Tag Archives: Netflix

How to Combat Media and TV Disruption

My first post can be found here. It would be a good idea to check out our other posts here as well.

We’ve discussed the general trends in disruption and innovation in the industry as a whole. These posts all point to a disruptive future, where media and television as we know it will continue to change and alter at an unforeseeable rate. There are multiple strategies and points to remember in this industry. So what can we do to make sure we don’t back the wrong horse in this media race?

The first point is Awareness. Disruption is an active trend and will continue to be, because competition drives innovation. As we’ve stated in blog posts passed, blockbuster’s policies created Netflix, Netflix’s successful content drove amazon to do the same, and online streaming encouraged the cord-cutting and cord-free lifestyles. For every action there is an equal and opposite reaction. The ripple effect is coming, the size and the scale of the ripples is the tricky part to nail down. Hope for the best and prepare for the worst.

The second point is Independence. Today we have the convenience of choice in the media world. It is impossible to watch everything and consume all of the created content. So we have to choose between Netflix, Hulu, Amazon Prime, Vudu, and so on. Do not get too attached to one service. Be willing to change to better providers whenever possible. As the media and Tv world That doesn’t mean avoid using just one service, but don’t get dependent on any service or service provider. Always remember that suppliers need consumers and not the other way around. Sometimes there aren’t many options, but, legally, there cannot be a monopoly, so value your choices.

The third point is flexibility, be willing to adapt. This goes hand-in-hand with independence. Always compare your current services to new services. Playing favorites could get you left behind as the current phases give way to disruptive new trends.

The fourth and final point, never settle. Nothing in the media world will ever be the end-all be-all for content, service, and/or features. Disruption creates something new and exciting, so explore every and all possibilities. It used to be said that “as consumers compete, customers win,” so let’s make that true old adage true again.

Disruption Occurring in the Media and TV Industry

Throughout the entire semester, we’ve detailed the disruption of the media and television industry. From the rise of video giants like Blockbuster to their ultimate demise, we’ve seen how seemingly untouchable businesses can fall victim to disruption. The current landscape shows mainstream use of online streaming services. These platforms provide consumers with not only more convenient options, but increased offerings tailored to viewer preferences. With the widespread adoption of these services, along with other platforms that offer services similar to cable at a cheaper price, more consumers than ever are cutting the cord.  Watch a summary of our findings below:

 

To learn more about the processes and programs we used to facilitate our learning, click here.

Here’s our take on how to adapt to these disruptive times in the media and television industry.

 

The Impact of Original Programming

With the rise of streaming services such as Netflix and Amazon Prime Instant Video, consumers have been exposed to new, innovative programming from these providers. These original programs are created exclusively to air on that platform and be viewed by its subscribers. This breaks from the traditional model of shows airing on broadcast or cable television, and later being put on the streaming service after each season has aired. Programs like Orange is the New Black and Transparent have not only captured large audiences, but have also been nominated and award several awards traditionally reserved for traditional television programs. Just this past year, Orange is the New Black was nominated for three Golden Globes awards and for three Primetime Emmys. Uzo Aduba, a supporting actress in the series, won a Primetime Emmy for Outstanding Supporting Actress in a Drama Series. Transparent, an Amazon Original, won two Golden Globes, five Primetime Emmys, and was nominated for an additional six Primetime Emmys. Between Netflix and Amazon Prime Instant Video, the two took home a total of 46 nominations for Primetime Emmys. This demonstrates how original programming on streaming services are starting to contend with traditional television shows airing on broadcast and cable networks. Within just a few years of introducing original programming, streaming services have gained major traction with their shows.

Traditionally television networks and their programs have been guided by ratings of its shows. Nielsen data is used track the number of households watching a particular program, and this information is used in accessing not only how successful a show is, but how to price the advertising space in that program. Since there are only a limited number of primetime spots in each network’s lineup, there is high pressure to have high-rating shows in an effort to maximize advertising revenue. This has led to an extremely fragmented industry with new networks popping up in an effort to achieve a piece of the success. TV critics have begun to call this era the “Golden Age of Television” due to the amount of new, original programming that came out this year. Broadcast and Cable networks aired just over 300 original programs this year, compared to 24 from the streaming services. With the influx of new programs and competing channels, the ratings for individual shows continue to drop each year. This has also made it extremely common for new programming to fail within the first season due to lack of sufficient ratings. Viewers are overwhelmed with choices, and the decreased ratings show that. Along with decreased ratings comes less advertising revenue for the networks as well.

