Five major lessons publishers can learn from Netflix

Guest post by Mirja Telzerow. (Editor’s note: the recent expansion in Europe of the hugely successful U.S.-based film service Netflix has triggered a debate as to whether the company’s business model carries lessons for the publishing industry. Telzerow argues that there are important lessons to be learned. An opposing view can be found here.)

by WAN-IFRA Staff | October 21, 2014

Adaptability of the business model: Netflix started out as an online DVD rental company that sent DVDs by mail, with attractive price models. Almost nothing of that is left now. Netflix recognized the potential of the internet for streaming movies and series at an early stage, and transformed itself from being a major customer for the U.S. Postal Service to being one of the biggest generators of U.S. internet traffic.

The radical realignment of its organization, processes and systems was essential to produce a profitable model.

Platform-building with its own content and third-party content: Even before its market launch in Europe, Netflix was on everyone’s lips thanks to skilled PR, social media and direct advertising. The launch was accompanied by a free, one-month trial offer to attract as many users to the service as possible. The clear aim was to raise its profile and arouse interest in using the service and in the company’s offers.

A clever combination of its own content – House of Cards is the best known and no doubt also the most successful example – and extensive rights and licenses for attractive movies and series has led to the platform growing in importance. High licensing costs have to be paid for, of course, so correspondingly high user numbers need to be achieved.

Everything is offered via Netflix with the aim of perfectly combining supply and demand. Platforms are key in the digital world, and surely also a model for many publishing houses.

The perfect user experience: The user experience starts with the attractive payment model. A variety of subscription models are available in Germany, depending on quality (SD/HD/4K) and the number of devices used. Users can choose from a number of options.

Even for people who balk at the idea of a subscription, though – and there are plenty of those in Germany in particular – there is a solution: prepaid cards with tiered balances. Users can pause their subscription, and all their settings, such as suggested movies, are saved. In that way even a “lost” user can quickly rejoin without major effort.

The application itself is clear, and very, very easy to use. Anyone who has ever used Netflix knows how good the suggestions for series and movies are. These are based on sophisticated algorithms, which anticipate users’ wishes better and better over time, and more accurately. Users are pleased because tiresome searches or wrong choices don’t spoil the streaming experience.

The system requirements for these solutions are of course huge, so publishers must look very closely at what investments they are able to make. They also need to find out exactly what their users want; it doesn’t necessarily make sense to use the same payment model for each customer group, for example.

Pre-installation on devices: Good placement on users’ devices is important for every application today. By entering into partnerships with electronics manufacturers, Netflix has ensured that its application is pre-installed, and all that the user needs to do then is register. Very simple and user-friendly. Partnerships with telecoms providers enable the application to be installed on mobile devices, too.

Making use of the whole ecosystem is not yet very widespread for many publishers, but it is crucial to keep as far ahead as possible in the visibility stakes.

A touch of regionality: Although Netflix grew big in the U.S. market, it makes efforts to take account of particular regional characteristics. This starts with the payment models and extends to specific content produced solely for the local market, such as a promised German version of House of Cards.

For publishers undergoing international expansion, this can sometimes mean giving preference to regionality over economies of scale.

Mirja Telzerow is a Principal at A.T. Kearney in Germany. Over the last 10 years she has advised media and telecommunication companies on strategic questions and the necessary operating model transformation worldwide.

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