Is Exclusive Not Enough For Netflix?

Yesterday's CNBC report issued a warning to Netflix shareholders that its exclusive content, specifically its show House of Cards, was not exclusive enough to retain subscribers.  Of particular concern, that Netflix only had first window rights to the content after which it would likely be made available to other platforms.  And according to the analyst interviewed on the network, subscribers will likely churn to other sites.  "On CNBC's "Fast Money," (Wedbush Managing Director Michael) Pachter said that it was clear from the show's DVD sales on Amazon.com and its television-friendly 48-minute run time, Netflix only had a limited window from which to profit from the series." I disagree with his analysis and believe he is being short-sighted in his remarks.

For all subscription services with no penalty for early termination, quick and easy churn is inevitable.  And in fact, viewers are a fickle bunch.  Those that want it quick will indeed sign up to watch and drop when they are done.  Others will find value for the aggregate of content that Netflix and other subscription services make available.

Pachter does not see Netflix as comparable to HBO, but truth be told, HBO has had many more years to develop their brand.  As HBO and others have learned, it takes time to develop a pipeline of content, especially after having initial success with a series.  Consumers always expect a just as strong follow up and sometimes they get a dud.  No, Netflix cannot expect a longterm gain from one particular piece of content, regardless of the rights and length of the distribution window. 

Consumers have an insatiable appetite for content; the more they get, the more they want.  For Netflix and others to succeed in the space, they need to keep filling the pipeline with more original content as well as a large library of other TV and movie titles.  For Netflix, next up is Arrested Development, and like House of Cards, it should keep subscribers interested. 

Add Another Competitor To Streaming Digital Content

Yesterday, Warner Bros. announced its new streaming subscription service.  And now we have another entrant in the download and digital rental space.  "Vdio, the premium video service founded by Skype co-founder Janus Friis, emerged from private beta Tuesday night with an offering that looks more like Vudu or iTunes than Netflix. The service offers users streaming access to major Hollywood movies and TV shows from all of the major studios, with titles either being available for rent or purchase."  As this field enters the space, consumers will find themselves dizzy trying to figure out where to turn first for their download or streaming content. 

As there is very little different the content other than the titles served, cost of service may become the biggest decider to purchase behavior.  For those already loyal to a provider already established in the space, whether iTunes, Amazon, Redbox, Vudu, or Netflix, disenfranchising the consumer may be the biggest fear leading to switching providers.  Netflix learned that the hard way when they tried to split their DVD rental service from their digital streaming service.  A move that cost them customers and goodwill.

Can Vdio enter and thrive in a crowded marketplace?  Given that digital streaming is still in its infancy, the answer is obviously yes.  Still, given that digital content is ubiquitous, factors like exclusivity, user friendliness features, connectivity, and perceived value will be important to how consumers choose and build loyalty to a particular service. 

Content And Distribution Back At Time Warner Inc.

When Time Warner Inc. split out from its cable company, Time Warner Cable, it seemed to set a trend for content companies not owning distribution companies.  Time Warner, with its Warner Bros studio and cable networks, including TNT and TBS, has been focusing more on managing its content efforts.  And they have been forward thinking with deals outside the cable operator including distribution deals with Netflix, Redbox, and even with Facebook. 

So today's announcement comes as a little bit of a change in their digital distribution strategy.  "Warner Bros. started a subscription streaming service featuring vintage TV shows and films, creating a new player in the online viewing field".  Their new subscription service, called Warner Archive Instant is expected to feature older TV and movie content while newer content is available on the other online providers.  Will these partners find any concern with their content partner now becoming a distribution competitor?  I would imagine that Netflix and Redbox would prefer aggregating all the Warner content available as their consumers love both old and new programming made available to them.  But if Warner Instant Archive finds itself with a winning formula, Time Warner may just try to extend itself further in newer content, bypassing their partners for a likely better profit margin.  And that is what may be troubling to these other subscription service providers.

