Sunday 10 February 2013

Feast or Famine: The next move for Netflix?

HouseofcardsSomething interesting happened recently in entertainment; there was a slight shift in the balance of power.

Netflix, traditionally a channel for reaching the content of other networks  became a producer in their own right.

Their new production, "House of Cards" was a shot across the bow for the likes of HBO and more traditional networks and at the moment it seems their $100m gamble is paying off with generally positive reviews.

A Netflix spokesman is quoted as saying:-
"We’re not releasing any data, but we are happy with the reception the show has gotten in the media, on social media and from our members in reviews"
This is a big deal for Netflix and they know it.  Ted Sarandos, Chief Content Officer is quoted as saying:-
"The goal is to become HBO faster than HBO can become us."
While this is interesting for the entertainment market, what's more interesting for me is the potential impact this series will have on both customer acquisition and retention for Netflix.

Clearly, unique, exclusive content is a major acquisition tool for Netflix, helping them draw in both new and lapsed customers.  This is a tried and tested model used by the likes of BSkyB who would in many cases pay over the odds for subsequent series of shows like 24, Heros or more recently Mad Men that had previously aired on free-to-air channels, hoping to bring those hooked customers across in the process.

Indeed, customers such as respected blogger Dave Winer who had previously (and publicly) turned off his Netflix account then made an about turn and switched it back on specifically because of this new content.

So there is no question that exclusive content can be a big draw for new customers.  However with "House of Cards" Netflix is also chalking up another first.

They have launched the whole of the House of Cards series in one go.  Original programming made available like a box set from the get-go.

This is really significant as traditionally broadcasters would utilise a high profile series to draw in audiences regularly at an appointed time; keeping viewers restricted and waiting with baited breath for the next episode.  For commercial broadcasters these episodes would be timed to maximise the audience and hence the revenues from advertisers.  It would also provide the opportunity to gain from the halo effect of viewers staying tuned into the channel for longer pre/post airing.

For Netflix however, this doesn't matter;  their revenue comes from subscriptions, not advertisers.  Without this restriction they have provided a veritable feast of television, allowing subscribers to binge on the whole series in one sitting if they like.  Whilst figures aren't available from Netflix directly, it has been reported that a "significant portion of fans binged on the entire series in the first weekend".

It's worth contrasting this with another form of entertainment, that of social games.

I'm currently hooked on the popular social game "Clash of Clans" which uses all of the best gaming mechanics to keep me playing, progressing and in the flow.  The more I play the more I unlock.  If I had access to everything all at once - if I could feast on all it offered - then I'd tune out pretty quickly.  It would be fun, but there would be no challenge.  Instead, they try to balance the game play, including the strength of foes I have to battle based on my current experience and level achieved.

In discussing the winning formula of the game design, the blog Deconstructor of Fun highlights how the game supports different types of play, saying:-
"Not all of the parts of the core loop are equally important as the importance of each part is influenced by [the] player's ongoing goal in the game, which creates different style[s] [of] game play [,] from resource gathering and building, [to] heavy [and] active battling"
Creating this "flow" within social gaming that ensures players are hooked with a fun and entertaining experience takes data.  They need to constantly monitor usage of the game and adjust the mechanics as users progress or they see usage drop at certain points.

Now Netflix are not short of data but i'd argue they're not really getting the maximum value from it as game designers do.

They are well known for their detailed data analysis of their customers viewing habits in order to serve up better and more targeted content.  Currently, around 75% of Netflix customers select content to watch based on their recommendations and Netflix aim for this to be higher.  Mohammad Sabah, Netflix Senior Data Scientist is quoted as saying:-
"The ultimate goal is to show Netflix customers content they’ll view to completion and then recommend the next thing they’ll view to completion"
The problem Netflix have though is the classic situation all retailers face; the consumer has choice.

There is an increasing plethora of streaming services and so whilst recommendations are important and so is exclusive content, the real key is that consumers "value" Netflix.   The stickyness from content only lasts for as long as the content is "exclusive".  Letting customers essentially burn through that exclusive currency too quickly may in fact reduce the time period its effective for but also the extent to which customers actually value the content.

PSYBLOG recently reported on an interesting study that looked at how consumers valued chocolate based on how they consumed it.

In the study, the consumers were split into 3 groups with one told to give it up completely for 1 week, the next given a big bag and told to gorge and the final group, acting as a control, given no chocolate related instructions at all.  At the end of the study, the groups were given more chocolate and asked to rate the experience.

Those who abstained reported getting more pleasure from the chocolate than either the gorging group or the control group.  Not only that, but they also savoured it more - in essence they valued it much more because they'd been restricted.

Getting the balance between feast and famine is key to keeping customers involved and ensuring they continue to value your product/service.  

It's early days for the Netflix experiment but it will be interesting to see if they start to introduce some of these restrictions on consumption to gain additional loyalty; managing the flow of their customers.  You could easily see top rated Netflix consumers - those who watch more shows, over more hours and engage more with other viewers via social media - being given the ability to watch new exclusive content more quickly than others.  This would then provide social currency into the mix, ensuring those customers stay loyal longer and encouraging others to strive to level up.

If you want to stop your brand falling down like a House of Cards, it's worth looking at how game mechanics can strengthen those bonds.

Game mechanics are not just for games.

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