“If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them.”
- Henry David Thoreau
Though the brouhaha over the series House of Cards has been building steadily since its announcement almost two years ago, through rumours of budget battles between director and studio, it was upon the release of the series this week that the media meta-echo chamber really went into overdrive. The first season, with a budget far north of $100m, debuted to ebullient praise from critics. But what does it signify for the trail-blazing company’s future?
Aside from the mostly positive reviews, the series piqued the media industry’s interest for other reasons too. It is the first to be created and screened exclusively by Netflix, a company previously known for striking deals with studios to distribute and stream their content. Not satisfied solely with such (sometimes pricey) deals, the company also saw an opportunity for greater brand visibility and a separate revenue stream – assuming it eventually licenses the show regular TV networks – in fully-fledged independent production. What is also interesting is that the entire first season was made available for instant viewing, all 12 hours. By doing this the company recognised and capitalised on a trend that has been accelerating for almost a decade; people like to watch multiple episodes at once. This has never not been the case, but the weekly episodic installments of shows on network television have allowed the audience little say in the matter, and thus no room for such a habit to develop. This changed dramatically with the arrival of the DVD, specifically with affordable boxsets, as those that had missed the zeitgeists of West Wing, The Sopranos and 24 were able to quickly catch up with their obsessed brethren. Critics have often noted how the viewing of multiple episodes at once – which is how such reviews are often conducted as they usually receive a disc with several shows to consider – particularly for shows like Lost, improves the structure and narrative flow. With the arrival of boxsets, such opportunities were available to all. Indeed, marketers leveraged this enthusiasm for consecutive viewing, creating events around it. Netflix saw this with absolute clarity and allowed viewers to watch as much or little as they desired. Many, it seemed, chose to devour the whole first season in one weekend, which entertainment trade Variety covered with humourous repercussions to the viewer’s psyche, across now fewer than six stages of grief. Zeitgeist has written before about the increasing popularity of streaming, and the complementary preference that audiences have for the type of films (action, romcom, broad comedy) they like to watch when choosing such a distribution method. It is interesting to consider then just how much the viewing experience differs between a 12-hour marathon over two days, and a one-hour slice over a period of three months. As the article in Variety half-jokingly posits, “Is tantric TV viewing a thing? If it’s not, should it be?”.
Of course, Netflix aren’t alone in seeing an opportunity to delve into developing complementary products and assets. Microsoft are using the functionality of Kinect to pair with their own content development, letting children “join in” with Sesame Street, for example, and are in the process of setting up a dedicated studio for production, in Los Angeles. Amazon, which owns the streaming service LoveFilm, is also getting into the game, recently setting up Amazon Studios for original content production. At the end of last year, The Hollywood Reporter announced Amazon would be greenlighting twenty pilots, all of which were “either submitted through the studio’s website or optioned for development”. YouTube recently launched twenty professional channels on its UK website, Hulu is following suit… It really is quite startling to see such fundamental disruption and turmoil in environments where incumbent stalwarts (such as 20th Century Fox in film and Walmart in retail,) have long been accustomed to calling the shots. Could the model become completely inverted, such that the Fox network and HBO become the “dumb pipes” of the TV world, showcasing the best in internet-produced television? Maybe so, and this is not necessarily a bad thing. The Economist this week argue that one of the most important factors in Liberty Global’s recent purchase of Virgin Media was the avoidance of paying corporate tax for “years” to come. If content is still king though, a problem remains for those incumbents. The New Yorker astutely points out,
“An Internet firm like Netflix producing first-rate content takes us across a psychological line. If Netflix succeeds as a producer, other companies will follow and start taking market share… When that happens, the baton passes, and empire falls—and we will see the first fundamental change in the home-entertainment paradigm in decades.”
