Business Unusual

Streaming killed the TV star

This is not just the story of Netflix, but of Internet TV. The first rule of show business is that you need a star and Netflix is one of the best in the class, and you have probably used it here in South Africa.

Hulu, Amazon Video and even YouTube’s Red are also driving the shift, but they're not fully available in SA yet.

Showmax and Vudu are the local options. They are also driving the shift, but with a more conventional offering.

With a connection that can manage about 4Mbps, you might find yourself asking how you ever watched TV any other way.

What makes Netflix different?

It might seem like an overnight success and, considering it launched in 130 countries just this year, that is a fair assumption. However, the company is almost 20 years old.

It can trace its earliest battles to those that mortally wounded Blockbuster and moved from being one of the US Postal Service’s fastest growing users to one of the largest sources of streaming web traffic in just a few years.

The company was started as a DVD mail subscription service. You could keep the DVDs for a long time, but had to return them to get new ones.

This was one of the seeds that made them who they are today.

You don’t pay-per-view and there are no ads. You can watch as much as you want for a fixed fee.

Perfect right?

A full offering, though, would be very expensive, so Netflix does not look to host the widest selection of titles (though their DVD service still exists with 93 000). It has about 4500 movies and about 1000 TV shows available in the US, while in SA there are less than 500 movies and 200 TV shows.

This is a clever Netflix strategy.

You can’t watch more than a small amount of content anyway, so they have invested in a great recommendation service, even allowing each account to have multiple profiles so your kids' favourites will be tracked separately to yours and even your partner's.

As soon as you log on, your screen is filled with the highest rated options and not generic ratings, ratings by people who like the same sort of movies you do. It means you don’t have to search and as soon as one show ends they get the next one ready to play straight away.

If you have never experienced binge watching, this is how they do it. It is both scary and amazing what capacity we seem to possess to watch TV. Many report watching an entire season of shows in just one session. Having all the episodes available straight away helps.

An additional element to ensure you don’t worry about the size of their catalogue is that they spend on short term access to the big hits, rather than paying the rights for a movie that exponentially gets less demand.

1000 hours of new content

The other way to save on the costs of rights is to make your own content. Netflix spends more than most on original content. It appears to be working as a tool for growth as they recently added three million new subscribers in the third quarter of 2016. But it is also a major cost.

$6 billion will be spent on 1000 hours of new content, including the eye-watering $40 million to Chris Rock for two stand-up comedy specials.

The final part that makes Netflix work is an impressive culture that was created during their toughest time when they had to lose a third of their staff. The Netflix culture is seen as an example that combines the best of traditional business with the agility and flexibility that is the hallmark of the tech industry.

The slide presentation about it (created in 2009) has over 15 million views, for a slide presentation!

What old school TV gets wrong

Traditional TV options rely on an audience being available at a certain time or only being able to access content after it has aired via a recording.

It is not great at having all your favorites shows on one channel so you need to switch and probably have to then deal with time clashes. Streaming does away with that, allowing you to watch what you want, when you want.

While Netflix does have a small library there are options from those mentioned above and Apple and Google movies that will allow you find almost any movie, most available to rent or buy (who would do that though?) which ticks the box for an old classic you have not seen for a while.

While data costs and speed are still an issue, fixed line data costs have dropped significantly.

The relatively low costs bode well for dealing with piracy although the companies acknowledge that password sharing happens a lot; it can still be measured which is preferable to relying on torrent sites to report how successful a show is by what was effectively stolen.

The missing piece here though is sport. The rights are huge and even with a premium subscription or lots of ads, it will be hard to justify the access cost and remain profitable.

The sports bodies have realised this too and as the traditional bidders for the rights see the better margins on other content you can expect to see a shake-up happening here too, just not with the premium sports like soccer though. More promotion and tie-ups with social streaming options like Facebook and Twitter's deals with US Football are likely.

Most of the services offer a month free. With a connection that can manage about 4Mbps, you might find yourself asking how you ever watched TV any other way.

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