You Can Resell An Album, But Not A Digital Album

It is Spring, whether the weather agrees or not and many use this time of year to clean out the house and sell old goods they no longer want.  For many, deals can be found in neighborhood garage and yard sales.  Some folks donate these items to "Gently Used" sales for fundraising purposes.  One could find used books, albums, and more for sale by owner.  So as the world has gone digital, we may find ourselves with digital books and music that we no longer desire and wish to purge from our system.

Unfortunately, the world of reselling goods in the physical form may not apply to those in the digital world.  "A federal judge in New York has dealt a blow to the nascent business of reselling digital goods like music and e-books, ruling that a small company’s secondary market for digital music infringes on the copyrights controlled by record companies."  Certainly, there is a physical difference in used real goods from digital ones.  Read a book and the pages get bent or torn, the cover bent or ripped.  Listen to an album and the record gets scratched or mishandled.  The notion of "used"  is something that has lost its pristine condition and is no longer untouched and perfect.  But digital copies can hardly be called used.  Usage of these items don't diminish the quality from one read or listen to another.  They remain in "perfect" condition.  And it seems that in that sense, they compete directly with original condition sales. 

"In addition to record companies, book authors have spoken out against the idea of a digital secondary market, saying that the presence of a 'used' but perfect digital copy of a book would cause prices to crash."  As the resell market is no different than the primary market, a direct competition does indeed exist.  The pricing model would be challenged as users would no doubt offer a reduced price to get back some value given the time they originally spent with the digital item.  The other fear is that while a physical item can be tracked and change hands, it is much more difficult to track that a digital copy resold does not continue to be held by the first buyer, and sold again and again and again.  And that is possibly the even bigger threat to the pricing model for the copyright owner. 

That the resale model is news reflect not only the digital world but still remains an issue in the physical space, too.  "The decision came less than two weeks after the Supreme Court upheld the first sale doctrine in the case of Kirtsaeng v. John Wiley & Sons, about a student who was importing and selling textbooks that he had bought at a lower price overseas."  And in NYC, the Yankees are fighting StubHub for reselling tickets to their baseball games at lower prices. 

Digital reselling is a new phenomenon.  In a world where "digital sharing" may be ok, digital reselling may be a no-no. 

Technology Makes Us A Nation Of Sharers

Have you liked an article or product or company recently on Facebook?  Do you share your playlists from Pandora or Spotify?  Have you assembled your Flipboard with plans to share as well?  It seems that we are becoming a nation of sharers.  As the breadth and depth of content continues to grow and overwhelm us, we begin to rely on expertise from others to help us navigate and discover new content, ideas, businesses, and more.  And we gain these recommendations from the social networks we live in.  Once there were book clubs, now there is Goodreads to recommend.  Technology has enabled us to more quickly and easily gather and share what we like to read, watch, and listen to.  And it allows us to gain recommendations and interests from our "friends" and "social networks".  How open we are to sharing is up to us; if our friends like something, we might too.  And with so much content clutter coming at us, its nice to have some guidance. 

Ad Banned As Promoting Cord Cutting

For consumers tired of paying the high costs of cable TV, broadcast networks can still be received over the air.  While homes used to get these networks with large antennas attached to their roofs, the transition to digital means that a much smaller antenna can do the same thing.  Today's generation has gotten so comfortable with cable that they may forget that these devices still exist.  The ad below is one example of how to save money by getting a digital antenna.



"Over-the-air antenna maker Antennas Direct recently wanted to buy some air time on Charter‘s cable channels to explain how TV viewers can access these channels without a pay TV subscription."  But Charter refused to take this media buy.  In addition to connecting an antenna to get local broadcast signals, customers in NY can buy broadband access to local broadcast through Aereo's streaming platform. For consumers not interested in top cable networks like AMC, Discovery, ESPN, Food Network, HGTV, Nickelodeon and others, an antenna offers a truly inexpensive, basic TV service.  And this is the worry of cable operators like Charter and others, that acknowledging these alternatives will hasten cord cutting.

