Marketing plan for Netflix in Europe by Executive Summary Netflix is preparing to add a large amount of new original content shows to further attract new local subscribers as well as gain more global recognition and brand awareness. Our main focus for the next year will mainly lay in content creation for new and current shows, which will be financed by our price increases of the subscription packages by 15% and 20%. Furthermore we plan on constantly improving and altering our algorithms to ensure that our costumers obtain the most personalized experience while using our platform, differentiating us from our competition. Market Topology There are generally three types of pay video-on-demand (VOD) services. TVOD (Transactional Video-On-Demand) services, which include: o EST (Electronic Sell-Through), also known as DTO or 'Download To Own', is like the traditional sale of physical video grams, but in digital form. o DTR (Download To Rent) is like the traditional rental of video grams, but in digital form. This segment is 56% of total VOD market. o SVOD (Subscription Video-On-Demand) services, which are based on the dominant pricing model used for linear pay-tv subscriptions. (Retrieved from: http://blog.idate.fr/videoondemand-marchesmajeurs/) SVOD Current Market Situation in Europe o Netflix is in the Subscribed Video on Demand (SVOD) Market service. Nearly half of Netflix global market subscribers are outside the USA, predominantly in Europe. o 11% of European households have SVOD, of which 52% are Netflix users. o From 2014-2015, the European SVOD market grew 56%, and we expect it to reach 50Million homes by 2020 if it continues to grow at this rate. o While SVoD services are rapidly conquering Europe, there are significant differences between the rates in Wester vs. Eastern Europe. According to the statistical reports of the previous years: Eastern Europe is still ‘stuck’ in traditional ways. TRENDS IN VIDEO-ON-DEMAND REVENUES o Western Europe is approximately 400-500% more likely to adopt SVOD., and the average growth for the next 4 years is expected to be 35% o Biggest uptake is in the UK, Netherlands, Ireland and across the Nordic 3. Internet based consumer spending is region closing the gap withbyon-demand TV globally o Netflix European content watched 95M subscribers TV VoD reached EUR 919 million in 2014 topping other segments of on demand revenues in the EU. Nevertheless, its share of market appears significantly downsized if compared to online VoD as a whole (Figure 4). Combined Internet-based revenues surpassed TV VoD in 2012/2013 and continued widening the gap with TV VoD, affirming as the major driver for consumer spending on-demand content. Figure 3: Total on-demand Consumer Revenues – EUR (M) by business model - 2010-2014 (Figure 1.) 1600 1582 1200 Online TV 1002 818 788 800 919 Online Film 844 SVoD 709 681 618 TV VoD 524 303 238 403 176 111 TRENDS IN VIDEO-ON-DEMAND REVENUES 87 41 0 214 162 196 96 118 56 2010 Online (All) 437 329 400 2011 2012 2013 2014 Source: IHS In 2012 subscription revenues started soaring and eventually surpassed both TVoD (transactional video-on-demand) segments, consisting in film and TV shows rentals and sales over the Internet. The three combined, online VoD branches closed the gap with TV VoD earnings in 2013 and largely surpassed them in 2014,per reaching theand EUR 1.5–billion mark, showing the increased adoption of VoD Figure 5 : Total SVoD Consumer Revenues country year EUR (M) – 2010-2014 services delivered over the open Internet, so called “over-the-top” (OTT).A comparison between TV VoD and SVoD compound annual growth rates shows an impressive slit as well, the former 2010 2011 2012with 2013 2014 393 stopping at 8% and the latter reaching for 113%. 400 Over the last five years subscription-on-demand services increased their revenues and share of the 320 market, driving the expansion of on-demand services. 243 240 160 80 128 95 29 27 1 4 0 UK 10 9 8 7 6 5 4 3 2 1 0 (Figure 2.) 4 SE 58 64 45 8 53 25 5 7 11 27 DK 3 FR NL 36 51 6 9 17 1 8 FI DE 33 11 5 14 22 BE 15 1 2 5 10 16 IE LU 2 6 12 ES 8 8 6 6 5 3 3 3 3 2 1 1 0 CZ IT RO 3 2 3 2 2 1 0 SI PL SK AT 1 1 HR 1 PT 1 BG GR Source: IHS The British market for SVoD services increased 15 times compared to 2010, with a CAGR of 96%, which seems still considerable even if not among the highest ones. GB, DE and FR with the addition of SE1and generated 82% of all consumers spendingshow on online between 2010ofand 2014. users →Figure andDKfigure 2 pictured above, clearly theSVoD rapid growth SVoD Breakdown per year also shows a substantial acceleration in revenues growth starting from 2013, in Europe in the years. Significant growth started occurring in 2012 when with areas likepast Benelux and Finland where the vast majority of revenues was gained in 2014 alone.Netflix The introduced state of the SVoD for 2014 still shows considerable fragmentation 7). The British was first in market Europe, which forced the other players in(Figure the Video service market share loosed few ground regarding other countries and remained on top with 47% (down 18 industries to adapt to this growing online streaming trend. percentage point compared to the share of 65% scored in 2010).When