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”.

On newspapers – Time (Inc.) for a shift in strategy

It’s no secret that the publishing industry is struggling mightily as customers shift from paying for physical newspapers and magazines to reading information online, often for free. The shift has caused ruptures among other places at that bastion of French journalism, Le Monde, with the recent exit of the editor as staff rued the switch to online. So-called ‘lad’s mags’, the FHMs and Loaded magazines of the world, have been hit particularly hard, as the family PC and dial-up internet gave way to personal, portable devices and broadband connections, which provided easier access to more salacious content than the likes of Nuts could ever hope to provide. FHM’s monthly circulation is down almost 90% from a 1998 peak, according to the Financial Times. Condé Nast have pushed bravely into the new digital era, launching a comprehensive list of digital editions of its wares when the iPad launched in 2010. More recently, the company launched a new venture, La Maison. In association with Publicis and Google, the idea is to provide luxury goods companies with customer insights as well as content and technology solutions. We’ve often written about the need for more rigorous customer insights in the world of luxury, so it’s refreshing to see Condé Nast innovating and continuing to look beyond newsstand sales. We’ve written about other ways publishers are monetising their content here and here.

Time Warner is not alone then in its struggles for new ways of making money from previously flourishing revenue streams. According to The New York Times, Time Warner will be spinning off its publishing arm, Time Inc., with 90 magazines, 45 websites and $1.3bn in debt. In 2006, the article reports, Time Inc. produced $1bn in earnings, which has now receded to $370m. Revenue has declined in 22 of the last 24 quarters. This kind of move is not new. Rupert Murdoch acted in similar fashion recently when he split up News Corporation, creating 21st Century Fox. But with the publishing side of the business there were some diamonds in the rough for investors to take interest in; a couple of TV companies, as well as of course Dow Jones’ Wall Street Journal, which has been invested in heavily. Conversely, the feeling of the Time Inc spin-off was more one of being put out to pasture, particularly as the company will not have enough money to make any significant acquisitions. Like the turmoil at Le Monde, there have been managerial controversies, as those seeking to shake things up have tried to overcome historical divisions between the sales and editorial teams – something other large business journalism companies are reportedly struggling with – only to be met with frustration.

Setting that aside, Time Warner moved swiftly. A day later, the FT reported that the company was “finalising an investment” in Vice Media. We have written extensively about Vice previously, here. The company certainly seems to know how to reach fickle millennials, through a combination of interesting, off-beat journalism, content designed to create its own news, as well as compelling video documentaries that take an unusual look at topical subjects. Such an outlook however does not preclude it from partnering with corporations. As a millennial myself, it seems what people look for from those like Vice is authenticity, rather than the vanilla mediocrity arguably offered by others. We don’t mind commercialism as long as it’s transparent. It does not jar then when Intel is a major investor in its ‘content verticals’, or when last year 21st Century Fox invested $70m in the company. This bore fruit for the movie studio most recently in a tie-up promoting the upcoming Dawn of the Planet of the Apes. The sequel takes place 10 years after the 2011 film, and Fox briefed Vice to create three short films that would fill in the gaps. A great ploy, and the result is some compelling content to keep fans engaged in the run-up to the film’s release, particularly in territories where the film opens after the US market. Such activity is far beyond the purview of the traditional newspaper. But this is not necessarily a bad thing. Publishers must face up to the reality that newspapers alone will not deliver enough revenue to be sustainable. Seeking other content revenue streams while engaging in strategic partnerships with other companies looks, for now, to be a winning formula.

UPDATE 08/07/14: When it comes to engaging with millennials, mobile is most definitely the medium of choice. The FT reported today on Cosmopolitan magazine’s 200% surge in web visitors, year on year in May. Fully 69% of page views were from mobile devices (compared to a 25% average for the rest of the web). The publication has also wised up to the type of content this group likes to consume, as well as create. Troy Young, Hearst’s president of digital media, said the new site is “designed for fast creation of content of all types… Posts aren’t just text and pictures. They’re gifs, Tweets, Instagrams.” Mobile will only get the company so far though. PwC thinks US mobile advertising spending will account for only 4.6% of total media and entertainment advertising outlays this year. Cosmo is looking beyond mobile though to “exclusive events or experiences”, perhaps along the same lines as those other businesses are practicing who are looking for additional revenue streams. The article suggests users might “pay to see the first pictures of an occasion like Kanye West’s and Kim Kardashian’s recent wedding”. Beggars can’t be choosers.

