Are we actually going to voluntarily look at ads?

16

October

2022

No ratings yet.

Next month, Netflix will launch a pilot for a new streaming plan. For about $7 per month, users can use the basic version of Netflix but with advertisements. This is about $3 cheaper than the cheapest ad-free version of Netflix. This new version provides access to approximately 90-95% of the streaming platform’s content and shows per hour 4-5 minutes of advertisements. To me it sounds like the Netflix hell, voluntarily adding advertisements to you Netflix account but investors apparently see a future in it. Since the announcement of this pilot, Netflix’s share price is up with 5.4% where it decreased 62% in the six months before the announcement. Not only investors but apparently also competitors of Netflix consider it a promising plan. Disney+, HBO Max and several other companies have created similar plans.

The question is, why do I, as a Netflix user, perceive this as a very bad plan while they still see it as promising? Customers’ needs and preferences differ and that is exactly why this strategy can work. Customers can be divided into various customer segments. This segmentation can be done in several ways: companies can assign customers to a particular segment or customers can assign themselves to a segment. The latter technique is the one that Netflix is exploiting with this plan. Netflix uses ‘versioning’ as a pricing strategy. With this strategy, a company offers different versions of the same product or services for different prices. In this case, the versions consist of either a cheap Netflix account with ads or a more expensive account without ads. Customers self-select themselves to the ad or ad-free version based on their willingness to pay.

So, promising days are coming for Netflix where they hopefully expand their customer base with lower willingness to pay customers. And me? As part of the opposite customer segment, I will happily keep paying $3 a month more to avoid those ads.

https://indianexpress.com/article/technology/tech-news-technology/netflix-ad-supported-plan-to-launch-in-november-at-dollar-7-a-month-8207620/

Please rate this

Super-bundling – is it coming?

21

September

2020

Are super-bundling services feasible and will they exist in the future? It is unlikely, but the demand is there.

No ratings yet. 237 US Dollars. That is what an average US citizen pays for all their subscriptions. Per month. For entertainment, they have 12 subscriptions on average, of which 3.4 are for video entertainment (amounting to 29 US Dollars per month). 

We are all too familiar with the struggle: we receive word of an awesome new movie or TV series, and when asked where we can see it, it turns out to be shown only on a platform to which we haven’t subscribed yet. The willingness to see it is there, but the willingness to subscribe to yet another platform is not. This could be perceived as customer rent for the producers/distributors, because they miss out on additional income. 

The choice is no longer which movie to watch, but rather to which streaming service to subscribe to, that most appropriately fits with your general preferences. The only issue is that these services are not genre-based, they are all universal streaming services, with content that pleases everyone. The only solution is to subscribe to all. 

The reasonable question then rises: why is there no ‘super-bundling’ service yet? The internet is filled with questions regarding a super-bundling service, that combines all the streaming services into one platform. Although some (illegal) services do exist, not one major party has stepped up yet to realize this. The streaming services are getting more and more consolidated, however, with remaining parties such as Apple TV+, Prime Video, Netflix, Disney+, Hulu, HBO Max, etc. The main issue with more consolidation will be regarding fairness of competition (monopolies), copyright issues, and giving up power (who will buy who?)

Will the future allow for one party to control all these streaming services? Will the streaming industry consolidate and be dominated by one monopoly player that bundles all the services together? Or will they work together in a consortium that has the goal of satisfying customers’ needs? And in case a super-bundling service rises, will it include other media, such as music streaming, newspapers and business articles, or even groceries?

 

Do you think a super-bundling service is feasible? Let your voice be heard in the comments!

 

 

Please rate this

The Streaming Wars: when streaming services become a more expensive cable

20

September

2019

Netflix is more than just an online digital platform; it has become a cultural phenomenon. Three years ago, Netflix became this one channel to watch virtually anything: from Jurassic Park to Breaking Bad to Toy Story. Many people take their first-month-free subscription because they don’t want to miss out on the latest season of Stranger Things, and never left since. It introduced a trend of binge-watching shows, finishing hours of series in one go until the screen blacks out and asks “Are you still watching?” Television became a device that streams Netflix instead of being its own thing. It lost its meaning so much that many people become cord-cutters – ditching their expensive cable TV subscriptions for a mere $9.99 per month Netflix accounts. It seems that the development of internet goods has yet again made life much cheaper and simpler.

