Over the past year or so supermarket giants such as Sainsbury’s and Tesco have started venturing into entertainment content. A good example is supermarket giant Tesco which acquired We7 (digital music) and Blinkbox (video on demand) last year. Its UK competitor Sainsbury bought online entertainment platform Global Media Vault and Anobii (eBooks) around the same time.

I wondered about the business rationale and aspirations that underpin these deals. Do supermarkets want to bolster their physical presence with an equally comprehensive digital offering? Are Tesco and Sainsbury’s looking to take on global content providers such as Amazon, iTunes and Netflix? What’s in it for these supermarkets?

For the purpose of this blog post I’ll focus primarily on video streaming, outlining the key characteristics of this offering and user demands. Let’s start by looking into some of the relevant factors with regard to building a digital video platform:

1. What does the user want? – From my market research and conversations with consumers, I believe that users are primarily interested in quality content which is easy to access, engaging and – ideally – free. They want to watch TV shows or films across a wide range of devices, with the the experience being as ‘seamless’ as possible. “It just needs to work” is a sentiment that I’ve heard echoed by numerous people, meaning that they don’t have much time for technical glitches, issues when watching content offline or on multiple devices. The average video on-demand customer wants to be in full control of what they watch, when and where. Also the breadth of the catalogue is just as critical a factor; the sooner a service can offer the latest, popular TV shows or movies the better. An interesting development in this respect is Netflix creating its own “House of Cards” series and offering this exclusively to its subscribers. 
2. What does the business want? (1) – Revenue. User data. Cross-selling. Forgive me for the crude breakdown of these high-level objectives, no doubt the detail behind their business models is probably more refined than that. I’ve tried to break this down a bit more in Fig. 1 below. For a platform like Tesco’s Clubcard TV (powered by Blinkbox) the main revenue source is likely to be advertising. However, just as important is the value the supermarket colossus derives from offering their users an additional, free service and the ability to learn more about their entertainment preferences. Understanding those preferences better will no doubt help in recommending users other content or entertainment related products. I’ve outlined some relevant metrics to determine the customer value in Fig. 2 and 3 below.
3. What does the business want? (2) – Engaged customers, brand advocates. Perhaps less easy to quantify but not an insignificant factor in this context. It’s much easier to go to another supermarket if they offer the same packet of crisps at a cheaper price. However, if a supermarket offers their loyal customers great free content, you might think twice before switching your ‘allegiance’. There’s still some debate about how successful Netflix’ House of Cards series has been so far in terms of views and subscription increases, but there’s no denying that the programme got people talking and engaged.

Main learning point: previously I had looked at the business models for video on demand providers such as Lovefilm and Netflix. Their subscription based models were relatively easy to work out. With a supermarket chain like Tesco offering free content to its loyal customers, the proposition gets very interesting. It seems like a very effective way to engage with customers, offering them free but compelling content. Similar to the paid versions of on-demand video, I believe that a free content offering will have a bigger chance of success if it provides great content and if it’s easy to access across a range of devices.

Fig. 1 – Breakdown of key players in the video streaming space and their business models

A. Subscription model / Pay-as-you-go

Key players: Netflix, Amazon (Lovefilm/Amazon Instant Video), Apple, Blinkbox and Walmart (Vudu – US)

Key value proposition: Offering quality content and a great – cross-platform – user experience

Business model: Either a monthly subscription fee or pay-as-you-go rental

B. Advertising

Key players: YouTube. BBC iPlayer, Channel 4 VOD, Hulu (US), Tesco Clubcard TV, WatchFreeMovies and Zmovie

Key value proposition: Offering quality content for free and a seamless – cross-platform – user experience

Business model: Free access, no fees required. Use free-access model to attract users to other (premium) content services. Advertising as a main revenue source.

Fig. 2 – Four ways visitors of media sites can generate value (adapted from “Lean Analytics” by Alistair Croll and Ben Yoskovitz, p. 121)

• Subscriptions – Measure subscription rate to monitor subscription revenue
• On-site engagement – You can look at a number of engagement metrics (e.g. time since last visit, time per visit, visits per day, pages per visit and time on page)
• Ad-revenue – Generate revenue through display ads (number of impressions x cost per impression = Cost Per Engagement), affiliate links (affiliate % x sales volume = Affiliate Revenue), sponsorship (e.g. monthly sponsorship rates and number of sponsored banners) and Pay Per Click (Click-through rate x Ad price = Pay Per Click revenue)
• Sharing –  Generate value through sharing content (e.g. through on-site tools and off-site)

Fig. 3 – Key metrics that media sites are likely to care about (adapted from “Lean Analytics” by Alistair Croll and Ben Yoskovitz, p. 117)

• Audience and churn – Understanding how many (paid) users you’re adding and losing. For services like Netflix and Blinkbox ‘user loyalty’ is a critical aspect
• Ad rates or Cost per engagement –  How much money can a service make from impressions based on the content it covers and the people who use the service
• Ad inventory – The number of impressions that can be monetized
• Click-through rates – How many of the impressions actually turn into money
• Content/advertising balance – The balance of ad inventory rates and content that maximizes overall performance

Related links for further learning:

1. http://www.walmart.com/cp/vudu/1066144
2. http://www.walmart.com/cp/Video-On-Demand-by-VUDU/1084447
3. http://www.vudu.com/
4. http://crave.cnet.co.uk/homecinema/tescos-free-clubcard-tv-service-has-some-right-old-tosh-50010826/
5. http://blog.laptopmag.com/walmart-launches-vudu-video-on-demand-service
6. http://money.cnn.com/2011/07/26/news/companies/walmart_vudu_online_movie_service/index.htm
7. http://techcrunch.com/2013/01/07/walmart-vudu-disc-to-digital/
8. http://techcrunch.com/2011/07/26/walmart-vudu-movie-streaming/
9. http://www.fool.com/investing/general/2013/05/15/can-netflix-out-stream-the-competition.aspx
10. http://appadvice.com/appnn/2013/05/when-it-comes-to-streaming-video-netflix-and-youtube-continue-to-lead
11. http://www.allmyfaves.com/blog/movies/watch-movies-online-top-10-film-streaming-review-sites/
12. http://voyager8.blogspot.co.uk/2010/02/what-are-cpm-cpc-cpa-cpe-etc-in-online.html
13. http://thenextweb.com/uk/2013/04/03/tesco-brings-bbc-worldwide-content-to-its-blinkbox-powered-video-streaming-service-clubcard-tv/
14. http://www.bbc.co.uk/programmes/p01b1hyh
15. http://www.pocket-lint.com/news/121318-tesco-clubcard-tv-adds-itv-dramas-and-cooking-shows-to-free-streaming-service