Why Netflix could change tv and its advertisers

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THE RISE OF A NEW GIANT

Netflix is undoubtedly the most disruptive business in the entertainment/media industry of the last decade. After having wiped out Blockbuster from the DVD rental market, the company led by Reed Hastings is aiming at the big jackpot: unplug cable tv and become the main player. 

"The goal is to become HBO faster than HBO can become us."

When Hastings made this statement during an interview with GQ, many people frowned at those words finding them a bit too pretentious. Neverthless, they turned out to be far from unrealistic: Netflix has shown to be more than capable of competing with HBO at its own game.

Netflix is no longer a mere service provider, it brought the business to the next level becoming the producer of its own contents. It started in 2012 with Lillyhammer but House of Cards was the real game changer. 

The program was the first web-only series to win an Emmy in a major category (overall three Emmy) but, most importantly, the series guaranteed a sizable amount of new subscribers. As a result, Netflix reached 30 million of paid subscribers in US while HBO is stuck at about 28,7 million. Bang! 

Netflix power is not just about taking on HBO but also how the company is making an immense gap between itself and competitors as Hulu or Amazon Prime. The accuracy of its data mining system and the extent of its library are absolutely unprecedented. Take a look to the data about downstream Internet traffic in US (below) to understand the magnitude of the Netflix phenomenon.

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Not bad for a company that two years ago was all but written off for dead.

TV IS DEAD. LONG LIVE TV.

“I wouldn’t be surprised if you look back in 20 years time and say the internet is the best thing that ever happened to your industry.” 
Eric Schmidt (Google)

The huge success of Netflix and the concurrent decline of cable tv (see below) incite catastrophic vision about TV and its imminent death. 

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First of all, let clarify what we mean by TV. If we’re talking about million of people that each and every week sit down at once and watch a tv show with a 30% something of share, then yes, that tv is dead and gone. But the death of high share TV does not mean that TV itself is not alive and well (look at the graphs below). 

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According to Nielsen, the monthly reach of traditional tv in Q313 is stable compared to the same period of 2012, while the monthly time spent on traditional tv by composite and afro-american citizens (the biggest part of the population) is increasing. Timeshifted tv is thriving and this is due to things like Netflix, Hulu, TiVo/DVRs, Apple tv which are not cannibalizing TV but actually reinforcing it in general, as medium.

If there’s one thing we are sure of, it’s that people still love TV. On a global level, the average daily television viewing time has increased from 189 minutes in 2008 to 196 minutes in 2012 says Eurodata TV. The appearance of more means of distributing TV and channels’ proliferation allowed to serve more targeted audiences with arguably better contents. 

As Evan Shapiro (President of Participant TV) pointed out: ”TV has become more varied, more ambitious, more targeted and far more satisfying to its audiences. It’s impossible to imagine a show like Mad Men or Game Of Thrones or Jersey Shore lasting even a week or two on TV 20 years ago. Now, these shows are not just hits, they are cultural phenomena. What’s more, the technology that everyone sees as a threat to TV’s throne as cultural king is the very thing that enables its dominance.” I totally buy Shapiro’s words.

Thus, even if technology and delivery are significant to be successful, the quality of the content is what matters most for increasingly demanding viewers. Putting it plainly, Netflix is beating its competitors not just thanks to its multi-device delivery or its extremely accurate recommendations, but because of its superior contents.

IF TV IS NOT GOING TO DIE,
WHAT WILL NETFLIX CHANGE THEN?

The fanciest part of the story is that Netflix might switch from being a terrible disaster to a valuable opportunity for the tv industry. Indeed, Netflix might be the chance for networks and channels to be more creative and flexible in how they package tv. For instance, pay-tv channels as Virgin Media in UK and Com Hem in Sweden are taking advantages of deals with Netflix instead of going towards a written decline.

Others, as Mediaset in Italy, are launching their own service of broadband tv. Mediaset (Berlusconi’s group) is a broadcast network, a pay-TV (Mediaset Premium) and now with Infinity the first broadband tv in Italy. The threat of the imminent arrival of Netflix served then as a wake-up call, an opportunity to renew its offer in a more responsive way to actual viewers’ needs.

Quite surprisingly, Netflix could bring into the advertisement industry an even more radical change. The reason is simple: Netflix is a die-hard ad-free platform, but how long brands will stare inside its potential without any action? Netflix might be the golden opportunity for brands and content producers to finally sit at the same table and start thinking together.

That would be a mandatory move to reach a new breed of media consumers. People that have an incredibly short attention span, immune to traditional advertising tactics and unwilling to get their content interrupted. The result is an epical shift from brand advertisement to real branded entertainment, an entertainment experience that can engage the brand’s consumers in ways more relevant and meaningful than ever before.

Netflix could force a switch from intrusive advertisement to a real piece of content which is strategically linked to the brand, something considerably different from a tactical product placement. Placing products on something already made is often suitable for any brand, but branded entertainment means a real chance for the brand to co-create contents that perfectly align with the brand attributes and are a unique expression of the advertiser's brand personality. 

Of course, this requires an extreme remodeling of the advertising process. Essentially, a deeper understanding of viewers’ behavior and their perception of content than a 30” format advertising, along with a radical re-allocation of funds: from distribution (currently the wide majority) to content.

 Tv fragmentation have already raised doubts about the effectiveness of 30” spots, but streaming tv services and especially Netflix (with its figures and its radical ad-free policy) can now really speed up the change. That could sound as sensationally new, but branded entertainment methods were ordinary at the early days of tv. Philips Morris helped create “I Love Lucy”, soap operas have that name because of brands as Procter & Gamble or Palmolive.

The list goes on till nowadays and cases as City Hunters (co-produced by Unilever) or Iconoclasts (co-produced by Grey Goose) proved that model to be not just an elegant way of blend advertising and entertainment, but also an effective way of advertising the brand. If Iconoclasts hadn’t impacted positively on sales, they wouldn’t co-produce it till the 6th season.

Time will say if and when this change is going to happen, but because of things like Netflix we are able to think about other models. Better viewer experiences and better contents let us hope in better advertising too.