Netflix Dividing Into Atoms and Bits: Smart Strategy, Dumb Execution

September 19, 2011 Leave a comment

Word broke yesterday (Sunday) on Reed Hasting’s blog and in an email to Netflix subscribers that Netflix is preparing to divide into atoms and bits businesses. Hastings has always said the long-term gameplan for Netflix was streaming, and this summer’s controversial and clumsy re-pricing and re-packaging foretold today’s announcement. What wasn’t clear was how the DVD/atoms business would continue to evolve while yoked to the relatively young and hugely ramping streaming/bits business.

No one in the industry can figure out how a guy as clued-in as Hastings could have overseen such a dumb roll-out of new positioning and long-term strategy. In less than a quarter Netflix has gone from a kick-ass logistics champ and new media giant pushing 30% of the Internet’s daily traffic to a gang that couldn’t shoot straight and can’t strike key deals with content providers.

The strategy for maximizing growth on either side of the equation is becoming more apparent. The DVD business continues to pump out cash, although the unexpected success of the disc rental kiosks (Red Box, et. al.) has slowed subscriber growth, now hovering over 14 million. Top-line, DVD is still a billion dollar business today for Netflix. The announcement included word that the disc company, Qwikster, will jump into game disc rentals for all the major gaming platforms (my kids will flip out at this). Lots of subscribers who had cut down to the one-disc plan will be persuaded to add another disc or two, particularly in homes with more than one game platform in active use (like mine). So ARPU is going to rise for Qwikster, and there will be at least a way to hold and add subscribers as well, starting Qwikster on its way to another billion in annual revenue. (Alternatively, as GigaOm’s Ryan Lawler wrote last night, Qwikster could already be too much of a legacy business and be harmed by being cut off from Netflix.)

The bits business: this is a little more uncertain. Phones, tablets, and game consoles are bringing lots of potential customers online and extending the availability of Netflix viewing to new times and places. Connected TVs are just barely registering in quarterly TV sales numbers but that will change in Q3 and Q4 2011 holiday season, and Netflix streaming is a default app on just about every Connected TV in North America. (Signing up for Netflix is still a laborious process on a Connected TV, but surely that won’t kill off subscriber growth via that channel.) So streaming subscriber growth drivers are firmly in place, and for certain categories of video content, there’s just no better service on the market (take that Hulu Plus).

But the trouble comes from the competitive pressures bearing down on the soon-to-be-streaming-only Netflix. Hulu hasn’t satisfied the revenue projections of its three-headed ownership group and will likely be divested in fire-sale fashion (if the latest rumors of low-ball bidding are true). Content providers will be looking elsewhere for the richest revenue for streaming and expecting Netflix to pay up. Amazon and Apple continue to hold the largest share of steaming VOD rental and have favorable retail-sales leverage with the content providers to give them price and exclusivity advantage over Netflix. And since there isn’t any sign of the apocalyptic cord-cutting that cable/payTV providers feared, that huge competitor still has subscriber and availability advantage over Netflix, also. Oh, and the networks and studios are all thinking they can cut out the Netflix middleman and stream directly to viewers, too.

What has to come next for the Netflix/bits business?

Higher ARPU through earlier/longer streaming availability deals. This must be item #1 on just about every agenda in the Netflix content group. Adding a premium priced service that gives users earlier access to current content, and keeps content available for longer time periods, is one obvious way to increase average revenue per user. As Netflix/bits subscribership grows, it becomes more attractive to content providers — but Starz walked away from the table, so somehow the numbers don’t add up yet. Netflix will keep negotiating and will find other content deals, but margins are going to be tighter than ever. Another lingering issue is charging extra for simultaneous streaming to more than one device per user account — but that’s another touchy issue that could go sideways, just as the earlier pricing did.

Other long-tail content. Netflix isn’t going head-to-head with Amazon and Apple on retail sales and VOD, so another option is finding other sources of long-tail content, and more capable and flexible search and recommendation technology to make it useful.

International. If the content providers are holding back North American availability of theatrical content in favor of their own possible streaming services, there might be opportunity to be the middleman for international streaming services, where someone will have to negotiate with multiple dozens of network providers.

UPDATE: Harvard Business Review is upbeat about Netflix’s chances in the 5-10 year timeframe. Time will smooth out the curve of frantic market dynamics in 2011-2012, says Adam Richardson, and Netflix’s ability to innovate into the next wave of high-bandwidth, low-latency, any-device video service will be the right yardstick to measure its performance through 2020.

Categories: Uncategorized

Next Threshhold For Social TV: Relevance

September 6, 2011 1 comment

As I’ve dug into the world of social TV, where there is frenetic start-up, build out, and M&A activity, I’ve seen a large number of companies, large and small, maneuvering to find a foothold on the various slippery rockfaces they’re climbing. There are at least four groups jostling for social TV dominance.