Netflix must tread carefully. Crucially, what seems like competitive differentiation and all-quadrant coverage now can quickly shift. Amazon’s ventures into content production will be backed up with a sizeable and perpetual stream of revenue that it derives from its e-commerce platform, which isn’t going away anytime soon. The BBC are publicly welcoming new entrants, and is devising its own tactics, such as making episodes available on iPlayer before they screen, if at all, on television. Interesting but hardly earth-shattering, and likely to make little difference to viewer preference. Netflix will have to do better than that if it wants long-term dominance of this market. It will have to be increasingly careful with its partners, too. Recent, though long-running, rumblings of discord with partners like Time Warner Cable, though seemingly innocuous, tend to be indicative of a larger battle ensuing between corporate titans. Moreover, though the act of providing a deluge of content seems new and sexy now, what about when everyone starts doing it? Chief content officer for Netflix Ted Sarantos told The Economist last week, “Right now our major differentiation is that consumers can watch what they want, when they want it, but that will be the norm with television over time. We’re getting a head start”. Fine, but about when that is the norm, what is the strategy for differentiation then? Netflix have made some lofty, daring, innovative moves here, exploiting consumer trends and noticing a gap in the competitive environment. But they will need firm foundations to support this move into an adjacent business area, of which they know relatively little, in the years to come. As President Bartlet of West Wing was often heard to say, “What’s next?”.
Last week, Zeitgeist ambled down to Kensington Olympia again for yet another conference, this time the annual MediaPro Expo. Among the many speakers presenting over the course of two days, our main interest was captivated by prognosticators on the media and entertainment industries.
First up was Matt Rhodes, client services director of FreshNetworks. FreshNetwork’s clients, among others, include Telefonica (parent company of UK telco O2) and luxury shoe brand Jimmy Choo. Matt spoke of the challenges of measuring success across multiple markets. Aside from logistical difficulty, one prominent problem remains in that different sectors / regions / countries will need different approaches, therefore will have different ways of quantifying success.
Mr. Rhodes was speaking with regard to social media strategy, but the thinking applies broadly to other strategic planning as well. KPIs and ROI can both be meted out from a centralised hub (whereas in a distributed mode, ROI will vary). The possible problems with this stem from an ignorance of the particularities of a market. Suggesting that every market needs a Twitter and Facebook account for the brand might seem like sound thinking prima facie. Both platforms have huge audiences and many companies have now had notable success with presences thereon. Matt contended that such a presence was simply not necessary in all markets. Some countries may not have Facebook, but, like Russia, have a popular alternative that, with a high amount of pirated content, would be unlikely to be suitable for branded communications. As with the Soviet state, a centralised option is probably less effective. Furthermore, in some markets you might in be in acquisition mode – vis a vis customers – but in others you might be experiencing trouble retaining them, requiring very separate strategies. “Having a global strategy often doesn’t make sense”, Mr. Rhodes stated.
Regarding Jimmy Choo, people who want to purchase products from the brand in Japan differ greatly from those same people in a market like New York. In Japan there is heightened desire for accumulating a lot of accessory purchases as well as perfume, whereas in New York the emphasis will be on fewer, more substantial purchases. The Catch a Choo experience in London had different parameters for success than did the one in New York. The reasoning behind a social media presence is often never thought of, increasingly seen just as a mandatory practice. Mr. Rhodes confined activity to set parameters, suggesting that social media was best put to use for launching new products, customer care, working with advocates, brand messaging and answering critics.
Next up, Darren Gregory, Insight and Innovation Director at Howard Hunt Group and Russell Morris of LoveFilm spoke in detail about the latter company. With cinema box office receipts making a small profit year-on-year (and with negative growth adjusting for ticket price increases), and 3D failing to make much of an impact on audiences anymore (see chart below), the film industry is looking to the likes of Hulu, Netflix, iTunes and LoveFilm for its salvation. Currently, digital streaming has failed to make up for the precipitous decline in DVDs, though we are still in relatively early days. Getting a consumer to switch from DVD to streaming / digital formats is harder than previous medium transitions, which involved moving from physically-owned, tangible product (VHS) to physically-owned tangible product (DVD). You bought your films from a physical, tangible store. Now there is a lack of a sense of ownership, as Zeitgeist has written about before. Now companies like Apple, who make beautiful, tangible products, are increasingly talking about hosting your content in a cloud. There is an inherent difference here then that means take-up of digital formats will be a harder case to make psychologically to consumers than previous media upgrades. It’s importance may increase as recently written about in The New Yorker, with traditional platform release windows – the time between a film’s release from cinema to VOD, to DVD, etc. – increasingly narrowing.
LoveFilm has been around for seven years now. It is the leading European subscription service, with 70,000 DVDs available, including games by post, streaming to laptop, PS3, X-box, internet TV and iPads. It runs Tesco’s DVD rental business as well as partnering with Odeon and other companies. It has Europe’s largest addressable film community, and 50% of users access the site at least once a week. The addition of platforms like the iPad and X-box “fundamentally changed [the] business in the last six months”. The availability of games has increased their demographic reach, and in a year they have gone from 100k to 1m stream views per month.
