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Shocker: Netflix Likes to Get Word-of-Mouth Marketing Freebies

In Tuesday's earnings report, digital-video veteran Netflix (NASDAQ: NFLX) made it abundantly clear that management is smart about copyright issues. Many of its fellow media companies send out a pack of lawyers with takedown notices at the first hint of fan-made media featuring copyrighted characters. Netflix takes a different approach by "celebrating" the passion and excitement of its 214 million subscribers.

Good for you, Netflix. If fans are helping you promote your original shows and movies, I don't see why you should try to stop them.

The usual copyright-protection pattern

You know the usual drill, right?

  • A company publishes an original work. Whether it's a movie, a song, a video game, or a TV series, copyright protection automatically comes into play.
  • Inspired by that copyrighted media, a fan creates a tribute to it. This tribute could be an online video, a poem shared on social-media services, and so on.
  • The company that holds the rights to characters and other unmistakable details in the fan-made tribute notices an infringement of its copyright protection. The legal department uses every available legal trick to make the offending fan art go away.

Let me give you a couple of examples.

Nintendo (OTC: NTDOY) issued a mass takedown of 379 fan-made games in January 2021. Last December, the Japanese video game company asked YouTube to remove hundreds of fan videos featuring music from Nintendo's games.

These are just two examples from Nintendo's rich lore of draconian copyright-protection efforts. The company could solve many of these infringement problems by selling limited licenses to those who make money from their Nintendo-based creations. Instead, the Super Mario studio has chosen to protect its intellectual property in the strictest and least fan-friendly way possible.

Nintendo is not alone. When Walt Disney (NYSE: DIS) was founded, amendments to the Copyright Act had already extended its protective period from 14 years to a maximum of 56 years. Mickey Mouse was supposed to enter the public domain in 1984 under those rules.

But Disney saw that expiration date on the horizon and invested in a massive lobbying campaign to extend the copyright policy again. The effort led to another amendment in 1976 that changed the expiration date to 50 years after the original creator's death.

Mickey's copyright expiration moved to 2003. Five years before that deadline, another Disney-powered amendment punted that date into 2023. The Walt Disney Company will gladly alter the law to protect its copyrighted characters.

Image source: Getty Images.

A disruptive new idea

Netflix takes a very different view of the intellectual-property question.

In Tuesday's earnings report, Netflix said that the South Korean drama Squid Game now ranks as the company's most-watched show of all time. With great popularity comes a great deal of fan reactions, including Squid Game-themed TikTok videos with a total of 42 billion views.

If this was Nintendo or maybe even Disney, TikTok's legal department would be swamped with video-takedown requests or cease-and-desist orders. But this is Netflix. Management simply noted that the Korean show "pierced the cultural zeitgeist," and that the company is sending consumer products with Squid Game themes to retail outlets as we speak.

COO Greg Peters expanded on this theme in the earnings call. Analyst Nidhil Gupta asked how Peters felt about fans and companies tapping into the Squid Game phenomenon. Roblox (NYSE: RBLX), for example, is full of Squid Game activities and mini-games right now. Peters said:

It's just tremendously exciting to see something like Squid Game blow up in the cultural zeitgeist, and then how that passion for the title shows up in all these different places. We definitely want to be part of some of that passion. But there's no, I think, monopoly on that passion. And so you'll see it in other places. And people are sending around TikTok videos or they're doing their own sort of mini-games in Roblox or things like that. I think that's great. And I think that we should celebrate that fandom and that excitement as well.

What does this attitude mean for the media industry?

Greg Peters doesn't see a threat to Netflix's revenue streams when fans make unlicensed Squid Game videos or Roblox games. The Roblox angle is particularly interesting because that gaming platform generates revenue for creators in the form of the Robux in-game currency, which can then be exchanged for dollars and other real-world currencies.

Netflix doesn't mind if you're making a few Robux on your Roblox games inspired by Squid Game. It's basically free marketing for Netflix, developing the company's image as a creator of great original content.

I have never understood why companies like Nintendo and Disney don't see it that way. Then again, Netflix has a long history of disrupting long-held industry practices.

Remember late fees for returning your rented video a bit late? How about renting physical videotapes or DVDs from the video store on the corner? Or the long-running practice of defending your existing business model at all costs, even if there's a much better idea right around the corner?

Netflix rejected all of those tropes in the process of building a global media empire. It looks like heavy-handed copyright policies are next on that list.

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Anders Bylund owns shares of Netflix and Walt Disney. The Motley Fool owns shares of and recommends Netflix, Roblox Corporation, and Walt Disney. The Motley Fool recommends Nintendo. The Motley Fool has a disclosure policy.


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