Home Analysis Liberty: Virgin Netflix deal not a template for other territories

Liberty: Virgin Netflix deal not a template for other territories

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Bob Leighton, sitting far left, on a panel hosted by 3Vision at the 2016 Connected TV World Summit

By Barry Flynn, Contributing Editor

Liberty Global has no set policy on integrating Netflix into its cable offers in those of its markets where the premium SVOD service has now launched, and will determine such partnerships on a case-by-case basis.

That was the message from Bob Leighton, the cable MSO’s SVP Programming, to delegates attending a panel on Advanced Content Strategies at the Connected TV Summit in London.

Leighton said that every market was different, and what might have made sense in the UK market because of the ‘competitive dynamics’ between Sky and Virgin, “doesn’t necessarily apply in any of our other markets.”

Leighton argued that, “from a certain point of view, the cost/revenue potential of doing a deal with Netflix is really no different than a decision to add a linear channel to a basic or an extended-basic tier. We’re making soup basically, as in any subscription driven business: mixing in many ingredients of varying value, adapting the recipe for local tastes, but not necessarily a magic formula for how much meat you need to add or else they won’t come back to your restaurant. If you determine there is consumer value to a certain brand, based on either actual behavioral usage or, just as importantly, what they think – is it leading to satisfaction and hence lowering churn? That’s how we really look at it.”

Leighton noted that “we’ve willingly harnessed that value, certainly in [the UK] market. That doesn’t mean we’re going to do that in every market, necessarily. It’s a premium product but it’s as much a marketing expense, from a certain point of view. We look at Netflix alongside HBO and potentially other thematic SVOD services. If there’s room on the shelf and the consumer wants them, we’ll probably find that room.”

Earlier, panellists had been shown research by panel sponsor 3Vision which suggested that, adjusting for the different purchasing power in different countries, Netflix’s pricing in the new territories where it had launched in 2016 had positioned the service as “a niche product targeting a very upscale customer,” implying that it faced “big questions on affordability.”

Leighton agreed, commenting that in Netflix’s most recent launches, the SVOD service “resembles an expat service as much as anything else.”

He added that one of Netflix’s “brilliant” insights had been to realize that it could monetise back-catalogues containing series to which their owners attached no commercial value.

While this represented “found money and found consumer value,” it had its downside, Leighton argued. “Once consumers subscribe to Netflix, we see a pretty clear honeymoon-type effect of chewing through the back-library, and then those usage levels drop off over time.”

Asked if Liberty had any plans to offer an Electronic Sell-Through (EST) model on its cable operations, Leighton replied that it had not offered EST yet and viewed it “as a loss-leader, a relatively small calibre bullet.” However, he did not dismiss the possibility. “It provides a marketing shout,” he said. “At least it’s accretive and a new business line, albeit currently smallish and low margin.”

To a suggestion from an audience member that EST could play a significant role in reducing churn, and that Sky’s recent reduction of its churn-rate to 10.2% was a possible example of this effect at work, Leighton said that while “you can only view the addition of that feature in the context of a whole set of advanced features that Sky and other operators like us have been introducing to improve consumer satisfaction, there is certainly an association there that you described.” However, he concluded, “the causal link is less clear.”

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