Innovation and Tactics Series: Netflix Bids for Original Programming.

Executive Summary: Netflix has been lauded for its ability to manage innovation, especially for its ability to translate innovation into real impact on its business. This post helps us think through some of the market possibilities it can target. From the Desk of "Is it a bird? Is it a plane? Its a... Jedi mind trick!"

The News, The Question

Netflix seems to be making interesting moves in content production:
1. http://www.theatlantic.com/business/archive/2011/03/netflix-plays-the-long-game/72611/
2. http://blogs.forbes.com/chunkamui/2011/03/17/how-netflix-innovates-and-wins/

The news reminded me of a curveball I recently threw to some very bright folks:
Will Netflix get into running movie theaters (or atleast renting them out temporarily)?

What Does The Question Mean?

The folks found the question interesting enough to pause to think it through. This is not because they did not have a (what may seem like an obvious) ready answer, but because it should, and apparently did, make you think about Netflix's context and how it is disrupting the context around it.
To rephrase:
1. Can Neflix groupon its at-home viewers into a high quality, custom generated "in theater" experience?
2. Can Netflix be vertically integrated in a niche market, while still serving what is currently its core market?

All in all, how do these ideas impact its profitability and its margins? At worst, can a capability to pursue the option posed in the question be a useful negotiation tool?

To dig a little bit deeper:
- What about Netflix's current position and capabilities (e.g. continued investment in innovation) provides it a competitive advantage?
- As Netflix get to know more of its customers better, how can it leverage it's information better?

Structure Around the Question

Here are a couple of paths to making sense of this question on Netflix:
- Content Development and Production -> Content Channels and Distribution -> Content Consumption
Or the reverse:
- Content Consumers and Markets -> Content Channels and Distribution -> Content Development and Production

Deep Dive Into The Market and The Consumer

Lets walk through the first way of looking through this process:
A. Who is Neflix's core consumer? What market is Netflix targeting?

1. Viewers of TV and movie dvd like content "experience" at home with access to a mailbox and to an internet ready device?
2. Viewers of video content "experience" at home with access to an internet ready device?
3. Viewers of an entertainment "experience" anywhere with access to an internet ready device?
4. Viewers of an entertainment "experience" with access to an internet ready device or with access to a specific location?

Now, you can define a spectrum of "experience" as well, from a streaming video "experience" on a small device while on the move, to a fixed location video "experience" of the IMAX or the "IFC Theater"/ "Indie Movies" sort. As for margins, isn't the IMAX share price hear its LTM high?

Now that you have some lightbulbs flashing in your mind, need I say more?


What do you think?
 

Ad Spend Trends in the US

Executive Summary: A quick check with *you* on your thoughts on media and ad spending in the US. The objective is two fold- identify what you believe are the factors driving the trends, and then seek your forecast for this trend.

Trend: Advertising Dollars

I attended a conference where a respected businessperson emphasized a trend in the media industry. Ad spend in online channels was not growing the overall pie in terms of dollars. Instead the online channels were cannibalizing other channels. So the question arises- is there a disssonance between the change in the size of the pie, its slices, and consumer/ end user relevance?

Older, publicly available statistics are available here:
1. Fred Wilson:
http://www.avc.com/a_vc/2010/06/ad-spend-trends.html
2. Hal Varian:
http://www.theatlantic.com/business/archive/2010/05/a-google-eye-view-of-the-newspaper-business/56360/1/

Some Macroeconomic Factors

1. Are economic conditions factors in terms of the overall ad spend pie? How?
2. Are demographic trends factors in the stagnation of the overall ad spend pie? If so, how do these trends play out in terms of the slices of the pie?

Marketing Teams as Factors in Ad Spend Shifts

I also noted some opinions a few years ago that the move of marketing dollars from traditional media to online media would be slow because of deep, embedded marketing and agency relationships, as well as marketer mind share.

