Why is Netflix doomed against the competition of HBO, Disney, Youtube and Prime?
It’s because HBO, Disney, Youtube and Prime can employ the ‘loss leader’ strategy for their streaming services to gain market share!
A “loss leader” strategy involves selling a product or service at a price that is not profitable but is sold to attract new customers or to sell additional products and services to those customers
Let’s understand this with the strategy of HBO and Disney first. HBO and Disney not only have superior content but monetise them in four (4) ways — subscriptions, content licensing to tv, cinemas and streaming, selling merchandise, and advertising in addition to owning their own TV channels.
For Google, Youtube brings both ad and subscription revenue!
Amazon monetises users through Shopping, Devices, Content, Music, Books and for B2B through a myriad of services starting with AWS!
The reason why HBO and Disney are in the streaming services, is that, it is just a product extension for them to monetise their content better and help them retain users even better for their next movie and sell more goods!
The reason why Youtube is in subscription services is because they have realised that they can retain and monetise users better who are “power consumers” with a subscription product than a pure play ad based product!
The reason why Amazon is having content is to ensure that the perceived value of “Amazon Prime” is high in the mind of the user. This ensures that the user sticks with the annual Prime membership ensuring that they will shop more with Amazon!
So for HBO, Disney, Youtube & Amazon, revenue from users is neither required to create new content or to make a profit!
They just want users to stay in their ecosystem so that they can make money off the other areas of their services.
This means that they can charge the lowest subscription cost for their services!
But that is not the case with Netflix! There is only one way that Netflix is currently monetising its users! And that is through subscription services!
In the era where content is getting commoditized and time is absolutely scarce with viewers; deciding what to watch will be based on the perceived value of the product!
If I can’t watch Netflix, then there is enough content I can substitute with!
But if the revenue drops for Netflix, it starts a vicious cycle with — lack of budgets for new content, lack of budget results in stale content, lack of new content reduces user intent of sticking around with Netflix, which can further lead to reduced revenue and so on it continues!
But this is a scenario that Netflix was in, back in 2007, when the battle was fought with Blockbuster Videos and Netflix eventually won by innovating out of it!
So the first step in winning this war is to diversify the sources of revenue because otherwise you won’t be able to fight a competitor with a loss leader strategy!
So how do you think Netflix will emerge out of it! ?