Social media sites where there are already millions of users commenting to their social network about what they’re eating, reading, wearing, or watching.

Content sites, those inside Hollywood and the content creation industry (TV and cable networks, studios, distributors) and those outside Hollywood (Netflix, vudu, YouTube, Hulu for now). For example, Miramax, a distributor primarily focused on its catalog of previously made films, last week launched a Facebook app to attract fans to watch clips and VOD content and exchange comments.

App makers, many fresh start-ups or spinoffs, who are building “second-screen” apps for mobile devices. Typically these are check-in apps (GetGlue is an example) or electronic programming guides powered with social features (Comcast’s Tunerfish gets a lot of attention in this space, as does TV Genius, acquired by European video platform provider Red Bee Media in August, and Yap.tv).

Social TV metrics companies, not really trying to dominate, but instead to measure the impact of social interactions and translate that into advertiser or content provider value. The best known are Trendrr and Bluefin Labs, with a European entrant ThinkAnalytics readying a CRM-based recommendation/metrics service.

Right now, members of each group are trying to inhabit their space, build out their site, app, or service, and create a value proposition. But right now what most lack is relevance to the rest of the ecosystem. Advertisers, for the most part, remain uncertain how to interpret the social TV phenomenon. Many apps are in beta, and while lots of people are tweeting while watching, not that many have yet adopted a social TV site or app as their everyday go-to viewing companion. The metrics around social TV behavior are beginning to take shape. The next 6-12 months should see a spike in data about social TV activity, and the beginnings of a closed feedback loop between content creators, viewers, and advertisers.

Have you adopted a social TV app or site? Has your content or brand found value in social media feedback?

Categories: Uncategorized

Google TV: Not an Undead Zombie Product-Yet

Had to respond to a Dan Frommer posting, run on CNN.com a week ago.

Why Google TV isn’t dead yet

Normally Frommer is a sharp analyst, but here I think he’s missed an obvious point. After reporting Google TV anemic sales numbers, he says Google needs to adopt an Android-like strategy: seed the OS on zillions of consumer TV devices. His wrap-up:

“Google TV: It could either become the de facto operating system for consumer electronics and succeed as the Android for TVs and set-top boxes, or it could crash and burn.”



Really? Just those two possibilities? 



My take: Google hasn’t a clue how to market (i.e., build demand) for Google TV. “Shiny/new” and “expensive” aren’t compelling value propositions for general TV shoppers by themselves. Similarly, the TV manufacturers don’t know what marketing buttons to push to light a fire under “Internet TV” sales except Netflix, YouTube, and “not much more expensive than a regular TV.” Buyers jumped on “flat screen”, they jumped on “HD” and “1080p”, they’re kinda running fast towards “LED” and they’re dawdling along towards “3D”. Nothing about Google TV has the same pull as “HD” did. Buyers saw HD, they had to have it. 



Problem is, Google isn’t a marketing-oriented company. They actually need partners to make Google TV into something that’s in the “gotta have it” category. They have a boatload of money to invest, should someone have a good PowerPoint deck with a reasonable concept. Google’s been successful fostering a healthy developer ecology for Android smartphones.

But… but TV isn’t like smartphones at all: smartphones are an incredible versatile platform for a wide range of activities, and Android is the lower levels of the stack needed to open up innovation possibilities at the higher levels–the more apps, the better. Ad-driven Internet TV is a single-purpose platform. TV users don’t want 20, 50, or 100 apps on a lean-back TV: they want to access hundreds or thousands of pieces of relevant content. The two important words here are “content” (with hundreds of content owners, none of whom have any expertise in Internet TV), and “relevant” (the well-known problems of what do I want to watch, how do I find what I want to watch, is anyone I know watching the same thing I am?) 



These are the two areas of focus to create demand for Internet TVs. Google itself doesn’t have the DNA suited to either, but it’s so big and threatening it will have a tough time partnering with those whom it needs to have a hope of making Google TV successful. And it will have little success recruiting lean-back TV device manufacturers to adopt GTV as a connected TV OS and creating the same kind of developer ecology that mushroomed up for smartphones.
Google will have to spend money to buy a lot of expertise it doesn’t have.

What do you think?

Categories: Uncategorized Tags: ,

A Cynic Predicts IT and Media in 2011

January 11, 2011 Leave a comment

Spoken like a good skeptic who doesn’t rely on the convention­al hype-fuele­d IT analysis news stream to make multi-mill­ion dollar capital investment decisions. Particular­ly like #7 regarding naive media execs. Perhaps #7a would involve media execs predicting continued revenue growth projection­s based on the lack of evidence of cord cutting.
Read the Article at HuffingtonPost

Categories: Uncategorized

6 Questions About Google TV

July 20, 2010 1 comment

Google and partners Sony, Intel, and Logitech are readying the Next Big Thing in online TV, with Google TV scheduled to first appear commercially at Best Buy in September 2010.

