A Business Technology Place

Would Netflix original content make it through your Shark Tank?

How is Netflix making money on their original content series?

Their latest release, Marco Polo, is reported to have cost $90 million for 10 episodes. At $7.99 a subscriber you can do the math for payback and ROI. But wait. This isn’t the first show Netflix has made costing tens of millions. The popular of House of Cards and Orange is the New Black head-up a rapidly expanding list of Netflix original content. At face value the strategy appears to be a money pit of immense proportions. I’ll admit that the business case was not immediately clear to me.netflix original

Matthew Ball provides an excellent economic review of Netflix original content for the Ivey Business Review. Reading Ball’s analysis you can start to feel Netflix’s business drivers of customer retention, third party licensing costs, and the ability to price subscriptions based on value received. Competition in streaming video services is increasing as more media outlets provide options for content. Netflix struggled with a price increase in the past. Even with the advancement of technology, availability of exclusive content, and increased hours of viewing it will be tough to have significant price increases in the future because competition is growing. Netflix appears to be positioning itself with premium content, but probably can’t afford to have premium prices.

Long term thinking.

Making business decisions for the long term is a good concept to debate. If you’re in a business school, chances are you’ll go long. If you’re in a strategic business meeting, chances are you’ll go short. I’ve experienced both settings. When you talk theory in business school everyone takes the side of keeping the company relevant for years to come. But in a real business, the conversation tends to gravitate towards the next quarterly earnings release, the stock price, the owners tax return, or how to not get sued tomorrow.

Yet, I see the massive cash investment from Netflix as a great example of long term thinking. The payback of the subscription based viewer model comes from attracting and retaining subscribers. Unlike cable TV which had the ability to essentially hold subscribers hostage for years based on the availability of content options, Netflix subscribers are free to go at any time. (Not to mention they don’t use term commitments!) But think about this. The number of traditional pay-for-tv subscribers has started to decline. There’s an oncoming avalanche of “cord cutters” and Netflix is positioning themselves to catch a large percentage of the money shift. They offer services for a fraction of the cost of cable TV and provide an increasing amount of content. All of it commercial-free.

The cost to borrow money is cheap right now. Ryan Bushey, of the Business Insider, points out that Netflix can borrow in the short term to make more on the investment for the long term. Controlling the price in the future is a smart bet. When is the last time the price of content from Hollywood studios went down?

My experience with Netflix original content.

I’m a Netflix subscriber. My first viewing of an original content series prompted this post because it made me think about the business economics as part of my experience. Plus the entire model of watching shows is different on Netflix.

The traditional TV series season lasts for months. Viewers wait a week between episodes. They watch commercials throughout the viewing. So in a 60 minute episode, a viewer may get 45 minutes of entertainment. Netflix releases the entire series of the original content at the same time. It’s Commercial free and available for binge-watching. It’s a different model and fits our instant gratification culture. Oh by the way, if you think about it, this all started with VCR and DVRs. We started recording shows to watch them when we wanted. We could skip commercials. We could watch episodes back-to-back.

My experience? In a word, satisfying. I like to watch content on-demand on my schedule. I don’t typically watch content during the work-week. But I may use content watching on the weekend as a time to “wind down” and relax. I like uninterrupted episodes that allow me to watch past an arbitrary stopping point that keeps me hooked for another week of waiting. The quality has to be there as well. I was satisfied with the plot develop development and level of acting in the series I chose to view.

So in a make-believe setting, would Netflix original content make it through the Shark Tank assuming it was a startup-up looking for seed money? Interesting question. Netflix original content is competing to take away viewers from Shark Tank. But the Sharks tend to like the risks that will pay them royalties month-over-month and that have a realistic chance of succeeding.  So imagine you’re a shark. The question is for you. Netflix is asking $7.99 a month with no monetary return. The return is in the form of exclusive original content. Are you in or out?

—–

Disclosure: I am a paying Netflix subscriber.

This is my 400th blog post on Merchantstand.com

Have you ditched cable and satellite TV? Online alternatives

In my last post I compared the marketing focus and features of Netflix and Blockbuster mail order DVD programs. Traditionally these have been thought of as complementary programming to standard cable or satellite TV. However, with added features such as television network programming, they may become substitute products for cable and satellite in the future.