But while cable operators are at risk of losing cable subscribers, they are also a key driver for broadband to the home.  Unless consumers are willing to pay for wireless access only, a broadband connection from cable or telecom company is the ideal way to get access to the web into the home.  And until these companies can build differentiation into their broadband platform, consumers will view it almost like a utility and see the product like a commodity.  And that will mean that the lowest price will win the consumers' business. 

Fox Building Another Entertainment Network

Add FXX Network to the stable of Fox Broadcast, FX Channel, and FXM Channel.  And hope you can tell them apart.  "FXX, which will replace and expand upon the current Fox Soccer Channel, will launch Sept. 2, targeting the "millennial" audience of adults ages 18 to 34."  So soccer out, general entertainment back in.  With an anticipated reach of 74 million homes, FXX will assure interest by moving over shows from the FX parent brand to the fledgling channel.  Those shows include "It's Always Sunny in Philadelphia, returning for a 10th season; The League, back for a sixth; Legit, to return for a second; and late-night series Totally Biased with W. Kamau Bell, which will expand to a five-nights-a-week talk show from its current weekly format."

These Fox Channels will be distinguished by the demographic they reach although not quite sure if anyone will notice.  Most likely the quality of the shows served will determine the value of each brand.  And given the resources of Fox, FXX will certainly get great brand engagement and awareness by the time they launch in the Fall. 

Online Content Pushing Eyeballs From Television

The brave new frontier for content is no longer cable TV; the web has been the newest ground for innovation and niche programming.  Content creators are embracing this new fertile platform.  "Filming for Web productions in L.A. rose 46% over 2011. Such content has evolved from short episodes to full-length TV productions, some with budgets comparable to conventional TV shows'." And this content is finding homes on You Tube, Netflix, AOL, Yahoo, and other online sites.  Online content is no longer about user generated content (UGC), although that still exists, but in professionally produced content meant to drive views and advertising and subscription dollars.

And the eyeballs for online content are growing as well to the point where cable operators are feeling the pressure of customers cutting their cable cord for online content only.  Original productions on Netflix and Amazon, original channels on You Tube are key drivers to audience interests.  They may start out attracting niche interests at first.  But like cable, the demand only leads to more broadly created content to attract larger, ad rated interests. 

It is the evolution in the media landscape, from radio to broadcast to cable to web that follows similar paths to becoming mainstream.  The rise in web content will not kill cable, but it will change usage patterns.  And for content creators, the growth in the web platform enables more choice and more opportunities for distribution.

Intel To Offer Pay TV Service

While many have speculated about the Apple TV with a Pay TV subscription, Intel may be farther along in talks with programmers to build a new service.  "Networks such as Time Warner’s CNN, NBC’s USA Network and Viacom’s MTV would give Intel critical mass to offer consumers an alternative to established pay-TV services. Using its own set-top box, Intel plans to offer an online product this year, Erik Huggers, Intel’s vice president for media, said last month. That would represent new competition for incumbent operators like Comcast Corp. (CMCSA) and DirecTV. (DTV)."  And working from scratch, Intel could avoid the problems plaguing these current distributors, by not offering expensive networks, especially sports networks, that raise the costs and hurt the profit margin.  With less linear channels and more access to on demand programming, Intel could build a low cost, higher valued Pay TV service that would attract price conscious households.

Also of interest, Intel would offer a DVR service in the cloud, rather than stored in their set top box.   Such an approach would make it easier to offer from the outset a TV Everywhere model for access of programming on all the household's devices.  These requirements are no doubt also being negotiated with the networks.  How fast Intel can build its model and whether Apple is working furiously behind the scenes to get to market first remain to be seen.  No doubt, the consumer interest for a better viewing experience is growing.