflix capitalised on the opportunity to lease popular films and series, including their own Netflix originals. However, Netflix lost over 200,000 subscribers in less than three months in 2022, which caused its shares to fall by 35% and see it lose over $54 billion.

    As a result, Netflix increased its monthly subscription fees on all packages, which was not viewed favourably by customers. Instead, it showed poor value for current subscribers by effectively penalising them with raised prices for sticking with Netflix. At the same time, other streaming platforms continued with the same market average subscription price.

    We now see an over-saturation of streaming services with unique catalogues of films, making it more inconvenient for subscribers to find something to watch. Therefore, the only option available to customers is to have multiple subscriptions to several streaming services.

    There are now new platforms that allow customers to have full access to a variety of streaming services through consolidation applications. As a result, streaming services like Netflix will become less profitable, but stay relevant by securing deals with consolidation platforms.

    The pandemic has been the film industry’s catalyst for change, but not in the direction they expected. Studios and distributors show signs of progress as they return to cinemas for film releases while streaming services are finding themselves in the predicament of not being the vital source for content consumption. Only time will tell if the industry will regress completely back to the traditional forms of business, or if it will evolve and create a new market altogether.

    This article originally appeared on RTE Brainstorm.