Synopsis: Google TV is a software platform that brings web content to the living room TV. Unlike Web TV of the 1990s, there’s now plenty of interesting, “lean-back” content that looks and sounds enough like traditional TV to avoid repeating the disappointing Web TV experience. So far, Google has been downplaying Google TV in the mass market: no TV ads, no billboards, nothing on any Google sites. The industry press and analysts are going nuts, of course, and the big splash announcement took place at the Google I/O developers conference in May 2010, where a small but important audience of Android developers were ready to get their hands on developer kits. But eventually the mass market is going to want to know more and then decide if they want to add this box to their living room setup.

Based on what’s known so far, here are six important questions to consider when thinking about how well Google TV will get off the ground.

What’s the right user interface device? For a lean-back experience, it might not be optimal to make the user fiddle with a wireless keyboard for entering URLs, search terms, and other text needed to navigate the online media world. Would a hefty remote control be better? Or how about a touchscreen interface appearing on a linked Android phone? Sony and Logitech, and the Android app makers, need to get this right on the first go.

What content partnerships are in the pipeline? Or is the model going to be to only pull content from search and only create pre-built channels for the most popular content sources, without formal partnering? Somehow this seems like a golden opportunity to establish distribution-like partnerships, but this is also a risky, complex ecosystem Google has little experience navigating.

Finding content: satisfying or frustrating? Google mentions partnering with Rovi who’ll roll out a guide app for Google TV. They’ve also tagged Jinni.com’s semantic search solutions to let viewers zero in on content that’s hard to pin down with standard search technologies. The key feature most mass market consumers will focus on when deciding to jump into GTV is likely to be browsing and finding content in a 10,000-channel world without getting overwhelmed.

Pay TV options for Google TV services? Does the model include eventual creation of subscription services, modeled in part on examples like Hulu Plus? Are viewers going to take on another monthly fee for some form of Google-delivered premium content?

Multiple boxes, how’s that work? Speaking of monthly fees, will Google TV integrate smoothly with a viewer’s existing cable box? Or will viewers instead start to seriously consider dropping their cable TV subscription because Google TV delivers most of what they want to watch? How about the folks with a Roku box, or a Wii or Sony Playstation? How will those boxes physically co-exist with the Google TV platform?

What happens to in-place ads? The big question: does Google envision monkeying with the advertising model that applies to the sites and services appearing on the Google TV screen? Do those pre-roll ads on the Hulu site stay in place? Will Google figure out how to place more ads just for GTV viewers? Logic suggests Google will make some attempt to enhance ad delivery capabilities within the GTV platform without doing anything to disrupt ads already in place. This could be tricky, but Google’s solved this in the browser and mobile search environment.

Huh? What was that about Internet TV?

March 23, 2010 Leave a comment

Hey, people are reading my blog. And not understanding it… oh great. One reader asked if I could explain the MIT Enterprise Forum discussion in plain English.

Sure… at least I can try. A lot of television content is going to be available on the internet (a lot already is). Companies that make money today by showing TV programs are predicting they won’t be able to keep making money when that happens. So every company that makes TV content, or that shows TV content, is trying to figure out what to do to save their business. At the same time, new companies (like Google) that don’t have traditional TV businesses are also trying to figure out how to make money showing TV content to people on the internet. And finally, viewers are starting to realize they don’t have to rely on broadcast TV or cable or satellite TV to see their favorite shows. The loss of viewers for traditional TV is reducing cable/satellite TV subscriber revenue, and is also causing advertisers to spend less on TV ads, and they aren’t shifting that money to internet sites showing TV programs. So the session was designed to highlight new ways companies can make money on internet TV.

And those new ways boil down to three basic strategies: 1) keep subscriber revenue coming in by allowing cable/satellite subscribers (and no one else) to also see programs on demand on a website; 2) create the same size audience for each program that used to watch it when it was broadcast or shown on cable, by making it available on lots of websites and charging advertisers for all the viewers no matter where/when they saw it; and 3) making it possible for anyone to pay directly for each show they want to watch. The future of TV will be a combination or coexistence of all three strategies.

And no one knows which of today’s companies will make the transition successfully to this new TV land. They’re all trying to navigate a treacherous path.

Best Opportunity in Internet Video Is Getting Non-Media Businesses Online

March 17, 2010 Leave a comment

Last night I attended a panel session on internet video at the MIT Stata Center, sponsored by the MIT Enterprise Forum’s Digital Media & Telecommunications SIG (details below). There were 100+ attendees, and a good panel of local media execs and experts. Among the many bits of insight and data tossed out, I heard several that caught my ear.