Another group of alternatives is online streaming video and programming from companies such as Hulu and Joost.

Joost provides television, movie, and music programming through online streaming. The content is free of charge to the consumer as ads from sponsors pay for the service. The Joost web site is a a full-on social media site with recommended content, reviews from others, sharing links, popular content, etc. There is even an iPhone app to stream the content.

What surprised me was that the television programming was up-to-date. I picked CSI: NY at random from a list of dramas. The first episode originally aired on March 25, 2009 on the network and was posted online for viewing just a few days later. The film selection on Joost did not appear so fresh. Not bad if you like classics or want to catch up some films you never knew existed.

All-in-all, the site is mainly focused as a navigation of content tool. Information about how they manage their programming, a knowledge base, a blog, and other program type materials are in the footer of the application away from primary eye-sight.

Hulu contains television programming and video content without the music section offered by Joost. As with Joost the selection of films is very dated or unpopular, while the television programming is recent. The site also has a blog to keep subscribers informed of new content.  Hulu is a catalog based sited. It’s purpose to to create a catalog of online content so that users may navigate and watch.

So are these online and mail order content providers ready to replace your cable/satellite programming? I think that depends what type of programming you watch. If you watch alot of current programming such as sports or news then this option is not for you yet. But if you watch alot of TV series and an occasional movie then these options could be your way to unhook that cable/satellite box.

Have you ditched cable and satellite TV? Mail order alternatives

It’s 2009 and just like you have alternatives for how you listen to music (radio, satellite, CD, digital player, etc.), there are a growing number of alternatives for how you watch video content as well. Gone are the days when you were restricted to watching video on your television from cable or satellite. You’ve got choices now for free or subscription based content delivered through your Internet device or from a home subscription service. This can make a big difference in your monthly budget. Right now I pay $52 per month for expanded basic cable TV (No movie channels, No High Definition, No DVR, yaddy yadda.) That’s $624 annually for 100 channels of programming of which I probably view 10-15. There’s opportunity for cost savings for sure. But what about buyer utility? What about choosing the content I want to see?

In this post I’ll take a look at mail order alternatives from Netflix and Blockbuster.  I’d like to look in general at how  these programmers are marketed and at the difference in features.  In a follow-up post, I’ll look at free online streamed content.

Netflix

I found that Netflix focuses on two primary features in its online Marketing: The ability to have unlimited rentals each month and its ability to stream content to your PC or TV at no additional cost. They are a few mentions of television episode programming as well. I think this will become a larger feature for them in the future as they compete with traditional television and programming. They also heavily promote the speed of the turn-around service you receive for DVDs.

Blockbuster

Blockbuster focused its marketing effort on promoting the fact that they have a mail-in option that can be combined with in-store returns and exchanges. Their subscription plans vary with the fee for exchanging in a store versus a mail-back. They also promote the ability for just a simple return to a store which releases the next mail-order DVD in the mail to you.

Feature Comparison

Feature Netflix Blockbuster Online
Shipping Free shipping both ways Free shipping both ways. Additional option to return to store for exchange for discounted rental.
Television Programming Yes (limited over 5,600 DVDs) No
Movies DVD and Blu-ray DVD and Blu-ray
Streaming to PC Yes (limited selection) Yes with Movie Link
Streaming to TV Yes, with converter device (limited selection) Yes, with converter device
Plans
  • Unlimited $8.99 month 1 DVD out at a time. Unlimited online content

  • Unlimited $13.99 month 2 DVDs out at a time. Unlimited online content

  • Unlimited $16.99 month 3 DVDs out at at time. Unlimited online content

  • Limited $4.99 1 DVD at a time and limited to 2 per month. 2 hours per month online content.
  • Limited $3.99 1 DVD out at a time, 2 per month, $1,99 in store exchanges.
  • Limited $9.99 1 DVD out at a time, 2 DVD per month, 2 free in store exchanges, $9.99
  • Unlimited $16.99 2 DVDs out at time, 3 in store exchanges.
  • Unlimited $19.99 3 DVDs out a time, unlimited through mail, 5 free in store exchanges.
Contract Required? No, cancel at anytime No, cancel at anytime
Free Trial Yes, One Month Yes, two weeks

So what’s your experience with either of these two services? How is the customer service? What is the quality of DVDs received in the mail?