Will Netflix break into the mainstream?

Certain people are paid a lot of money to prognosticate on the next big thing. I’m not one of those (in either payment, or size of payment). Many factors influence, but one I’m particularly interested in is media buzz. In my opinion, traditional media is important in moving new technology products and services from early adopters towards the mainstream.

Important, but not necessary – and certainly not sufficient. Not all of the media hype cycles have come to pass – Second Life being an oft-cited example.

However, the likes of Myspace, Facebook and Twitter have seen mass media exposure prior to mass adoption. Twitter in particular has seen a big discrepancy between media coverage and actual usage. But while it remains in the minority, it continues to grow and I think it is safe to say it is part of the mainstream.

What differs between Second Life and the successful social networks? In addition to the profile among influencers (and I do think traditional media is an influencer), I’d argue that they are aspirational in that they can connect you to people you admire – whether your near friends or favourite celebrities or bands – with whom you can exchange social currency. It might be clouded by hindsight, but I recall the coverage of Second Life being more aloof, treating it more like a curio than a natural development of the internet.

In terms of social currency, TV remains central (e.g. one third of all tweets are about TV), and therefore developments with TV are always going to be treated with interest. Shazam is getting some good coverage at the moment, but nothing to the extent of Netflix. Netflix is still a relatively new proposition in the UK, but it’s original content strategy has meant that it has already pushed past Lovefilm in the media consciousness (I’m not sure about subscriptions). Could mainstream media coverage push Netflix into widespread adoption?

Now, traditional media will be covering Netflix with a note of caution, given concern of existing business models and the now infamous quote from Reed Hastings that “the goal is to become HBO faster than HBO can become us”. And there is no guarantee that future releases such as the upcoming Ricky Gervais project will receive the same volume of coverage as House of Cards. In fact that is probably likely, though I was surprised by the sheer scale of the coverage this time given a) their previous release Lilyhammer didn’t b) the model of pre-paying for and filming an entire series is – unlike in the US, where shows such as 30 Rock have reacted to response to the early episodes – well-established in the UK and c) it’s not as if series-stacking is a new phenomenon.

Unlike the social sites that can receive continuous coverage bolstered by specific events, Netflix is relying on several big bang launches scheduled across the year. This might make it more difficult to replicate, but a few early successes can set the template for subsequent releases, in the manner that Apple’s iLaunches do.

Without taking into account the other factors (audience benefit, price point etc), the volume of media coverage does put Netflix in a solid position to challenge the existing TV landscape, and break into the mainstream.

Now I’m not on Netflix yet, but could I be? Well, it would be a more cost-efficient process than building upon my DVD collection and given that I’m a big fan of Arrested Development (Netflix’s next release), then my reaction to any forthcoming trial offers would be “Come on!“.

sk

Recommended Reading – 24th April 2010

I decided against posting a list last week, and instead held out until I had a decent number of quality links worth sharing. I now have a high-quality list, which can be found below:

  • James McQuivey on the Forrester blog argues why Hulu should be available for subscription. The comparison to Netflix is a good one, but whether the networks (not to mention the operators that carry them) would ever approve this is a completely different matter.
  • Asi Sharabi lists 8 sins of nu-marketing folk. Sample quote for the sin of dogmatism: It’s easier to shout “it’s all about this!” (’this’ being the buzz-word of the day: engagement, relationships, co-creation) than to scrutinise the context face the uncertainty, and admit the complexity
  • Alastair Gordon writes a very interesting piece on what the ownership of market research companies could look like in 2020. He posits that operations suppliers could takeover some of the client-facing project management/analysis companies. I’m not sure I agree – research quality is largely hidden and thus undervalued, so I don’t think these companies would have the ability to successfully integrate in this way – but a thought-provoking theory.

sk

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“All you can eat” offers

I’ve been thinking about subscription models recently – specifically unlimited usage models.

It isn’t right for all business or all sectors, but generally they seem a good thing. Service industries, for instance, would struggle to cope with an increased demand without a commensurate increase in revenue. And premium good sellers would be reticent to participate in a model where price is to an extent commoditised.

Subscription models can be effective where:

  • The product is disposable (in the sense that it is impermanent) yet potential customers are price sensitive. Each purchase is a transaction, and this transaction requires careful consideration. People will only buy when they can guarantee they will get their money’s worth – they will generally be unwilling to risk a substandard product
  • A product suffers from a great deal of indirect competition. The customer doesn’t face a zero-sum choice in product A or product B, but has a range of alternative sectors to choose from. Growing the market is arguably more important than growing share.
  • A new product category is introduced and people aren’t aware of or don’t understand the benefits that they can receive from changing their behaviour
  • Complementary products are able to benefit from an increase in use of a separate product

Subscription services can transform industries:

  • Film rentals: No longer do people have to decide whether each title will be value for money. With an unlimited subscription from the likes of Netflix or LoveFilm, they can afford to experiment. Not only does this benefit the company, but the industry as a whole grows
  • Mobile phone packages: The mobile internet only took off when unlimited data charges were introduced. This post from Vic Gundotra of Google has some nice stats showing growth resulting from these new packages
  • The food industry originated “all you can eat” offers, but this is too short-term to create real value. People still eat a meal; they are just encouraged to eat more food. Rather it is the more long-term offers that create more value e.g. free refills encouraging people to stay in a coffee shop longer, where they then buy more snacks. I wonder if there are any examples of monthly subscriptions for restaurants? This could work well e.g. pay a monthly fee and then eat there as often as you wish.
  • While not quite “subscription”, loyalty/reward cards can help retain long term business. Chris Stephenson has a great example from Starbucks.

