The other night I watched one of the worst movies I’ve ever seen. (No need for “spoiler alerts”; this film can hardly be spoiled.)
“Open House” is a horror movie, new on Netflix, about a recent widow and her son who move to a relative’s mountain house to get back on their feet financially. The only requirement is that they allow the real-estate agent to hold open houses.
Standard horror-movie hijinks ensue: strange noises, things that move inexplicably, 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: There is no development of the parent-child relationship or the characters. It feels like a series of almost-unrelated events.
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. 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 wondering: Who was that man? Why did he torture them? How did anyone greenlight a movie totally without a narrative arc?
And now you may have a question as well: Why would I torture you with details about this execrable film? Because Netflix released its earnings estimates this week, and this movie illustrates the challenge ahead in its battle to dominate the future of streaming.
Bloomberg View columnist 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. Nocera and I think that’s a smart strategy. As long as it depended on leasing streaming rights from studios, Netflix was a victim of its own success: The bigger it got, the more content providers worried it 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 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 Bloomberg’s Shira Ovide notes, those subscribers come at a cost: specifically, the mountain of debt that Netflix is taking on 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 in which the scariest moment is the audience’s discovery of the shimmering, pulsating void at its center — the one where the plot is supposed to be.
The company said it will spend up to $8 billion on content this year. Many commentators have asked whether this is too much for financial stability. 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 terrible stuff.
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 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 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. 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, among them “Stranger Things,” “The Crown,” “Mindhunters” and “Ozark.” All create value for the company right now and in the future as new audiences rediscover them.
But 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.”
McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”