combined, the Nordics (SE, FI, DK) also hold a significant 23% share of the overall SVoD market, the Benelux (NL, BE, LU) 11% while France and Germany stand respectively at 7% and 6%. French SVoD revenues surpassed German ones in 2014, reversing previous years’ trends. They now reach a similar amount of EUR 58 and 51 million each. According to recent studies, these two countries didn’t actually benefit of the “Netflix effect” (or of the debut of pay TVs stand-alone services) as much as other EU key markets. Statista estimates SVoD penetration to be close to 5% in France and Germany, while it is over 10% in the United Kingdom and close to 25% in the US4. The research also points out that Netflix reached a smaller share of SVoD subscribers, 37% in France and 40% in Germany, against 80% in Great Britain. A lower level of willingness and habitude to pay for streaming subscription services should also be the reason for the slower CAGR the two markets are developing at, which is 89% for FR and 63% for DE. The “Market Insights” o New research from the European Broadcasting Union (EBU) Media Intelligence Service shows that, subscription video-on-demand (SVoD) subscribers in Europe grew 56% in just one year between 2014 and 2015, and are expected to reach 50 million homes by 2020. o SVoD in Europe” report shows that the biggest uptake is in the UK, Netherlands, Ireland and across the Nordic region. Currently, nearly 11% of all European households have a SVoD subscription. This number is anticipated to double by 2020 but is unlikely to reach levels seen in the USA, which remains the driver of global SVoD consumption. o The report highlights that competition in the SVoD market is also increasing rapidly. Netflix is the current undisputed leader with a 52% share of the market in the European Union, however Amazon is mounting a strong challenge. There are also many other European groups currently in the market and are fast to adapt to the fast changes of the online world, including Vivendi (CanalPlay), Sky Plus (Now TV) and ProSieben/Sat.1 (Maxdome). o Management information system (MIS) research shows that free catch-up services, such as the BBC iPlayer and RAI Replay, remain the preferred way to access on demand content. o 97% of EBU Members have a free catch-up video service. o There are some regulatory and financial constraints but despite this, most EBU Members are already embracing SVoD, either launching their own services or distributing their content on third-party platforms. For example, NPO (SVOD in Netherlands) operates a joint initiative with commercial broadcasters RTL and SBS, and RTÉ (Ireland) last year launched RTÉ Player International to make Irish PSM content available to viewers abroad. SWOT Analysis: Strengths • • • • • • • • • • • • High quality and “original” content and production. Easy access. (Provides a very convenient way to watch anything anywhere/ mobility). Pricing. (Available subscriptions: 7,99/9,99/12,99 $) Great user experience; platform is easy to use and is compatible with all devices. Strong brand awareness globally. Focuses on all types of audiences. No advertising. Monthly subscription model. Fast to embrace the fast changing habits of the consumer. Long and successful history: Netflix has been operating since 1997 and was the company that effectively killed of Blockbuster. The biggest leader in SVoD platforms in Europe. New monthly additions to the library. (Constantly updated) Opportunities • • • • • Attract further new users through increasing amount of original content and further expand video libraries with perhaps also adding bonus features. Growing number of users who are contemplating not to sign up for cable TV, since it is much more costly than Netflix. Convert the more traditional generations (Ex. Baby Boomers) to trust this new digital platform and leave the cable TV behind. Finding more local partners to further global expansion. Further tailor its algorithms for the different countries. Weaknesses • • • • • Low profit margin due to the large costs of global expansion, production costs of new original content, and currency fluctuations. Limited local content. Netflix does not have revenue from advertisements; they pride themselves on that, as opposed to Amazon. Still quite dependable on internet availability Under pressure to produce more high-quality content at a fast pace. (Production is very expensive). Threats • • • • Big rise in content costs as well as limited access to certain content due to stiff competition with local cable TV´s and conflict with content owners.