I have actually been persuaded to participate in two subscription services recently:

  • At Cineworld I pay £12 a month for unlimited screenings. This has changed my behaviour for the benefit of both Cineworld and the film industry. Last year I went to the cinema twice. In the past month I have been 5 times. I have purchased overpriced snacks there, but most importantly I am not cannibalising revenue. I am a new customer and I haven’t yet been to a sold-out showing – so the marginal cost of me sitting in an empty seat to watch a screening is effectively zero. A win for cinema and a loss for the other entertainment industries where I am now spending less time
  • I have paid $80 for a season’s access to MLB.TV where I can watch live, archived and “condensed” versions of every baseball game (as the regular season before play-offs is 162 games per team, that is a lot of content). I like baseball but I am not a diehard fan. However, Sky Player’s sports package (£35 a month for non-subscribers) seems overpriced for the marginal cost of adding a newuser who unable to have a dish installed in his flat. It is their prerogative to keep premium pricing, but they risk losing out to specialised services such as MLB.TV and Footyonline.TV, (£23 for a season; HT Graeme Harrison). Infrastructure and rights issues notwithstanding, could Sky not offer single sport or genre packages online, and look to upsell with additional services? That would have persuaded me to buy.

Subscriptions make me question the long-term viability of some services. iTunes has been phenomenally successful in its transactional model, but if someone gets a subscription model correct (or if Spotify can make an ad-funded model work), will that spell the end? Purely transactional models seriously inhibit overall consumption – for instance this is the primary reason why the French VOD offering is so far behind that of comparable countries (they have little free catch-up; it is predominantly pay per view). Is iTunes capping legal consumption of digital music and video?

Finally, is there scope for unlimited subscription models in research? For the large part, no. Industry currencies and syndicated surveys cater to a niche, but research is rarely objective data and the greatest value is derived from the service i.e. interpretation of results, not the results themselves. Companies such as Mintel and Forrester may be able to build a small amount of face time in their fees, and then upsell further consultancy or ad-hoc research, but for the most part I view this as a potential limitation to the core offering.

However, where there is indirect competition, a struggle to communicate benefits or opportunities to upsell complementary products, subscriptions appear to be an enticing prospect.

sk

Image credit: http://www.flickr.com/photos/lexnger/

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Links – 30th November 2008

This list is both later and longer than recent posts, but the quality of thought and writing is extremely high

Changing industries

Seth Godin on things the New York Times could have done to stay ahead in the digital environment. While hindsight is a wonderful thing, and while every successful online venture is greeted by many more failures, the post does indicate the benefits of being a forward thinking organisation that is willing to adapt. Ultimately, it is not about running a newspaper but building ideas.

I also liked Mitch Joel‘s post on “Trading analog dollars for digital pennies”, which lists six reasons why traditional companies are struggling. It is a painful adjustment as industries with high barriers to entry are opened up to anyone with a domain name and some spare time, but it is an adjustment that is vital to survival.

On a sidenote, as marketing budgets get cut, it will be interesting to note whether there will be a shift in distribution between traditional and digital. In times of uncertainty, people tend to fall back on tried and trusted methods, so the online world may temporarily retreat.

I enjoyed this interview with Bethany Klein on the subject of music and advertising. She is writing a book on the subject and, in her view, advertising is replacing the record label as middleman between artist and fan.

And to sum up this section, the Satir model of system change argues that a transforming idea at the moment of chaos can push organisations onward to the next level

Social media innovations

“This Book Will Be Famous” – passed around from famous person to famous person, before being auctioned off for charity. A great idea taking social media properties into the real world.

Zeus Jones has a gift selection site, that can be filtered on elements such as price and gender.

The New York Times has a fascinating article on how crowdsourcing is being harnessed to improve the Netflix rating/recommendation system. There is a prize for the first group to improve the system by 10% yet competitors are collaborating with one another to get closer to the goal. The biggest challenge to overcome is the Napoleon Dynamite problem – a cult film that is particularly divisive.

It has been delayed due to technical issues, but it is worth bookmarking the European equivalent to Google Book SearchEuropeana

Online video

Fox’s take on moving content online (Newteevee). To my mind, the move from single to multiple distribution models is one of the biggest challenges of online video.