UPDATE 10/07/14: Have all these corporate manoeuvres on the part of Time Warner been in the service of making itself appear an attractive acquisition? As the famous and clandestine Sun Valley conference takes place this week, rumours abounded that Google or 21st Century Fox were both interested in buying TW. This according to entertainment industry trade mag Variety, which commented, “Time Warner could be an attractive target. Moreover, unlike Fox or Liberty Media, it is not controlled by a founder or a founder’s family and with a market cap of $63.9 billion it is a relative bargain compared to the Walt Disney Co. and its $151 billion market cap”.

On Convergence

Today the problem lies not in acquiring information, but in how to apply it effectively and efficiently in order to solve the problem at hand. The impact of the increasingly easy access we have to information was scrutinised recently by President Obama at Hampton University, “With iPods and iPads and Xboxes [sic] and PlayStations—none of which I know how to work—information becomes a distraction, a diversion, a form of entertainment, rather than a tool of empowerment”. As Le Monde details, the speech as a whole was really geared toward warning people of the dangers of excessive use of technology; about making sure it is the parents rather than the X-box that tucks the child into bed at night.

The statement in of itself though, is strange, given the person saying it. It is generally agreed that Obama won the election with his revolutionary form of fundraising. It meant he raised more money than fellow Democratic nominee Hillary Clinton, who stuck to her old-school guns by going to uber donors in their sizable Upper East Side and Malibu residences. Not only that, but the way he went about it – a truly grassroots system of peer advocacy; viral awareness through social networks to encourage micropayment upon micropayment – showed he was intuitively in touch with the electorate, and with a new way of doing things. To hear these Luddite words from Obama, complaining about the X-box, is odd coming from someone whose campaign advertisements appeared on in-game billboards on the X-box’s Burnout Paradise, moreover from someone who is a self-confessed Blackberry addict. His self-deprecating manner is patronising and unnecessary; people elected him because he is elite, which should not be seen as a bad thing, as Jon Stewart points out, “The Navy Seals are an elite squad… why must the President be a dumbass?” Bill Maher has more: no longer has more because this content has been removed by HBO, sorry. It was pretty funny though.

The information we all now have access to over the Internet is truly staggering. YouTube now receives 2bn hits daily (though not without repercussions), which rivals that of this blog. However that is no reason for condemnation, as long as whatever it is (text, audio, video; i.e. content) can be accessed efficiently. The problem at the moment is that this is not the case. ‘Convergence’ has been a buzzword for what seems like a lifetime in the world of digital. It is happening, but only in fits and starts, and to some extent it is being hampered by conglomerates whose corporate interest (quite understandably) in the bottom line does not exactly dovetail with what convergence is really about – open source.

The constantly stimulating blog Only Dead Fish featured a very well-written and thought-provoking article on convergence. Having studied the matter as part of its Master’s degree, Zeitgeist thought it knew all there was to know about such matters. This article challenged any existing, simplistic preconceptions. The author quotes Grant McCracken, who says, of the iPad as a converged device,

“The iPad critics can’t see this third space because they work from a utilitarian point of view.  For them, iPad will create economic value only if it solves practical problems.  But Apple has always seen the economic proposition as a cultural one, as an opportunity to speak to the entire consumer in all of his or her complexity, not just the problem solver.”

The author goes on to reference Henry Jenkins’ ‘Black box’ fallacy, “sooner or later all media content will flow through a single black box”. This is indeed one interpretation of the idea of convergence, and it is not necessarily wrong. However, what Zeitgeist believes convergence means for the consumer is not about a black box; we enjoy being able to access content through our myriad devices. What it does mean then is seamless interaction between these devices, i.e. being able to watch my TV show on the commute from work, returning home to dock the device in my TV and have it immediately start playing there, etc.

Conversations over social networks will play an increasing role as these platforms converge (and privacy continues to erode). However, the question remains on everyone’s lips about how to monetise all these goings on. One colleague of Zeitgeist’s suggested a provider like Sky might end up providing an offering where consumers can pick a package that includes The Guardian, some music (Sky has a lacklustre service for this already) and the Cookery Channel, believing that people would be more willing to pay for content in packages rather than in small, one-off payments. Of course, News Corporation could, with little difficulty provide a similar service, whereby they provide access to The Times, The Sun, Sky Sports events, Sky Songs and new films released by 20th Century Fox as packages.

The American humourist Frank Clark wrote that “If you can find a path with no obstacles, it probably doesn’t lead anywhere”. Convergence as a term could easily turn out to be one of those unobtainable zeniths, along the lines of world peace; an abstract term. The possibilities though of seamless connectivity of content between platforms is an extremely attractive one, both for consumer and advertiser.

