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Is Netflix pointing the way for the industry?

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Without a doubt, Netflix has broken new ground in the industry, proving that a Subscription Video on Demand (SVoD) approach can be successful in the market. Give Netflix’s unquestioned success, it is definitely worthwhile studying and analyzing both the company’s strategy and its view of the market.  Still, questions remain about Netflix’s strategic visions, especially regarding the overall experience for users.


Different Aspects of the User Experience

Today’s users expect to receive a personalized experience. That has become a fundamental demand that must be delivered by any content service provider. In addition, users find value in a comprehensive experience that is not focused specifically on movies and TV series. Experts across the board agree that the ideal user experience revolves around content, pleasure, simplicity and multiscreen usage.

Several points in Netflix’s long term view are worth commenting upon:

  • Netflix claims that the “remote control will disappear.” I agree. Tablets and smartphones are increasingly being used as the remote control.
  • Netflix’s argument that “People don’t love the linear TV experience,” is less persuasive.  Rather than emphasizing linear TV, providers should be concentrating on the experience ofdiscovering content in the linear TV world. Content discovery is the crucial issue, and not linear vs. non-linear TV.
  • Netflix refers to competitors for entertainment time and spending as “competitors-for-time,” and “competitors-for-content.” In fact, Netflix’s competition is not limited to the movies, TV series, games and sports networks it recognizes. Piracy, too, is a significant competitor, offering a comprehensive range of content, including most of the Netflix content, SVoD and more. The growth of live pay TV piracy must be taken seriously in discussing future directions of our industry.
  • There are conflicting perspectives about how internet service providers (ISPs) and multichannel video programming distributors (MSVDs) work for people. Unlike Netflix, I believe that MVPDs offer broadband while ISPs offer more and more TV, especially in Europe.

The key question is whether services that mimic Netflix are the direction in which the industry is headed, or whether such offers are actually a new niche created by Netflix that primarily complement other offers in the content services marketplace.

To answer that, let’s dig a bit deeper into the methods behind Netflix’s madness.


Partnerships and Competition

Netflix is steadily entering into more and more partnerships with traditional content services providers, such as Virgin in the United Kingdom and Comhem in Sweden. Netflix is also rumored to be in discussions with major cable companies in the US. The reason? To increase its market penetration. These partnerships provide Netflix with access to TV subscribers that presumably could not be reached without cable operators.

With that in mind, why do subscribers maintain their relationships with their cable operators? Again, it increases their options. In addition to their love for live services, subscribers want comprehensive content that is not limited to movies, TV series or SVoD. These consumer expectations may conflict with one of Netflix’s key assumptions that content specialists will dominate the market. Yes, clearly there will be a market for movies and TV series specialists, a market for news, a market for sport content, etc. Nonetheless, and this is not so obvious, the industry must bear in mind that the success of pay TV over the last 20 years has been built with comprehensive offerings.

It is quite interesting that Netflix considers HBO as its main competitor. HBO’s success has been based on partnerships with MVPDs. If HBO is indeed a competitor, it may make more sense for Netflix to consider MVPDs as partners rather than as competitors. However, it’s interesting to note that HBO is moving to direct distribution in Scandinavia and other locations. It looks like both Netflix and HBO are looking for the best way to combine direct OTT distribution and partnerships with MVPDs.

Netflix may also want to reconsider its belief that “Internet TV will replace linear TV’ when in reality it looks more like Internet TV and linear TV will combine together to provide a comprehensive content experience. At the moment, Netflix’s vision doesn’t allow for partnerships with MVPDs. While Netflix’s strategy has been successful to date, I’m not convinced that their judgments about the likely direction of the industry are correct.

Don’t get me wrong; Netflix does a very impressive job in execution. However, it is quite doubtful that their Internet TV will eliminate other ways of consuming content in the foreseeable future. As far as the unforeseeable future is concerned, even Netflix can’t be certain!

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