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space_smallI discovered what Netflix does the other day.

I mean I know that it streams TV programmes, Films and Documentaries to your device over the internet for a monthly subscription fee, but I got to the root of its core purpose and its success.

This sort of epiphany isn’t that ground breaking, many people, much smarter than I, will already have worked this out, but it was a moment when I stopped thinking about this internet service in one way, and looked on it in a completely different light.

There is a small amount of back story needed. Shortly after the phenomenal success of 2004’s ‘Battlestar Galactica’, re-imagined from the 1978 TV series, I bought the box set from HMV. It was a hefty investment at the time, if memory serves, it cost me well over £100 and was presented beautifully. It was in a metal tin, each series of DVD’s was stored in a red plastic ‘ammo’ tray, the discs for each season were packed full of extras, interviews and commentary.

I spent one year, dedicating all of the free ‘TV time’ that I had, (I was profoundly single at the time,) watching the show in order, from the start. I enthused about it to friends, I opined on the religious overtones, the richness of the story and the value of free speech; the usual fanboi fervour (trust me that is the correct spelling,) that comes with a multi-million-dollar Sci-Fi / Drama TV franchise.

And then, once I had finished, I carefully put all the discs back in their high quality presentation case, in order and to this day they have remained untouched on the shelf in my den.

I am now watching it again, but now on Netflix. My much better half, (I am now profoundly, not-single), snorted derision at me because there I have my original £100 investment sat on the shelf, inactive and I am watching the entire series from the start, on a streaming service.

My revelation stems from the nature of the product that this particular streaming service offers. I am able to select, watch, pause, stop, eat dinner, leave it for three weeks and resume watching it without any special instructions. I can watch the entire first season without leaving my couch to change disks, or sleep as it turns out. I don’t have to do anything to pick up where I left off when I go on holiday.

Also, my investment is minimal compared to the original and, of course, I get all of the other titles that I didn’t know existed. I am now completely caught up on the original ‘Red Dwarf’ series for example.

This is not an advert for Netflix, other streaming services are available, but during the period 2000 – 2010 VOD (video on demand) was seen as the poor cousin within the entertainment industry, with the stigma of piracy to boot. It barely made a scratch on DVD and Blu-Ray revenue. In fact, the big question being asked by the film distributors was whether Blu-Ray was going to become the media choice of the audience? All the more worrying given that DVD was in decline. What format were people watching?

This graph and its headline, from 2010 sums that up perfectly. (Click to enlarge)

DVD decline

Graph 1. US Consumer Home Entertainment Spending 2000 – 2010

Compare that with VOD services in the US from 2010 forecast to 2019 in the US. (Click to enlarge)

VOD Forecast

Graph 2. Forecast of SVOD and OTT Providers revenue 2010 – 2019

For clarity, OTT means ‘over the top’ and in this instance refers to streaming over the internet or mobile data rather than straight through the TV services such as Sky or BT.

Winners and Losers.

The victims in this environment are those whose business models relied on the physical media and didn’t change to adapt to the shift in consumer behaviour. Those who sold or rented only DVD’s and Blu-Ray discs, specifically, Blockbuster and in the UK, HMV, suffered the most.

It’s pretty well known that Reed Hastings, the founder of Netflix met with John Antioco, then CEO of Blockbuster, to propose a joint venture where Netflix would be promoted in-store, on Blockbuster premises. Hastings was denied a partnership but went on to create a $44bio company with some 75 million subscribers globally and Blockbuster is now the name of a cocktail. If you want to read more about that meeting and the subsequent decline of Blockbuster, Forbes have an excellent article on it here from 2014.

Consumer behaviour drives product success.

If we go back to the original 2000 – 2010 graph, the disparity between the physical sales of DVD’s falling and subscription VOD services increasing, is very interesting when you put that in the context of consumer behaviour.

Using VOD, I can, as a subscriber, pay once a month and watch up to 744 hours of unique and non-repeated entertainment. If I pay, say, $7 per month on my subscription this equates to 0.9 cents an hour. If the average DVD costs say $10 to purchase, lasts 2 hours and I want to repeat the exercise (watch unique or non-repeated content,) I would have to spend or invest $3,720 a month for the same experience. It would also be a royal pain, as I would have to find space to store and time to change the discs and so on. The VOD experience serves me as the consumer better and that is what Netflix does.

So what can the UK telecoms channel learn from this?

Every model is changing, of that there is no doubt. OTT voice services in the UK telecoms channel are now mainstream; no longer in the domain of early adopters. We need to re-evaluate our approach to how the solutions are sold and consumed, from the user’s perspective. Inclusive minutes, hardware and support are now part of the mainstream. The model of charging for every event is on its way out and there is nothing that can be done to alter that. Given changes to the carrier model and the virtually zero cost of a per minute call over IP, the consumer is demanding a change in the go to market model, end to end. From survey and installation to calls and applications.

Those that are willing to look back and see how the OTT market is leading the way in terms of democratising the consumption of services and then adapting to meet that need, will flourish. Those that are hoping that the business model that served well over the last 15 years will continue to do so may well find their business name being used as the street term for a drink.

Footnote

There’s a pun in the title, there are 50 house points to the person that messages me with the reference.

“So say we all.”