Netflix à la française – Musings on an empire

A recent essay for Foreign Affairs, “The State of the State”, criticises Western governments for failing to innovate. The authors make an unfavourable comparison with China, which, though still autocratic in nature, has at least looked abroad for ways to make the state work better (if only in a necessarily limited scope). One doesn’t need to look much farther than France to see what happens when the state fails to innovate. President Hollande has done his very best to inculcate a backward ideology of indolence among its workers, but the negative effects of over-regulation have been present in France for some time. One major step that is in drastic need of undertaking is the simplification of France’s opaque labour laws, the code for which runs to 3,492 pages, according to a recent article in The Economist. A stark and laughable example of the limits of such a code is elaborated on below,

“[The code] impose[s] rules when a firm grows beyond a certain limit: at 50 employees, for example, it must create a works council and a separate health committee, with wide-ranging consultative rights. So France has over twice as many firms with 49 staff as with 50.”

France of course also has a strong sense of state oversight and sponsorship when it comes to the media industry. L’exception culturelle has long dominated discourse about what content is appropriate and designated to be high art. Such safeguarding of domestic product has been a thorn in the side of late of the EU / US trade partnership, threatening to derail negotiations. Some have argued that such promotion of homemade productions serves not to diminish foreign imports – a love of Americana has not subsided in France – but rather only to preserve a niche. Regardless, argues a recent editorial in one of France’s national newspapers, it has left the country’s media sector susceptible to disruption.

Today’s Le Monde newspaper features a front page editorial on the arrival Monday to the country of Netflix. The company announced its plans for European expansion at the beginning of the year. It won’t have everything its own way, though. Netflix will have to adapt to a very different market environment. The Subscription Video On Demand (SVOD) market is well-established, and it will see much competition from incumbents (last year annual revenues for companies based in France providing such services exceeded EUR10m). These incumbents charge little or nothing for their services, relative to the $70-80 a month Americans pay to a cable company to watch television, according to The Economist, which states “Netflix struggled in Brazil, for example, against competition from local broadcasters’ big-budget soaps”. Moreover, current government policy dictates a 36-month long window from cinema release to SVOD. We’ve argued against the arbitrariness of such windows before, for a variety of reasons, but here such policy surely negatively impacts Netflix’s projected revenues. Such projections will be curbed further by stringent taxes and a further dictat that SVOD services based in France with annual earnings of more than EUR10m are required to hand over 15% of their revenues to the European film industry and 12% to domestic filmmakers, according to France24. As well as traditional competition, Netflix also faces threats from OTT rivals, such as FilmoTV. One possible way around such competitor obstacles is the promotion of itself as a complementary service. The New York Times earlier this spring elaborated,

“Analysts say Netflix, which has primarily focused on older content more than on recent releases, could also survive in parallel to European rivals that have invested heavily in new movies and television shows. Netflix in some ways serves as a living archive, with TV shows like “Buffy the Vampire Slayer” from the 1990s or movies like “Back to the Future” from 1985. Such fare has enabled the company in Britain, for example, to partner with the cable television operator Virgin Media, which offers new customers a six-month free subscription to Netflix when they sign up for a cable package.”

Such archive content will come in handy, particularly given that, as Le Monde points out, Netflix had previously sold the rights to its flagship series ‘House of Cards’ to premium broadcaster Canal Plus’ SVOD service Canal Play (which itself is investing in new content). The article hesitates to guess how much of a success the service will be in France – something Citi has no problem in doing, see chart below – instead looking to the music industry for an analogy, where streaming has become a dominant form of engaging with the medium. As in other markets, streaming services have met with increasing success, particularly with younger generations. For Le Monde, the arrival of Netflix will undoubtedly ruffle a few feathers, but the paper also hopes it will blow away the cobwebs of an industry that has become comfortable in its ways; it hopes the company will provide a piqûre de rappel (shot in the arm) for the culture industry. Netflix’s ingredients – by no means impossible to emulate – of tech innovation, easy access and pricing and a rich catalogue, should be a lesson to its peers. The editorial only laments that it took an American company to arrive on French shores for businesses to get the message.

