Netflix Killed the Television Star
Netflix is changing television – and with it – advertising. What’s your Netflix advertising strategy?
Don’t think you need one? You’d be wrong… some brief history first…
In 1945, there were about seven thousand televisions in the United States. By 1947, the United States was producing about 178 thousand television sets a year. By 1955, close to nine million television sets per year were being produced in the U.S. Within ten years, the amount of television sets produced in the US increased by a factor of 1200+. Radio, the most dominant media at the end of 1945, decreased slowly, but nevertheless was essentially flat during this period. In 1946, roughly 15M radios were produced (production in 1946/47 was high largely because radios were not largely manufactured from 1941 until 1946). By 1955, the total number of radios sets produced had fallen to roughly 13M a year.
Netflix started as an alternative to renting VHS and DVD movies in 1997. Think about that – in 1997 – the internet basically “didn’t exist” as we understand it now (it did exist in reality – but so few people were using it, it was basically irrelevant to culture and life). The landscape of media was comprised primarily of TV, cable, and rental movies.
Ask a 16 year old today if they’ve ever even heard of a video store. You’ll get a look that would suggest a third eye has sprouted from your forehead.
Ask a 16 year old if they’ve ever visited a Redbox? They’ll probably be able to find the movie you can get from them faster off of some Chinese website – and it will be free.
Ask a 16 year old if they own music CD’s (other than those bootlegs they made). Think about that, for a moment, 40 years ago, the Walkman was the coolest thing on the planet. Twenty years ago, CD’s delivered amazing sound for 14 bucks. Now, in 14 seconds, download any song you want, for a dollar, and in some cases, free.
… this pattern is true up to about 25 years old. In my case, I’m not ancient, but I’m not exactly a spring chicken either. I’ll tell you this much – I watch about 4 hours of “TV” a day – all of it through Hulu, Netflix, or Amazon… occasionally through YouTube.
That’s why 30% of all internet traffic is Netflix. I’m not alone. If anything… the number of people demanding high quality content, as much as they can eat, and either at a low price or nearly free… will be staggering. This is the “perfect storm” for the dawn of a new age of advertising that is compatible with this medium… and from our perspective… squishing a 15-30-60 second TV spot into the mix isn’t going to cut it.
Evolution and Revolution
The changes have been subtle, but clearly significant change is afoot. First, there was “Time shifted” viewing (i.e., “Tivo”). Second, was the growth of YouTube as a media channel. Followed then by the shift of Netflix from CD delivery to streaming video. Followed then by Hulu (a network largely owned by the big three), and now Amazon.
From 2000 to yesterday, we went from basically zero on-demand viewers to over 190M people watching “time shifted” television and over 147M people watching programming online.
Is TV still the biggest box of media spend – yes, for now… $72B in media spend continues to pour into TV. People look at “digital” and point to how it garners only about 50B of that spend. However, just like the television and radio numbers of the post-war period, the metrics tell a story of how other channels are remaining flat and all economic “growth” (and by extension then reinvestment) is in digital media.
Much of that digital media is basically display advertising (i.e., banner ads). This is where the other aspect of our assessment is salient – Netflix accounts for a third of all internet traffic – yet it doesn’t appear in the top 100 sites on the internet. In other words – you can’t buy displace space on it. Since Hulu was created by the TV guys, it follows the TV format – “Hi, let me interrupt what you want to watch and show you some crap you don’t care about.” It’s targeted. It’s measurable. It works – but it’s basically still a TV commercial. Since Hulu is owned by the Networks… and it’s essentially a brand extension of that model… for now it’s working.
You can’t do that on Netflix.
Everyone’s your Brother till the rent comes due
Maybe Netflix can continue to grow solely on the basis of “pay for play”. But with the success of House of Cards, they’ve woken up the networks and others to the notion of original rich content. Netflix has demonstrated they can distribute original content, effectively, profitably, just like the networks can. This will leave Hulu to scramble for new content (which it’s currently doing), and probably accelerated Google’s plans to transform at least a part of YouTube into a high value content network (melding perhaps Google Play and YouTube somehow).
More and more viewing is shifting from television, to either time-shifted or pointcasted TV shows (i.e., on demand). Just as the avalanche in music occurred as a result of iTunes, so is Netflix creating a potential avalanche for TV. We’re not suggesting that Television will disappear… radio didn’t, printed matter didn’t, it’s unlikely TV will “disappear”. However, the reality is that millions of hours are spent in Netflix… Hulu is growing rapidly, as is Amazon. If major advertisers are asked to advertise in manners they haven’t considered… if they can’t run TV anymore… what will they do?
How do you plan to market to customers? What strategy makes sense? TV Commercials “barely” work now for that medium. When the shift actually occurs – how are you going to provide relevant content. You may not care about that, but the networks like Netflix absolutely depend on keeping their customer base, and as a result, they’ll have to adopt a ruthless approach to punishing advertisers who follow the tried and true TV model of “shut up and I’m going to sell you” on their network.
People need to start thinking now about strategies that will allow them to leverage such high quality content in a way that is not directly obtrusive. We have no doubt this frightens a good many people. But the media is rich, the consumers willing to engage in relevant content, and the profitability to an advertiser willing to take on this challenge is high. Ultimately, there is a lot to be done to determine a strategy that will be effective, but we don’t really have much choice any longer. The “house of cards” is ultimately collapsing, and we’ll be stuck trying to figure out an advertising strategy that engages rather than interrupts.
Being relevant and being something that consumers want to see (or at least don’t balk about) is going to be something that content providers will need to insist upon. It’s the difference between just making money… and having real power in consumer’s lives.
Still don’t think you need a Netflix Advertising Strategy? Well, you may think that, as for me – I couldn’t possibly comment.