Nintendo’s Nemesis & Evolution

“All is unceasing and rigorous competition in nature”, said the Marquis de Sade. Rivalries come and go, it is the victor who must with each success continue to innovate and ultimately change, enduring the onslaught of new competitors. Yahoo vs Google, Microsoft vs Google, WPP vs Google and more recently Apple vs Google and Apple vs Amazon vs Google; in similar circumstances, we have gone from Sega vs Nintendo, to Sony vs Nintendo, to Apple vs Nintendo.

Apple themselves have pushed beyond their preliminary battle with Microsoft to a place where they now court multiple rivals in all the different markets that they affect with products like iTunes, the App Store and Apple TV. Steve Jobs, in September last year, said that the iPod touch was being released with gamers in mind after having had much feedback from the public as to what they used the device for. This was part of the reason why the iPod touch was cameraless, unlike its smaller, cheaper cousin. Nintendo must have known it was only a matter of time until their paths would cross…

Zeitgeist has very fond memories of inadvertently reshaping the bones in his thumbs while playing the Mario Brothers trilogy for hours and hours back in the day. The Nintendo Entertainment System, their first console, was fantastically successful. Somewhere along the way, however, the company got a bit lost. The turnabout it managed thanks to the Wii (and to a lesser extent the DS) is extraordinary; Sony and Microsoft saw share of their respective PlayStation and X-box platforms gradually erode to give Nintendo a position of dominance, becoming the market leader less than a year after its launch; PSFK named it one of their top ten brands of 2010. In the last week though, Nintendo have reported an earnings drop – its first in four years – hurt by slow sales of the Wii and possibly effected by piracy as well, according to Le Monde. Just as Apple are encroaching on Nintendo’s sovereign territory, the reverse is also true, as Nintendo have been offering Netflix movie rentals for a while now. Will the DS soon be facing off against the iPhone, iPod and iPad? According to Le Monde, in 2008 Apple’s iPhone represented 5% of the gaming market, Nintendo 75%. Today the iPhone’s share is 19%, Nintendo’s 70%. It is the casual nature of its games that made the DS and Wii appeal to a market that other consoles never even considered. Now though, those casual gamers are equally at home playing on an app on their iPhone, as well as on Farmville on Facebook. Variety says, (emphasis added),

“More than 32 million people tend their virtual crops each day, and the game has a total user base of 80 million. That’s roughly seven times the number of people who play the online smash ‘World of Warcraft’.”

Of course, rivalries like this will become increasingly common in this sector, as technology platforms – what the great Lawrence Lessig calls “layers” – continue to converge, allowing for excellent, mutiple functionality on one product (look at the iPad as an example). Somewhat counterintuitively, customers may not readily embrace this convergence, as behavioural economics tells us that people put more trust in a product that performs one dedicated task well; they assume anything else will be somehow diluted. Neither Nintendo or Apple should fret, exciting times are ahead. There is speculation in the Le Monde article, among others, that Nintendo should take the fight to Apple by releasing its own phone. Zeitgeist would find that a real treat. Almost much as much of a treat as the original Japanese advert for Super Mario Bros. 3. Enjoy.

Turning the Screw

Increasingly, there seems to be an Orwellian slant to the machinations of the Internet. Last summer, early adopters of the Kindle and fans of George Orwell would probably have been rather frustratingly struck by the irony of waking up to find their library somewhat diminished. As one blog writes,

“In George Orwell’s “1984,” government censors erase all traces of news articles embarrassing to Big Brother by sending them down an incineration chute called the “memory hole.” On Friday, it was “1984” and another Orwell book, “Animal Farm”, that were dropped down the memory hole – by Amazon.com.”

Another blog notes that the Kindle is “basically a device that Amazon controls that you just happen to have in your hands.” The novels were removed after being added by a company that did not have the sufficient rights to them. This may be sufficient reason to remove the product from the store; it does not, however, excuse the way in which Amazon went about systematically removing copies that were on owner’s devices, who had already paid them. The incident was noted in a more recent editorial in the FT, evincing a mounting ownership creep on behalf of major corporations. Now, more than ever, when products are not only files on your desktop but stored remotely in a cloud, a consumer’s rights to ownership have never felt less tangible.

Apple, specifically its App Store, has recently come under fire again, this time for the removal of adult apps. Some adult-themed apps, such as the Playboy app, will remain available. It is the thought of Apple acting not only as moral arbiter, but also in an ad hoc manner with that responsibility, which should give consumers cause for concern. If someone creates an app or wants to distribute a book online in the future, will they hesitate to share their innovation and creativity for fear it could be summarily deleted at will by a fickle corporation? TechCrunch has a fascinating and well-written article here on the removal by Google of many music blogs that were deemed under the DCMA to be infringing on intellectual property. Again, as in the Kindle case, it is less the justification of the action (although this can also be disputed), and more the way it was done that is inexcusable.