 

Or so we think.

 

Direct-to-consumer distribution model

As Netflix’s popularity and valuation grow, linear (traditional) TV suffer. It is not long when media companies such as WarnerMedia, NBC Universal, and Disney start to launch their own streaming platforms, too. These networks apply a direct-to-consumer distribution model (Sherman & Evans, 2019); instead of selling the licensing rights of their shows to Netflix, they use their brands to make their own platform. These so-called streaming wars prompt TV networks to spend millions of dollars to buy the rights to their most popular shows – such as The Office, Friends, and every Disney movie – back from Netflix to be streamed in their own online platforms NBC’s streamer, HBO Max, and Disney+, respectively (Steinberg, 2019).

Just like most industries, giant tech companies also plans to infiltrate the entertainment industry. Following Netflix’s path of bringing more on-demand consumer base by introducing original content, Amazon Prime Video and Apple TV+ are also in the game with their exclusive contents. For streaming services, the ability to deliver quality content for their platforms is crucial. Take Disney+ as an example: people most probably already have the physical form of their movies, so they need to add value to this new channel (Horner, 2019).

 

Pricing plans

Netflix’s current monthly subscription fee of $9-16 is one of the highest among competitors, Amazon Prime Video ($13), and Hulu ($6-12). However, newcomers’ subscription prices are way lower; with Disney+’s $7 per month and Apple TV+’s mere $5 per month, these prices will definitely damage Netflix’s subscriber count. Other platforms also continue to respond by cutting their subscription prices, like NBCU’s free for cable or satellite subscribers ($12 for non-subscribers). Rao et al. (2000) mentioned that cutting prices may not always be a good retaliation move on their parts as it reduces the overall pie of the market. The other route that each player can take to win is to maximise their platform’s value. Disney, with its extensive collection of movies and series, definitely has the upper hand on this matter. Everything Disney, Pixar, Marvel, Star Wars, National Geographic, 21st Century Fox will be on its platform, which will launch in November this year. Not only that, Disney+ also has a subscription bundling plan with other streaming platforms Hulu and ESPN+; both of which are owned by Disney Corporation as well.

Streaming platforms are, in general, a great innovation because it decouples watching TV and watching advertisements (Texeira & Jamieson, 2014). Nonetheless, it seems that the losing party in this war are the consumers. Taking all the pricing plans mentioned above (plus HBO Max’s rumoured subscription price of $16-20 per month), subscribing to all of these platforms would cost – if not more – the same as cable TV subscriptions. The only difference is that giant tech companies have now also entered the battlefield.

Although we have more choice in what to purchase, more options often mean that we might (reluctantly) spend more money than we should have. “Unbundling” Netflix would only create a fragmented market, which will generally increase prices for content (Steinberg, 2019), and induces the need to – yet again – have a platform that bundles everything together again. So, how many loops will it take before the system breaks?

 

References

Horner, A. (2019, July 3). Streaming wars: Why Disney and Apple rivalling Netflix is good news for fans of great TV. Retrieved September 17, 2019, from Independent: https://www.independent.co.uk/

Rao, A., Bergen, M., & Davis, S. (2000). How to Fight a Price War. Harvard Business Review, pp. 107-116.

Sherman, A., & Evans, D. (2019, August 10). How the streaming wars between Disney, Netflix, Apple and everybody else will change TV forever. Retrieved September 17, 2019, from CNBC: https://www.cnbc.com/

Steinberg, B. (2019, July 18). Why Consumers Are Already Losing in the Streaming Wars. Retrieved September 18, 2019, from Variety: https://variety.com/

Teixeira, T., & Jamieson, P. (2014, October 28). Disruption Starts with Unhappy Customers, Not Technology. Harvard Business Review. 5/5 (1)

Please rate this

ORANGE MIGHT BE THE NEW BLACK, BUT SPOTIFY IS UNDOUBTEDLY DIFFERENT FROM NETFLIX

18

October

2018

No ratings yet. The recent news about the growth of Netflix subscribers reveals a strong and sound business model. Executives prediction of 5m net new users was far below the actual number of subscribers who joined the platform in the past three months (around 7m). Furthermore, more than 6m of them are international clients, meaning that the business is steadily expanding outside the US.