Consumer/ End User Behavior

1. Has the user's behavior across the various marketing communication touch points, even with the addition of online media touch points, changed?
2. Has the user's reaction to these marketing communication touch points changed over time?

What do you think?

Consumer Behavior and Robert Pittman on Investing in Media

Consumer Behavior
Robert Pittman had some interesting insights on consumer behavior. He provided an “action oriented” view of Maslow’s hierarchy by citing convenience and branding as key components of a consumer’s decisionmaking.

He defined convenience as physical, tangible productivity tools and branding as a means to prevent switching. Applying that to internet tools/ properties/ networks, the key trade off is effectively the relative “delta” of convenience vs. switching costs.

Advertising channels and consumer behavior
Robert pointed out that the internet is not killing TV, its really killing newspapers. Some thoughts put forth around this idea:
1> Pricing: He compared the cost per thousand impressions between TV/ radio and newspapers. He then questioned the rationale for the market difference.
2> Change in spend across channels: He presented data that highlighted the marketing spend across newspapers, yellow pages and the internet, with newspapers currently garnering more than twice the ad spend on either the internet or the yellow pages. Change in marketing tactics to adjust to the internet as a medium has not been drastic. Given the theme, this presents a tangible opportunity in the internet media segment.
3> Nature of advertising channels: The cable TV industry is larger than the broadcast TV industry; however, the cable TV industry is quite fragmented. This creates a difference in how advertisers approach these two channels.

Some takeaways
1> Critically analyze the value of internet properties
Is the internet properties’ lack of stick just a function of low switching costs?
Do internet properties really make us more productive or more effective as they interweave into our daily life?

2> Expect unrelenting, inexorable change
Citing the fact that TV show ratings lead their revenue impact, Robert sees a similar trend in the internet media. The internet is truly impacting consumers and consumer facing companies. Adapting to this change in consumer behavior will define which companies fail and which survive.

The talk led to questions, as usual:
1> The web and TV: How do we categorize the impact of online TV series viewers on series like The Sarah Connor Chronicles and Dollhouse? The former got the axe despite as many as 7 million viewers following the series online.
2> Channel relationships and Ad spend: Are the industry structures in place for the media planning industry to move quickly, seamlessly and effortlessly across the various advertising channels? Is it just a function of channel relationships, or it is also a function of the industry still being in the process of wrapping their arms around opportunities in the “new media” segment?

What do you think?


The Usual Disclaimer: This is purely a knowledge sharing resource and I have been careful to protect panelist/ speaker interests. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.

I am not selling the product...

...just the message:
http://www.youtube.com/watch?v=m5xCGZuvhWI

Notes on first impressions of the ad seen on CNBC during Lunch:
1> The background score by Gustavo Santaolalla has parallels with Indian music.
2> Its a 90 second spot. The rationale? Apparently, time is the only true luxury.
3> This is an interesting brand initiative- and is the first Louis Vuitton TV ad ever.

What do you think?

Conference Panel: Media & Entertainment in India

TATA Sky setup a nationwide support structure in India, flat. It is growing at a pace that is set to drive the company to leadership in satellite TV subscriber base.

How does a company manage operational decisionmaking, organization structure, core competencies, vendor relationships, training, and breakeven in such a context?

What do you think?

Given that India has over 250 MM cellphone screens, versus upto 50 MM in PC screens, how do service providers support the growth of applications and products for the cellphone screens? Does a Microsoft-Facebook dealmaking approach work in an Indian context?

What do you think?

1> India seems to have a lack of startup oriented risk-taking despite a large pool of enterpreneurs.
2> The Indian market does not have mature "competitive" technology clusters and mature financial players that support various stages of a company's lifecycle in a cluster.
3> Leaders from Microsoft India, pointed to a lack of expertise in business models.

This lack of business model innovation may be impeding a ramping up of local application/ product based activity. Would a Microsoft-Facebook type deal-making model- as a means for service providers to support cellphone market development- work in India?

What do you think?

The Usual Disclaimer: This is purely a knowledge sharing resource. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.