Kate Bulkley, Media Analyst.

Netflix Faces a Bumpy Road Ahead

By Kate Bulkley

Broadcast News

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For Broadcast January 16, 2019

As rivals raise their game, the SVoD player needs to look beyond content, says Kate Bulkley

At the recent 76th Golden Globe awards, comedian Carol Burnett was honoured for her ‘special achievement in television’.

Accepting her award, she mused that variety shows like hers – with its weekly guest stars, 12 dancers and 28-piece live orchestra – wouldn’t be possible in today’s competitive market. The cost would be too high.

She’s right, especially as viewers desert to streamers like Netflix and Amazon. The threat level is different from when the US cable networks caused similar disruption two decades ago.

The Kominsky Method

The Kominsky Method

Awards are an indicator of the SVoD services’ growth and they are stacking up trophies. Netflix won Golden Globes for Roma, The Kosminsky Method and Bodyguard, the latter a co-production for the SVoD service and the BBC. Amazon won two – one each for The Marvelous Mrs Maisel and A Very English Scandal, another BBC co-production.

The march of the streamers continues to challenge traditional broadcasters through talent deals. Bob Dylan and Martin Scorsese are among the latest big names to sign up for Netflix shows, while Oscar-winning actor Al Pacino looks set to star in Amazon drama The Hunt.

Netflix keeps shelling out cash for original shows, but some think its high-cash-burn model may be overheating. Operating margins and profitability are being squeezed by increased content spend.

Indeed, Netflix’s first-mover advantage and ability to smash through traditional production and distribution strategies is becoming long in the tooth.

Not only have others – Amazon, in particular – adopted the Netflix strategy of writing big cheques to attract talent, but Netflix’s business model of focusing closely on local territories has its own frailties, particularly in potential high-growth markets like India.

The streamer showed a new vulnerability when it chose to compromise on its editorial mission by censoring comic Hasan Minhaj’s show for the Saudi Arabian market.

“For Netflix, standing up to rivals like Amazon, Google and Apple, which have more diversified revenue streams, is going to get harder”

Has Netflix peaked? Perhaps. At CES last week, it emerged that Apple is integrating iTunes into Samsung TVs and starting to work with rival Amazon.

Apple chief Tim Cook and Amazon boss Jeff Bezos are teaming up to fight other tech giants. This follows an Enders Analysis report that noted how quickly tech rivals can enter into truces when situations demand.

There’s more pressure building up on the tech firms as Disney, NBC and Warner Broslaunch OTT services. Even legacy network players like CBS are streaming content themselves rather than selling the family silver to on-demand platforms.

In this changed environment, Netflix must think about its growth. It plans to spend a staggering $13bn (£10bn) on original content this year and is piling on debt to do it, but the real differentiator going forward will be data usage.

You could look at Netflix through the prism of Spotify, which has realised the power of creating superior experiences for consumers using first-party data.

Spotify talked a lot about podcasts – one of the hottest growth areas in media – at CES and has signed a partnership with comedian Ellen DeGeneres to create a music hub for her show, which often showcases popular music.

Spotify is moving towards personalised content on the back of “smart deployment of listening data” derived from its huge music catalogue and creative partnerships.

Netflix could take a leaf out of this playbook because, like HBO, it is a one-trick pony.

Standing up to rivals like Amazon, Google and Apple, which have more diversified revenue streams, is going to get harder. Netflix has succeeded via its intuitive consumer interface and ease-of-use plus original content, but will that be enough?

Going forward, media services must focus on intuitive data and offering subscribers more. Perhaps the real end game for Netflix is as an acquisition target for an ambitious telco.

AT&T already has HBO parent WarnerMedia, but what about Verizon or T-Mobile? For them, Netflix would be a prize worth having.

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