Because both companies are massive, rapidly expanding and active in the media and entertainment industry, Netflix and Spotify are often compared and considered alike enterprises. In reality, there are some important and structural differences that cannot be disregarded.

Although the two offer an all-you-can-stream service in exchange of a monthly fee, Spotify also provides customers with a free of charge subscription, while Netflix does not, having user subscriptions as the main source of revenues. This implies that as thousands of active users of the music stream app are not paying for the service, accepting the limitations that this entails, the Swedish company also relies on revenues from advertisement.

Furthermore, the two industries they are engaged in, are indeed very dissimilar. First, in terms of production expenses: while almost anybody can produce and broadcast a song, films and series are extremely more costly. This is translated into different incentives for producers: on the one hand, artists and songwriters are likely to rely on as many platforms as possible to increase the diffusion of their pieces to extrapolate most value out of them. On the other, to start the process, filmmakers need sponsors who spread the risk they face by investing in more than one production.

With respect to this, it can be highlighted that Netflix is also involved in the creation of content, while Spotify is not. The former therefore is both a producer and a distributor, while the latter merely offers a product that can be easily found on other platforms.

Spotify is in a weak position when setting prices. In particular, its costs rise as more people subscribe to the platform and stream the song because labels, that still play a major role in the industry, generally pay artists per user who listens to their songs. For this reason, scalability constitutes an issue for the company. Instead, Netflix enjoys a reduction in its per unit costs as more users subscribe to the platform, becoming over time a crucial partner that enables studios to enlarge their reach.

Only the following years will tell us whether Spotify succeeds in the difficult task of transforming its business model into a more sustainable one or whether, after having changed the way people listen and pay for music, it will be replaced by some other company.

Sources:
https://www.barrons.com/articles/spotify-why-it-is-and-isnt-like-netflix-1522939226
https://www.bloomberg.com/news/articles/2018-03-23/why-spotify-can-t-scale-like-netflix
https://www.ft.com/content/f6512c08-d163-11e8-a9f2-7574db66bcd5
https://markets.businessinsider.com/news/stocks/spotify-stock-price-netflix-cant-compare-2018-4-1020586061
https://www.valuechampion.sg/5-reasons-why-spotify-not-netflix-music

Please rate this

Cutting the TV cord: Streaming live sports

20

September

2017

Live sports: the last bastion of traditional pay-television

No ratings yet. Tens of millions watched the recent Mayweather vs. McGregor fight on pirate streams. According to VFT Solutions, which monitors live streams in social media, over 7000 live streams were being watched in social media platforms by roughly 100 million viewers. (Granados, 2017)

Tens of millions watched the recent Mayweather vs. McGregor fight on pirate streams

How many of you do still pay for cable TV to watch live sports? In the first quarter of this year a record number of people cancelled their pay TV subscriptions and the number continues to slip at the fastest pace ever (Gallagher & Elder, 2017). The number of losses would have been greater, if it wasn’t for sports programming. Over the last few years, people have been talking about the inevitable disruption of the television industry and the threat of new streaming models, like YouTube, Netflix, Hulu and Amazon Video. Telecom companies have seen their revenues switch from pay TV to their broadband Internet services. In the past, a large share of revenue was generated by traditional TV subscription, whereas now steaming video services have become more profitable. This shift in consumer preferences summarises the TV industry disruption.