The advantage streaming services such as Amazon Prime Instant Video and Netflix have is that they are able to create content that appeals to viewers, rather than advertisers. There is no longer the constant worry of having to achieve sufficient ratings for a show since the providers aren’t reliant on advertising revenue to sustain themselves. Instead, the streaming services are able to produce shows that consumers are interested in. Netflix uses user data to not only help to serve customers, but to also find out what customers are interested in and produce original content that appeals to them. This has led to Netflix having an extremely high success rate in their original programming. Having consumer centered content has also turned into an integral way for Netflix to retain current customers. Ultimately, Netflix and Amazon Prime Instant Video are focused on gaining and maintain subscriptions. The popularity of their shows does not matter as much to them as does the engagement of the viewers. Reed Hastings, the CEO of Netflix, has declared that “Netflix company isn’t interested in the ratings of its original – or licensed – content.” This model allows streaming services to provide content that caters exclusively to the viewers desires. Traditional networks do not have the flexibility to change their model and keep up. Networks are still reliant on ratings and held responsible by advertisers.

Of course, where there is success, other players tend to come into effect as well. The latest rumored company to enter the field is Apple. While there is not much information out yet, there have been reports of Apple meeting with Hollywood executives to discuss creating original content.

Original programming from streaming services could be the incentive that consumers are looking for to finally cut the cord of their cable subscription. With consumer tailored content, and not being reliant on advertising revenue, Netflix, Amazon, and soon Apple are poised to exploit the cord-cutting market.

 

In the next post, we will discuss “cord-cutting.”

The Fall of Blockbuster

The Video Rental Industry was a six billion dollar industry. It was created in 1978 by Video Station in Los Angeles, California. Like other advancing industries, Mom and Pop video rental stores gave way to major chains, such as Major Video Corporation, Palmer Video, and Blockbuster. These chains boasted gigantic tape selection, sometimes in the tens of thousands. The independent stores could only stock one to two thousand copies on the shelves. Blockbuster could afford to charge less and have more copies of the hits. As of 1988 the company brought in $70,000 monthly and 26% of that was profit. The New York Times claimed that it was “bent on becoming the McDonald’s of video stores”. It was reported that the company was so strong that it feared antitrust law when it attempted to buy Hollywood Entertainment Corporation, back in 2004-2005. The company was so big that it was almost considered a monopoly, and the consumer’s protection needed to be considered. In the end, these fears were never realized. The company declared bankruptcy and collapsed. So how did this giant monopoly-like corporation go from 9,000 locations to less than 300? Disruption.

 

Disruption is the displacement of established technology which, often times, creates a new industry. Blockbuster and the entire video rental industry became one of the biggest victims of disruption in the past two decades. In the beginning, with its unique rental policy, the company solved the problem of rental VHS theft and led the industry for years. Viacom bought Blockbuster for $8.4 billion dollars in 1994, the equivalent of $24.26 billion dollars in 2015, and then Blockbuster successfully goes public in 1999, raising over $465 million in its IPO.

Two years earlier, entrepreneur Reed Hastings, is frustrated after getting fined $40 in late fees. This became part of the inspiration in his next decision, the founding of Netflix. As Blockbuster was making over $700 million in late  fees in 2000, Netflix had just started mailing out DVD’s to customers. Of all the mistakes the video rental store made, the biggest was declining to purchase Netflix. Multiple offers were made in 2000, but Blockbuster declined to pay $50 million for the upstart. Netflix, not discouraged, would go public in 2002 and continue to be a creative force.

The creative destruction was no longer on the side of the Blockbuster, and the company had to play catch up. There were several attempts by the video rental store to react to Netflix’s newfound success. In an attempt to compete with Netflix, the company launched its own DVD mailing service in 2004. Netflix would sue for patent infringement, forcing Blockbuster to pay $4.1 million. To make the company look more attractive, Blockbuster began to give a week grace period for rentals in 2005. This led to a flatter operating income for the year, and so to compensate the company decreased its marketing budget. The company would create its own streaming service, Blockbuster on Demand, and one-dollar DVD rental machines to compete with Redbox, but it was too little too late. The company was de-listed from the stock exchange in 2010 and filed for chapter 11 bankruptcy. DISH Network purchased the company in 2011 and closed the last of the distribution centers.

The problem was that Netflix disrupted the industry. As technology advanced, that company led the charge towards customer-oriented, convenience oriented movie renting. As this history shows, the company kept trying to fight the tide, but not on their own terms. Blockbuster went from the greatest to gone in less than a decade, peaking in power in the mid 2000’s and then bankrupt by 2011. So what can be learned from the Blockbuster story? Never settle. Innovation is always around the corner and one company policy can give away to a whole new set of consumer demands. Netflix now carries the torch in the media world. While Blockbuster was falling, Netflix would continue to disrupt the industry. The next post will discuss the rise of streaming further, elaborating on how streaming services established their footing in the industry and how disruption persisted.

In the next part we will discuss the rise of streaming and the persistence of its disruption.