- In the mobile world, even though feature phones are still selling at an 80/20 ratio over smartphones, Nielsen data shows about 50% of mobile users are accessing video today (with their underpowered phones and less-than-speedy network connections). As for the future of the mobile device, panelists agreed that, even if the iPad isn’t a smash in its 1.0 version, Apple won’t rest until the tablet is amazing. And there’s overwhelming evidence that some device between a pocket-sized phone and a 4-5 pound laptop with attached keyboard will emerge as a significant and hot-selling platform for communicating and consuming digital content and services.

- Joel Olicker, CEO of Powderhouse Productions in Somerville MA, said he’s observed over the past two years that many large content producers are slowing their rush to produce online digital content. Some of that’s attributable to the slowing economy, but it’s mostly because there’s been a glut of crappy online content that hasn’t delivered audiences as expected, and there’s utter confusion about the new definitions of ad value, impressions, and the appropriate cost per impression online. The metrics everyone has relied on in the broadcast ad world are still being transformed for the online world.

- Brian Partridge of Yankee Group identified a few under-served segments of the online video world (i.e., where opportunities lie): creating/promoting videoblogging sites for mobile users; providing consulting/strategy help to media companies on building an efficient multi-platform program delivery service; and finding ways to help Tier 2 carriers in the U.S. maximize their networks as video delivery services (by, for example, adding intelligent caching of content).

- Bob Mason, CTO and co-founder of Brightcove, painted a very optimistic picture of the future that Brightcove is working toward. In Bob’s view, media companies represent the early tip of the iceberg as far as business opportunity for online video. The hidden part of the iceberg are the millions of non-media companies, large and mid-sized, that will discover how online video on their existing or new websites will become critical to helping them compete for customers, partners, suppliers, and employees. Brightcove envisions opportunities for building platforms, delivered as an SaaS offering, that help companies in every business segment better serve specific audiences and operate more efficiently. Bob used Salesforce.com as an example. CEO Marc Benioff has been conferring with Brightcove about how to better use video within the Salesforce ecosystem. He also talked about how video is being adopted by retailers as a way to bridge their online and physical stores, and even how the U.S. State Department has adopted worldwide video distribution as the most efficient way to educate far-flung embassies and consulates on the latest policy and diplomatic information.

- Mason also talked about the huge opportunities in organizing and measuring data about online video. He compared this to what became a hot category of online service during the e-commerce boom years, when hundreds of search and recommendation sites sprang up to help consumers sort through thousands of potential places to buy stuff online. (My own take on this opportunity: two types of engines are emerging already. One type relies on algorithms to analyze what you do online and then recommends other video content you ought to be interested in. The other type relies on social networking data to track what your friends watch, and recommends similar stuff. A third engine is needed also — something that serves the same purpose as flipping through channels, for when you don’t know what you want to watch and just want to see what’s on. I don’t know if this is really an engine or if you’ll just browse through a bunch of familiar websites looking for whatever catches your eye, but there ought to be a way to make “grazing” video on the Internet easier.)

- Regarding revenue, Mason noted that TV Everywhere has really caught traction on the sites Brightcove’s platforms are managing. He noted, however, there will not be a one-to-one revenue replacement of ad revenue by subscriptions, or any other simple revenue model. Instead, the future revenue flows from online video will be multifaceted, complex, there will be a lot of them, and it will take years to evolve workable revenue models for each emerging segment of the market. (So, I wonder, what’s happening to the per-household revenue for digital media during this transition? I believe the average revenue per household, generated by selling ad impressions, subscriptions, and direct payments for content, will go down for a period of time, then will start to climb again. Would love to have someone fund a tracking study on that!)

- And someone asked if television networks would disappear in the foreseeable future. The panel agreed there will always be a need in the video entertainment world for aggregators of one kind or another. Right now, companies like Comcast are on the rise (while traditional broadcast networks are treading water) because they are expert at extracting a large amount of revenue for delivering aggregated content. Other sites and companies will get better at doing this too, especially selling on-demand content (by subscription or with non-skipable ads). Bob Mason gave an example of a Facebook “channel” providing high-quality pet-related programming (and Joel Olicker concurs that pet-related content is certainly popular with cable viewers today–Powderhouse produces shows for Animal Planet, after all).

I came away with a half dozen ideas for interesting research projects and questions to put to internet video executives. A great evening.

MIT Enterprise Forum:Digital Media & Telecommunications SIG
Internet Video Everywhere: Entrepreneurial Opportunities in Online and Mobile Video

Panel

Bob Mason, CTO, Brightcove

Joel Olicker, CEO, Powderhouse Productions

Brian Partridge, VP of Research, Yankee Group

John Puterbaugh, CEO, Nellymoser

Moderator: David Ryter

Categories: Uncategorized
Follow

Get every new post delivered to your Inbox.