According to a research by CouponCabin.com 43 percent of cable TV subscribers say that the only reason they still pay for TV subscriptions is for watching live sports (Nooney, sd). Live sports is a major factor keeping people tethered to their cable TV plans and is often referred to as “the last bastion of traditional pay-television.” (Ryan, 2017)

Cutting the TV cord

To give a few examples of live sports migrating to digital platforms, Amazon has been negotiating with some of the U.S.’s biggest sports leagues to acquire the rights to stream sport games. It reportedly paid $50 million to the NFL to stream 10 Thursday night NFL games (DiPietro, 2017). Soccer club AC Milan signed a partnership with live streaming app Sportle, a sports start-up that is changing the way people watch sports. Tech giants are pouring money into acquiring content rights. YouTube secured a deal to broadcast the UEFA Champions League in the UK. This year, Facebook signed multiple deals to broadcast Major League Soccer matches, MLB games and World Surf League events. Meanwhile, Twitter is streaming the WNBA games and exclusive MLB program (Tran, 2017). You might be asking yourself what Netflix is doing. According to the critics, Netflix will not be joining anytime soon. Netflix stays close to its long-term mission saying that they are not a generic “video” company that streams all types of video, such as sports. They want to stay a movie and TV series entertainment network (DiPietro, 2017).

Social media platforms consider live sports as a key catalyst to drive user engagement, growth and eventually revenues. One of the biggest goals for 2017 is to create a social experience around live sports. In February Facebook announced a new app for set-top boxes, including Apple TV, Amazon Fire TV and the Samsung Smart TV. This app enables you to watch Facebook videos on a big screen, which is immensely important for watching live sports. (Forbes, 2017) Summarising, live streaming is one of the biggest social media trends in general, but it reaches it peaks around major sports events.

Resources 

DiPietro, F., 2017. Amazon and Twitter Are Streaming Sports. Will Netflix Follow?. [Online]
Available at: https://www.fool.com/investing/2017/04/22/amazon-and-twitter-are-streaming-sports-will-netfl.aspx

Forbes, 2017. Why Facebook Is Focusing On Live Sports. [Online]
Available at: https://www.forbes.com/sites/greatspeculations/2017/02/23/why-facebook-is-focusing-on-live-sports/#546a27c82dc6

Gallagher, K. & Elder, R., 2017. Pay-TV subscribers continue to slip. [Online]
Available at: http://www.businessinsider.com/pay-tv-subscribers-continue-to-slip-2017-5?international=true&r=US&IR=T

Granados, N., 2017. Tens Of Millions Watched Mayweather Beat McGregor On Pirate Streams. [Online]
Available at: https://www.forbes.com/sites/nelsongranados/2017/08/28/tens-of-millions-watched-mayweather-beat-mcgregor-on-illegal-streams/#7b4bca5179a3

Nooney, C., sd The Future of Sports Streaming In a Cord-Cutting Age. [Online]
Available at: https://www.wired.com/insights/2014/06/future-sports-streaming-cord-cutting-age/

Ryan, K. J., 2017. 5 Industries Ripe for Disruption in 2017. [Online]
Available at: https://www.inc.com/kevin-j-ryan/industries-ripe-for-disruption-in-2017.html

Tran, K., 2017. Facebook is becoming a go-to platform for live streaming sports. [Online]
Available at: http://www.businessinsider.com/facebook-becoming-go-to-platform-live-streaming-sports-2017-6?international=true&r=US&IR=T

Please rate this

Technology Of The Week – The Succes And Risks Of The Innovative Business Models Of Netflix And Blendle

1

October

2016

5/5 (2) We all know the old fashioned way of watching movies. You had to rent a movie, insert the movie in your video player, skip the annoying parts and enjoy the movie. It was annoying, time consuming and a lot of trouble to just watch a movie.

Nowadays an internet connection, a compatible device and a few clicks are enough to sit back and enjoy your media. Netflix and Blendle made these kind information goods available by ease of replication and distribution. Netflix is a digital movie service where people get a monthly subscription to stream movies and series without commercials. Blendle is a digital news platform that gathers articles from all kinds of newspapers and magazines. You only pay for the articles you read. Articles can be shared, people can react on the articles and comment on these reactions. It is a combination of an online kiosk and a social network.