(Sony). Apple and Google may join this war for the SVoD market. Competition and price wars. (Amazon, Maxdome, etc.) Legal disputes and issues with local authorities, as well as content providers because of violation of regulations and licensing. Competitive review: AMAZON Prime (Main competitor) → Weakness: • • • • • Page navigation might be tricky, it is not as simple to use as the Netflix one. No dedicated kids section for child friendly content. Original content is only focused on “adult” audience. Not all movies/series are available for prime users; you are only able to watch them at an additional cost. Compatibility with all devices. (Problems with android devices, as well as windows). →Strengths: • • • • • • Association with HBO, ‘x-ray’ enables to find information on actors, scenes and other IMDB data, €6.5/month, Amazon Prime offer integrates book, other product deliveries and more. Original content. Huge content available. Offers free month trial as well as flexibility with ending the contract. Strong brand awareness CanalPlay (France) → Weakness: • • • • Only available in France, Limited own content (10 series per year only), as well as a limited budget for productions. Complex to wiggle out of contract. Small content library. Strengths: TV associated site (CanalPlus) • • • Very localised content, which of course appeals the locals more. Cheap subscription deals: 7,99/9,99$ Strong position with its parent company (Canalplus). → Other competitors: Listed in Figure 3, are all the SVoD platforms that are most commonly used depending on the country. As you can see Netflix is the leader by far. (Figure 3.) Objectives • Growth: Average growth of 25% for whole of Europe, representing €200M in incremental subscription revenue per year. Expect United Kingdom, France and Germany to average around 20-25% compound annual growth. Nordic countries expected to have average around 40%, while new Mediterranean countries are expected to grow at over 200% from a low base. • 1st year objective o Increase local content in Europe territories, primarily Nordic and Mediterranean. o Consider more exclusive production deals. Target partnering up with local producers to collaborate on local and exclusive content. In order to obtain content exclusivity. o Funding for these local European productions will be needed. → Budget will be created by adjusting prices upwards, and/or reducing gross margins. o Increase brand awareness in each European market, especially amongst those ‘resistant’ or ‘traditional’ demographics that do not easily try new or are convinced by the “new” technologies. o Pursue brand awareness on the back of more locals. o Secure more local content at a competitive price. o Partner up with local cable providers. Pricing o 2/3 current packages will increase in price by 15%, releasing approximately €40M in funding for new local European productions. This represents approximately 800 hours of new content. o Larger price increase of 20% for unlimited device plan to counteract people taking advantage of shared plans. Furthermore subscribers significantly underpay for this service with this specific “family pack”, and this is needed to increase profit. o This price increase is expected to increase margins. Marketing communication strategy The marketing communication strategy for Netflix Inc. does not follow a strategy based on traditional mass-communication advertising. It will rely mostly on Digital marketing and generally its online presence: o The typical Netflix user on average spends more time online as opposed to traditional media outlets. (E.g. Television, radio, etc.) It is also understood that digital-only advertising strategies rely on how “sticky” the new obtained subscribers actually are. Experience shows that costumers signing up to Netflix through digital messaging have been more long-term as opposed to those reaching Netflix through other marketing channels. Therefore we put our main emphasis on the online presence of the brand. o Netflix already takes on a unique tone and voice in its social media presence, which has helped it differentiate itself from most brands as well as created a large user base with great engagement. For example, we have adopted a strategy to excite our user base about the upcoming programs that are to be released at exactly the right time: we are telegraphing the value that our network will be bringing the coming month. The way we sent out these messages does not come from Netflix directly, but rather they are coming from press outlets. This allows us to reach much wider social audiences with our marketing messages. o Big data: Netflix collects its data from its millions of subscribers and monitors it to attempt to understand our viewing habits more thoroughly. But not only is this data big, it is the combination of this “big” data with very complex analytical techniques that makes Netflix a true, big and successful Big Data company. o We pride ourselves on knowing and being able to predict what customers will enjoy watching. We will continue using this Big-Data strategy as well as constantly evolve our algorithm, which will increase the number of subscriptions. For example To promote our new shows/new seasons we lean on personalization and create up to 10 different trailers for the various segments of Netflix´s audience. o Content Marketing: Netflix prides itself on having intimate knowledge of viewers watching behaviours and therefore we can invest accordingly for the creation of new, original content, making the idea of original creations less risky for the company. Turning back to the “big” data, you can see that it´s at the core of what makes Netflix so successful; whenever a new show is planned, Netflix does not need to do a pilot, instead we run our data and then it will tell us if our audience would watch it or not.
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