Citi foresees huge takeup of Netflix in tech-savvy UK, but relative to other territories France is expected to see strong growth too in the coming years

UPDATE (16/9/14): TelecomTV reported this morning that Netflix has partnered with French telco Bouygues. The company will offer service subscriptions “through its Bbox Sensation from November and via its future Android box service. Rival operators are refusing to host Netflix on their products”.

Can great creative work save the finance sector?

“Marketing has always combined facts and judgement: after all, there’s no analytic approach than can single-handedly tell you when you have a great piece of creative work.”

– McKinsey & Co., Measuring Marketing’s Worth

Capitalism has come in for a bit of a knocking of late. Recently, the Futures Company found that 86% thought “big business” maximised profits at the expense of customers and communities (not helped by another recent poll stating 51% of top financial services executives think businesses should just be about making money). The antipathy is not a recent phenomenon and hardly one confined to the fringe. John Maynard Keynes, whose ideas framed modern macroeconomics, said capitalism is “not virtuous [and] doesn’t deliver the goods”. And while there was a short period when such sentiment was only to be found in places like Pyongyang, these feelings are now more pervasive, particularly against the driving force of capitalism, the finance sector. Can marketing help shift perceptions?

From the outside looking in, it would be difficult to say that some of the wounds are not self-inflicted. Multiple fiascos have led to much head-shaking and hand-wringing within the industry. The furore has ceased to abate as politicians score cheap points for fingering the blame on bankers, and lionised institutions like Goldman Sachs suffer massive public relations disasters (including a part ownership stake in a prostitution ring). The manipulation of the LIBOR scheme and subsequent reforms reveal no quick end in sight to a period of immense negative exposure that began with the global recession four years ago.

So the image of finance is indisputably tarnished right now. Marketers are trying to change this, in different ways. Many Western financial institutions have been around for a while; the symbolism of such longevity can serve as a valuable asset for brands. Coincidentally, this year sees Citigroup – while dealing with its turbulent present – celebrate its 200^th anniversary. They’ve had a broad above-the-line campaign celebrating their place in history, putting their relative achievements – helping fund the building of the Panama Canal – alongside other important moments in time. Citi also have their eye on the future too, making a concerted push in areas of sustainability, recently managing to become the first bank to achieve LEED (Leadership in Energy and Environmental Design) certification for 200 projects from the U.S. Green Building Council. The question is whether leveraging history and sustainability – both of which arguably convey a sense of trusted consistency, rather than reckless risk-taking – with advertising can help address a serious deficit in consumer affinity for the finance sector. Does it even matter? If we assume banker-bashing is an irrational emotion, and the whole sector is tarnished with the same brush, how much sway does it have over the rational part of our brain that must decide where and how to invest our money?

Several banking brands rely on the prestige of their historical affiliations, and have found themselves no safer from customer ire. It can be hard to seek engaging differentiation in a commoditised industry where the power of switching costs can a play a strong role. A PwC report from July summarises, “Many consumers remain loyal due simply to the absence of a negative because it is often easier to put up with something that is less than perfect than go to the trouble, and potential expense, of switching”. So what else can be done to wake potential customers from this inertia?

It’s interesting to see Morgan Stanley take a decidedly more personal tack, with a new campaign, “What If?”. Shifting focus away from the company as a faceless monolith, the WSJ said the aim is to make the company seem “like your neighborly [sic] stock picker”. The creative itself is beautiful, showcasing professional types with aspects of business and social responsibility framing their translucent faces. It attempts to convey a personalised and considerate attitude that includes but also goes beyond profit-making. It broadly taps into themes in a new book. “Positive Linking”, by Paul Ormerod, sets out to dismiss the outdated notion that people are driven by personal, “rational utility maximisation” and instead claims they are more interested in aiding the network to which they belong, realising this will help them too. This in essence is a slightly less selfish form of capitalism.

“I owe the public nothing”, J.P. Morgan was once quoted as saying. Have times changed much since? The problems with the world of finance are too numerous for this article. The crisis of confidence has begun to have an effect on recruiting, as MBA graduates turn their learned eyes to more reputable sectors. Although it may not seem like it now, customer perceptions of brands within this sector are malleable. Any one that can position itself as an outlier in what is currently seen as a pernicious industry will have much to gain. The tail cannot wag the dog though. If these businesses are to change, they must back up their ambitions with operational changes that reduce risk and ensure profits sit alongside dedication to the broader lifestyle their advertising evinces.