These business models show us the perfect form of information goods. (1) The information provided by the two organizations are costly to produce but cheap to reproduce. (2) Once the first copy of a good had been produced, most costs are sunk and cannot be recovered. (3) Multiple copies can be produced at constant per-unit costs. (4) There are no natural capacity limits for additional copies. Articles and movies can be sold over and over again. Besides these points the business models version in their pricing. However, in a different way. Netflix offers three subscriptions and therefore gain from extremeness aversion. Humans tend to choose the average option, this Goldilock pricing will increase revenue. Blendle on the other hand prices their articles based on the supplier and the length of the article.

Both business models have a couple of similar strengths:

  1. The services can be easily used on all necessary devices,
  2. They provide much content,
  3. They have low costs compared to the old fashioned way,
  4. They can establish pricing arrangements that capture as much of that value as possible. Done by (a) the registration of the customers, (b) observing queries and clickstreams and (c) through behavioural targeting

Besides these matching strengths, Netflix and Blendle have individual strengths and weaknesses as well:

Table 1

The future shows some interesting opportunities and threats for Netflix and Blendle and for de information goods market as a whole:

Table 2

Overall we can see that Netflix and Blendle are operating in a very interesting market. Offering great opportunities. Both Blendle and Netflix can gain a profit of this fast growing industry.

Group 42 – https://www.youtube.com/watch?v=W_a-XZJ7tnM

Please rate this

Streaming services VS traditional pay-TV: The battle for viewers of the 21st century

27

September

2016

No ratings yet. Almost everybody has one at home: a TV. A lot of the TV’s that are being sold nowadays are so called smart TV’s, or are made smart with devices like google Chromecast. What makes them smart is the option to connect to the internet and make use of apps. This in combination with the ever growing streaming services provided online could be a potential threat for the traditional pay-TV market(cable, satellite, or telco-TV) as we know it. Television executives are already sounding the alarm. With a 3% decline in the overall TV viewing time in the U.S. in 2015, were 50% was accounted for by Netflix, the question to ask is: Is the traditional pay-TV really going to be replaced with streaming services, or is the ‘death of TV’ we hear about just an illusion?

Recent research from Marketing Charts in conjunction with Newfronts claims that viewers prefer digital video to primetime TV. The results show that people associate streaming services with terms such as “innovative”, “exciting”, “edgy”, and “worth my time”. And with a recent survey from AllFlicks stating that 75.5% of people who have experience using Netflix are convinced that a streaming service like Netflix is the ready replacement for traditional TV, the end for traditional pay-TV seems to be just around the corner. But still almost every household has a pay-TV contract. A big explanation seems to be imbedded in age difference.

The role of age
Age seems to be an very important factor for the liking and using of the new ongoing streaming trend. Researches like the one from TDG Research show a distinctive age gap in TV viewing between younger and older Americans. The researchers asked adult broadband users who were using traditional TV as well as subscription services the following question: “if you had to choose between traditional pay-TV service (cable, satellite, or telco-TV) and subscription streaming video services, which would you choose?”. As you would expect the responses differed strongly by age group as shown in the table below. The older people tend to stick more to the traditional way of watching TV while the younger generation prefers an subscription on the streaming of videos. This result is backed up with other study’s worldwide confirming this distinctive distribution, such as the figure released by Ofcom, showing the results in the UK.

2016-09-272016-09-27 (1)

It is clear that young people are driving down the average time spend watching traditional TV while the older generations are keeping traditional TV alive. With an increase in supplied streaming services more and more consumers are shifting towards streaming, giving them the possibility to watch what they want, when they want. This makes it hard to imagine a future with traditional TV as we know it. However I wouldn’t call it the ‘death of TV’. With networks such as HBO and CBS already having launched their own online offerings it is clear that traditional TV channels are evolving and finding ways to survive, extending beyond the traditional television screen and including custom (not full TV package) programming from new sources that can be accessed in new ways. This in combination with TV companies pivoting their business models to distribute on social platforms and the formation of partnerships with digital media brands to create new content will probably secure the future of TV companies for the following years to come.
So, will streaming change the way we use our television as the competition becomes increasingly direct in the years to come? It’s definitely something that’s worth keeping an eye on.