Roo Reynolds has written a fairly comprehensive list detailing ways in which one can enjoy online video socially (from backchannels to blogs)

Advertising

A fascinating conversation with a couple of advertising guys, who riff on ideas to take traditional properties into the digital sphere. Facebook overalls and Katie Couric will never be the same again. (New York Times)

Three youth marketing strategies on mobile phones that actually work – creation, communication and customer service are key

Other blog-related posts of interest

Guy Kawasaki on the art of bootstrapping

Bruce Schneier has a thought-provoking post on ephemeral conversation. Today’s children are growing up in an environment where every action and interaction is recorded – very little is now being lost in the ether (which is both good and bad)

From the archives, a New Yorker profile on Shopsin’s General Store – a restaurant with hundreds of choices and a unique attitude to growth and customer service

Miscellaneous posts of interest

A profile on Jason Rohrer – a video-game artist (Esquire)

The database of a music fan that has been to 5,000 gigs over the past 35 years

Fimoculous is starting the aggregation of all lists of 2008 – well worth bookmarking

20 pieces of trivia from Listverse

For the more time-pressed, I would recommend: Seth Godin on the New York Times, Netflix and crowdsourcing, Digital advertising riffs, and Ephemeral conversation

sk

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Links – 21st November 2008

My top 10 reads of the past week:

1. The Times published an absolutely fantastic article looking at neuroscience and how we can improve our brain performance. The writer pays short shrift to the DS Brain Training activities, for the sensible reason that this rewards recognition and repetition over learning. While we do not yet know a lot about our brain, the author exhorts us to work on improving oneself through a simple mantra: Pay Attention

2. On a neuroscience theme, Martin Lindstrom – author of Buyology – has an article on Advertising Age explaining why sponsorship of American Idol works for Coke but not Ford. Essentially, Ford has had trouble justifying its existence.

3. How intelligence can overcomplicate: Students trying to predict the stockmarket perform worse than a rat finding a piece of cheese. It is the conflict between striving for perfection (through modelling) or accepting a reasonable chance of success (Science Blogs)

4. Chris Anderson has conceded that the Long Tail argument is flawed, in that the number of aggregators providing the long tail of product options conform to powerlaws (think Google, Amazon or Netflix)

5. ETH Zurich have studied Youtube videos to try and work out what constitutes a successful upload. Their typology consists of viral, quality and junk videos – a more nuanced approach to my 4-video typology where viral constituted a single element (against reference, scheduled and topical) (Newteevee)

6. Engage Research and Global Market Insite have published a report saying that online surveys bore respondents. Quite. Unlike telephone or face to face interviews, online is restricted to the narrower range of those that opt-in. Therefore things need to be mixed up regularly in order to avoid a) burn-out and b) recognition of formats and patterns. (Brand Republic)

7. Fast Company has a profile of Sam Ewan – whom some people may refer to as a guerrilla marketing. I don’t particularly like the label, but I think the concept is fantastic – the levels of creativity in constructing a unique experience are limitless

8. A NY Times article looks at how industries change to survive e.g. one might predict the extinction of the bicycle with the advent of the automobile but that evidently wasn’t the case

9. Lifehacker tells us how to burn any type of video file to a playable video DVD

10. And finally, a triumvirate of brilliant little websites (OK I’m cheating in order to get a nice round figure of 10). Tag galaxy transposes Flickr searches to a galaxy of interrelated search items, the Charlian is a Charlie Brooker themed Guardian that came out of their hack day, and Let me Google that for you gives a visual display of searching to colleagues lazily shouting out a question when the answer is in front of them

sk

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Maghound adopts the Netflix model for magazines

maghound

Time Inc have announced that they will launch Maghound in September. This will offer a Netflix style subscription model, where for a flat fee users can pick and choose the magazines they want that month.

I think this is brilliant.

Netflix has been a fantastic success. However, there is one possible iceberg on the horizon – the adoption of digital downloads. But the beauty of Maghound is that this shouldn’t affect them (aside from possible downward effects the Internet has on magazine consumption as a whole). The USP of a magazine is now its physicality – the ability to pick it up, carry it about, tear it, crease it and generally immerse oneself in it in a way that is difficult to do with the quick-fix Internet.

As with some many recent innovations, this move takes the power away from the producer and assigns it to the consumer. No longer will unwanted subscriptions fill up the letterbox and empty out the bank account. Now a wider range of titles can be sampled, and advertisers can be assured that people are opting in to the title. And these people are likely to be those harder to reach people that dip into magazines occasionally rather than regularly.

Interestingly, the auditing bodies will be viewing these as single-sale copies. And while Time Inc say that they won’t be divulging user information to 3rd parties, there is of course the possibility to collect and use the information for targeted advertising within the magazines.

Three things need to be implemented competently for the scheme to succeed

  • The pricing model needs to be set at an attractive level – to me, it seems to be
  • Site design and usability needs to be a priority
  • It needs to be marketed as a complement, not a replacement, for traditional subscriptions

And if it really takes off, we could see a Netflix style community emerge

sk