Quick and Agile Netflix 3.0
Netflix has become the best example of how to successfully challenge, and change the television industry. It has built its success with a content strategy that involves innovative original programming mixed with a much larger base of older network shows or “reruns”. In today’s dynamic business world, what marks success is your suppleness and agility more than anything else. You need to adapt fast, wasting no time, on the road to action. There are too many people going your way and you need to stay ahead of everybody else.
Netflix is one such company that has proven itself to be one of the most adaptable media companies in history. Do you remember that Netflix started out doing mail-order DVD rentals, pivoted to a subscription streaming service for movies, pivoted again to a streaming service that mostly featured older episodes of TV shows, and then pivoted a fourth time to a network producing award-winning original programming? This capacity for remaking itself in mid-stream will prove valuable as Netflix faces these new challenges. So what are the challenges Netflix is faced with? And how is Netflix planning to cope with them?
First Challenge: Losing Out on Old Business from Networks
Netflix is facing two very serious challenges to its current dominance over OTT streaming, and its business may never be the same. The first challenge that Netflix is facing, the more immediate of the two, is that the networks from which Netflix has procured content rights for the past few years may no longer want to do business with them. The TV networks have come to realize that selling Netflix the rights to their older shows is no longer in their best interest.
It made sense at first as Netflix was mostly buying up older seasons of shows that weren’t yet available for syndication and paying top dollar for them. This initially seemed to be a great deal for the networks, which were getting millions of dollars for episodes that would have otherwise sat on the shelf. Also, the success of shows like Breaking Bad and The Walking Dead proved that viewers who caught up with shows on Netflix would often start watching them live, thus bringing new traffic to the networks.
Separation from Networks
But all that may change as this golden period was short-lived. The networks began to see their own viewership numbers decline as audiences spent more time. Especially once the service began expanding its original programming. The networks also started to question whether they could make more money and gain more control by setting up their own OTT services and hosting the shows themselves. This new mindset is the driving force behind the wave of the new standalone network OTT offerings coming to the market, a trend we believe will only grow more significant as time passes.
The Second Threat to Netflix’s Dominance: No Ads
This is less immediate and centers on the relevance or lack of advertising to the Netflix model. Netflix has trained an entire generation to watch TV without commercials and, in doing so, may have killed the goose that lays the golden eggs. Remember, all those network TV shows Netflix runs were originally funded with advertising dollars.
Without this revenue, networks couldn’t afford the big production budgets and high-priced talent. But Netflix is teaching viewers to avoid commercials, and so they’re time-shifting. Using DVRs, and otherwise avoiding ad-supported television. None of which is good for the television advertising market, currently valued at around $16 billion. This is the spanner in the wheel for Netflix as less TV ad revenue means fewer high-quality shows. Shorter seasons, and eventually, less content from which Netflix and other OTT aggregators can draw.
What Goes in Favor of Netflix
There are still many issues that may be game-changer for Net flix. For one, many of the network deals Netflix has in place are long-term, so an immediate change in status is unlikely. Second, the networks relish the not so insignificant revenue they receive from Netflix, which will be hard to give up. Finally, few networks execute OTT very well. User interfaces have proven to be a major challenge for networks.
Also, since the networks make money from advertising, not subscriptions. The shows featured in these apps will have ads on them. The absence of which is a key benefit to Netflix viewers. Netflix is also an aggregator with a very large content library that makes for seamless one-stop shopping. Viewers may not like the idea of having to switch between a dozen network apps to find the shows they want to watch. Especially if network apps feature the inferior UI and force viewers to sit through commercials.
A Total Revolution in Film Viewing
The problem will not go away overnight, but if the ad market continues to shrink, changes will occur. NBC, whose research chief recently admitted that only 60% of network programming is watched live. Noting if DVRs were their own network, they’d be four times the size of the four largest networks combined. That’s a lot of people fast-forwarding through commercials and it’s only a matter of time. That advertisers will tune into this reality. So rest assured, with this shift in consumer habits. Netflix 3.0 will take the market by storm and come out with a sure winner. All because they are in keeping with the times. Now you can come home to Netflix 3.0 to the greatest experience!