In the Communist nirvana that is China, things are worse. Le Monde reports that though the country is on the brink of launching IPv6, allowing people to create and type in URLs using Chinese characters, the government is also imposing draconian measures for those wishing to set up websites. The government already restricts access to sites such as BBC News, Facebook and Twitter. In the past two weeks, they have also asked that anyone wishing to open a web site must present themselves before the authorities with their identity card and photographs of themselves, ostensibly to combat pornography. Not only is this measure entirely unnecessary and completely antithetical to the libertarian principles of the Internet, but from a practical standpoint it is wildly inefficient and will certainly stifle innovation. The UK government’s initial plans for censuring those who share files illegally have been, for the moment, stayed.

Conversely, these same bodies are not operating with impunity, even in situations where arguably they are not to blame. Three Google executives were convicted in Italy at the end of last month. The charge, Reuters reported, was “violating the privacy of an Italian boy with autism by letting video of him be posted on the site in 2006.” Quite how it was decided that those hosting the video – on a site that apparently serves a billion videos every day – could possibly have responsibility for it is beyond Zeitgeist. The New York Times writes “It suggests that Google is not simply a tool for its users, as it contends, but is effectively no different from any other media company, like newspapers or television, that provides content and could be regulated”. One of the accused, global privacy counsel Peter Fleischer, commented that if employees were “criminally liable for any video on a hosting platform, when they had absolutely nothing to do with the video in question, then our liability is unlimited.” Despite corporate overreach in some areas, sometimes the judicial system can be just as harsh on those same corporations. The insight is that what goes around, comes around.

In Search of Free

A friend of the Zeitgeist team often contributed to articles for Men’s Vogue, until it went under not long ago. As Le Monde reported earlier this week, it is masculine publications which are particularly suffering in the downturn.

In general (as Zeitgeist has already noted), people are not willing to pay for content online, especially when they might be able to access the very same content elsewhere for free. The New York Times recently announced its decision to resurrect its paywall, originally put in place with pathetic results back in 1996. Will things be different now? Platforms like Apple’s iPad may play a key part. Variety has more.

Futurology, DARPA-style

From the Winter 2009 Zeitgeist…

Zeitgeist face such an alarming amount of numbers, facts, figures and statistics every day that sifting through it all to find the relevant information has become something of a fine art. Did you know mobile advertising is up almost as much as newspaper is down (18.1% and 18.7%, respectively)? Wikipedia currently features over 13 million articles, (though as reported recently in Le Monde, the rate of growth is slowing). Did you know the average US teen sends 2,272 texts a month, that Nokia manufactures thirteen cell phones every second, that 93% of Americans own a mobile, but a third donʼt yet feel comfortable paying for items with it?

These sorts of facts can help prognosticators look to the near future with a vague certainty toward upcoming trends. However, Zeitgeist is not satisfied with merely peering into the near future. We are always looking beyond the horizon, into the depths of futurology.

Who would have predicted that space exploration would have precipitated the creation of digital hearing aids and cancer detection devices? Who would have predicted that a little-known DoD agency created in a knee-jerk reaction to the launch of Sputnik, would stumble across a way of communicating between computers that would develop into the Internet we know and love today? DARPA lists many of the projects it is currently working on, which aside from their military uses might also have intriguing applications for consumers in the future. Chemical robots that are able to change size and shape in order to fit into different areas and perform different functions and nano air vehicles “less than 7.5cm in size” are some of the more fascinating things in development.  Programmable matter could see brand comms with manipulative particles that ʻrememberʼ their position. Paint on your walls could change to a Guinness hue at happy hour. Micro power sources would give client Duracell new avenues of energy storage to explore, and tiny micro air vehicles could be sent anywhere to project video imagery or augmented reality functionality for a product.

Yet, as The Economist points out, despite manifest amounts of consumer products that are military derivatives, “lately some kinds of technology have been moving in the other direction, too”. Drones plaguing neʼer do wells in Pakistan are piloted using modified X-box controllers (it helps if the video feed is protected, however). Moreover, “soldiers in Iraq and Afghanistan are using Apple iPods and iPhones to run translation software and calculate bullet trajectories”. While the military has an enormous budget for R&D, little is invested in electronics, hence why the USAF recently bought 2,200 PS3s to form a super-computer. Zeitgeist has already placed an order for a nano air vehicle from GE.