 

References

BI Intelligence. (2016, July 12). More young people are watching less traditional TV. Retrieved from http://www.businessinsider.com/more-young-people-are-watching-less-traditional-tv-2016-7

 

Loechner, J. (2016, June 01). Traditional TV vs. Streaming Video; It’s In The Eyes/Age Of The Viewer. Retrieved from http://www.mediapost.com/publications/article/276939/traditional-tv-vs-streaming-video-its-in-the-ey.html

 

Lovely, S. (2016, March 02). 76% Of Netflix Subscribers Think Netflix Can Replace Traditional TV. Retrieved from http://cordcutting.com/76-of-netflix-subscribers-think-netflix-can-replace-traditional-tv/

 

Spangler, T. (2016, March 03). Netflix Caused 50% of U.S. TV Viewing Drop in 2015 (Study). Retrieved from http://variety.com/2016/digital/news/netflix-tv-ratings-decline-2015-1201721672/

Please rate this

Technology of the week – HBO versus Netflix

26

September

2016

No ratings yet. In this blog we describe the business models of Netflix and HBO, use Porter’s five forces analysis to analyze the video entertainment industry, critically compare the strengths and weaknesses of both companies and make predictions for the video entertainment industry.

 

Netflix uses the business model of video on demand via the internet. The high quality and easily accessible content, available from many different devices anytime and anywhere at low prices has already attracted more than 75 million subscribers worldwide. HBO is the largest pay-TV cable channel in the USA with a subscriber base of 46 million. The company uses a service business model in both the cable television industry and the video on demand industry, which is scalable with a recurring subscription-based revenue model.

 

The video entertainment industry is very competitive with a large number of firms. The switching costs are low which intensifies the competition. Low levels of product differentiation also increase the rivalry. The threat of new entrants is moderately low because of the high cost of capital required to acquire the needed platforms and products. The threat of substitutes is high and therefore costs must be kept low in order to be competitive. The bargaining power of buyers is medium because buyers can easily switch between services and there are little to no switching costs, but buyers don’t have the power or ability to influence the products or prices. The bargaining power of suppliers is moderately high as companies like Netflix have to make sure they can secure and keep contracts with the most popular networks and studios to keep its customer happy.

Porter's five forces model

 

The SWOT tables below list the strengths, weaknesses, opportunities and threats of respectively HBO & Netflix.

SWOT HBO

SWOT Netflix

 

The main differences between HBO and Netflix are:

  • The monthly subscription fee of HBO is almost twice as expensive as Netflix;
  • HBO offers more recent movies but has less content than Netflix;
  • HBO provides online streaming via a subscription to cable providers (and now also independently via HBO now) and Netflix only provides online streaming via the use of the internet;
  • Netflix and HBO got different original series and movies. But where HBO offers fewer than 350 films, Netflix offers around 5.000 films;
  • HBO Now initially can only be streamed on Apple devices as a 3-month exclusive. Netflix is available on almost all streaming platforms.

Our predictions of the video entertainment industry are that:

  • The industry for online streaming will continue to grow worldwide and be innovative over time;
  • Netflix and HBO are in prime positions to pounce on a new generation of movie fans;
  • In the future Netflix will focus more and more on children to secure their loyalty for life;
  • Netflix will increase the prices towards HBO’s fees, thereby reaching a higher adjusted operating income (bottom line);
  • Targeted advertising: with big data and audience analytics there will be streamlined and targeted advertisements for specific subscribers of the TV industry.

 

References:

http://www.cinema.nl/artikelen/12132512/titanenstrijd-hbo-vs-netflix

http://www.cass.city.ac.uk/__data/assets/pdf_file/0017/220517/Netflix.pdf

http://www.slideshare.net/MintyThomas/netflix-1-51317848

https://www.linkedin.com/pulse/state-future-netflix-v-hbo-2015-jason-hirschhorn

https://www.washingtonpost.com/news/the-switch/wp/2016/03/28/netflix-is-coming-for-your-kids/

https://www.statista.com/chart/4254/netflix-subscriber-growth/

 

Group 51: Daniëlle de Jong, Mitchel Riemen, Siobhan Heale & Tom Kuil

Please rate this