Recently the company was bought by Amazon, and LoveFilm, like its new parent, is similarly obsessed with customer data in order to improve its service and by extension its bottom line. For example, they know that friends who recommend the service to others tend to have similar tastes, so the metrics they already have with the original customer can initially be applied to the new one. Mr. Morris next spoke about the changing nature of consuming content, with specific regard to watching film. Mr. Morris said that using their customer insight, they have divined that the way in which the customer watches a film dictates the kind of experience they are looking for. DVD rental, he said, is, for the customer, about getting that specific film in the cheapest way possible. Streaming, on the other hand, is a more spontaneous desire; “I want to be entertained”, he said. Said customer has just returned from a long day at work, etc., finds nothing on his television’s EPG, instead goes to LoveFilm. It is LoveFilm’s responsibility then to show the customer something they would be interested in. Mr. Morris elaborated further, using the recent film Tinker, Tailor, Soldier, Spy as an example. The film has performed exceptionally well both at the box office and in the critics’ pages. He predicted that while the film would be a success for DVD rental, it would be a total failure for streaming.
This is of course a fascinating discovery. What, however is the insight? What does this mean, long-term for the film industry? Well, it does suggest a shift in filmmaking, long-term. For, if, as the film industry hopes, digital streaming eventually becomes on of the principal means of consumption for audiences, especially as the platform release windows continue to narrow, then surely studios must increasingly pay attention and cater to the types of films people are watching via streaming platforms. In essence, the question is whether streaming take-up will become entrenched enough that it influences the very types of films that are being made. When Zeitgeist posed this question to Mr. Morris, he seemed ambivalent on the subject. When Zeitgeist asked about the plethora of competition LoveFilm was facing, which is beginning to slowly affect their bottom line, Mr. Morris was dismissive of such talk, confident in the strength of both their breadth of films available and the deep customer analysis (which includes looking at weather patterns). Asked specifically about the arrival of Netflix into the EU market, Mr. Morris predicted he would soon be seeing the “whites of their eyes”.
The last talk Zeitgeist attended was one given by Tess Alps of Thinkbox, the marketing body for commercial TV in the UK. With TV ratings at their highest since ratings began, and ROI up 22% over the past 5 years for advertisers, things are looking quite rosy for television at the moment. It is, however, like much of the media sector, dealing with volatile technological change. Ms. Alps acknowledged this with a “convergence sandwich” slide; the technology that delivers the medium, the device that you consume it on and then content sitting in the middle as the filler. Yummy, not to mention well-illustrated.
Ms. Alps went on to describe some of the main trends in the TV sector currently; enhanced quality (HD, 3D); all devices becoming a TV; connected / smart TVs; integrated communication between devices across home networks. The presentation continued with a sharing of quantitative findings; interviews with people who had been given prototype technology, using various devices for consuming a broad range of content. Thinkbox found a consolidation of viewing; using online viewing as a backup, only if the ‘live’ show on TV had been missed. Catch-up technology, whether through PVRs on the television or via the computer, was seen as essential. The TV, though, remained the go-to destination for consuming content, suggesting a hierarchy of platforms. There were complementary elements to this though; young people increasingly watch television with their laptops sitting by them, Facebook, Skype or some other program open. Zeitgeist wrote about this consumption conundrum last year. Realising this complementary trend, many companies are now creating campaigns that encourage use of television, laptop, iPhone, etc., for a truly immersive experience. Product placement is aiding this trend, with advertiser-funded programming such as that done by New Look for a recent television show, which encouraged contestants to design clothes online during the show, with the opportunity to be on screen by the end of the programme.
What the entertainment industry has been facing for a while is a fragmentation of viewers, easily distracted by multiple platforms, all enticing in their own way. What remains to be seen is whether efforts such as the ones mentioned by Ms. Alps can effectively remedy the situation by collating all devices to be used to enjoy the same piece of holistic content. Social media will surely play an essential role. With Disney up almost 8% today, entertainment analyst for Standard & Poor’s Tuna Amobi spoke to CNBC this afternoon, stating that he expected revenue from consumption of films via digital streaming to “ramp up significantly from here”. It will be interesting to see just how much our differing attitudes towards platforms influence the content that is produced for them.