Archive for the 'Blog' Category



What would happen if Netflix was free?

I’m a Netflix customer, I pay the $7.99/month for the service, it’s great. In particular I feel like I’m recreating the Discovery channel experience when I was younger, watching documentaries and then movies/tv shows as I want.

I think they are over hyped a bit, their recommendations recommend things Netflix knows I’ve watched, they could do with a social component (ala Spotify) or at least a way to recommend to friends.

But that aside I was thinking the other day, what if they opened up a free ad supported version?

1) I think most current customers would keep paying

The price is incidental really.

BUT

2) It would open up a big market

Those that don’t want to pay that extra part, would suddenly have access. Now, in reverse this is what Hulu tried to do, go ad supported first then add premium. But I think the Netflix model (partly due to their dvd revenue business) has allowed them to build their loyal customer base.

3) It would generate equivalent revenue

The video advertising market has progress a lot in the last few years, with even AOL saying last year they were selling out their inventory. So what is different now is that brands want to buy more video ads online, they love the targeting and it’s a great supplement to the rest of their mix. Lets say Netflix could sell it at $0.10 CPV, half of what you’d pay on YouTube. That means a customer would only have to watch 80 ads/month to make the revenue.

The average american watches 5 hours/day, if Netflix was getting 30% of that viewing time, that’s one 30 second ad every 20-30 minutes over the month.

Update: And it actually turns out the current subscriber averages exactly that.

4) It could even produce upside

Depending on how well the ads are targeted, they could even ask for more. In this scenario below I’ve given a ranges of CPVs to figure out the ads per hour needed to match it.

Screen Shot 2015-01-28 at 8.57.02 AM

 

You can download my excel here if you want to have a play: NetFlix Calculation. But it shows at the higher end you wouldn’t need an ad every hour.

5) Hang on, why isn’t TV already doing this?

Quite simply, their model is sold on reach & frequency, they make more by selling more (natural) but at an incremental discount they have lost value in the long tail. Viewer 1,000,008 is less valuable than viewer 500,000 in the tv selling model. In digital, they are as valuable. TVB have an example here of a cost of $1.98 per 1000 homes.

See this, Price vs Audience size.

upload_wikimedia_org_wikipedia_commons_8_8a_Long_tail_svg

 

For the sake of this post I haven’t gone into, TV production costs (as Netflix needs this in the eco-system to provide), change in acquisition and/or change in product. My view is Netflix has the potential to grow in the eco-system, not replace the eco-system. In that change it would also have to pick up components that broadcaster provide.

As HBO cuts the cord this coming March, Netflix sits on a goldmine really, what are they going to do?

January 28th, 2015

Instacart Advertising – How these guys will bring digital advertising to the supermarket

I’m an avid Instacart user, why? Because it means I eat out less, it’s easy to do and who doesn’t like convenience. This simple app lets you order items from your local supermarket, then select when you’d like them delivered.

Yesterday whilst preparing an order, I realized a few things. Instacart because it isn’t a supermarket but has all the data a supermarket should be able (but doesn’t really) utilise, they could do some amazing things to innovate in bringing digital thinking to food shopping.

Here’s a few thoughts:

1) They can do specials.

Discounts off food, and like the supermarket these will be paid for by the brands.

2) They can target these offers

They know my address, general profile information by zip but also what I spend and categories of shopping.

3) They can optimize against performance

Imagine as a brand, optimizing per basket add. You only serve the offer up to people in a limited area, customize your offer and optimize against basket adds. You can then roll that out national or by zip code.

4) They know (and can affect) loyalty

Or going a step further, you could incentivize or pay for loyalty. Pay more for someone that adds your product to their basket four times in a row.

5) Drop off campaigns

Target people who used to buy your product but haven’t in the last three shops.

And that’s just the start, I look forward to seeing Instacart opening this up to brands, I imagine at the right time this will be massive for them.

PS

This is also a potential Amazon Direct play. They already have the ad engine and recommendation engine just not targeted at this area.

 

January 9th, 2015

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