How supermarkets are becoming entertainment platforms

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

clubcard_tv_contentfullwidth

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

Learning more about streaming, this time it’s about Netflix (again)

Over the past few months I’ve been learning more about streaming, trying to understand beter how it works and who operates in this market (think Spotify, Rdio and LoveFilm). A logical next step was trying to get a better grasp on the business side of things; what makes streaming so interesting from a business revenue point of view?

  1. Increase in number of streaming subscribers – In a recent webcast with TechCrunch Netflix’ CEO Reed Hastings made it clear where he sees the future of his business by stating that “We expect DVD Subscribers to decline every quarter … forever.” He illustrated this by stating that Netflix had lost 2.76m DVD rental subscribers in Q4 of 2011 whilst its streaming service gained 220k users.
  2. Low cost model – In the same webcast, Hastings explained that even though the margins on DVD rental are much higher compared to streaming (since prices of DVD rental are higher), the variable cost attributed to streaming are much lower.

This made me think about the following:

  1. Will streaming cost really be that low? – I can understand that the variable cost involved in streaming are likely to be significantly lower than DVD rental. The fixed cost of streaming are, however, much higher compared to other (subscription) models. I’m thinking of the fixed costs to set up a streaming infrastructure (e.g. enabling users to stream both in an online and offline mode) but particularly the cost of securing streaming content. With Netflix and LoveFilm battling it out to bolster their catalogues of streaming content in the UK I can imagine the big film studios and TV production companies rubbing their hands with glee and driving up the price of their content.
  2. Will streaming really take off? I guess this will very much depend on factors such as cost, consumers choosing between downloading and streaming (between access and ownership) etcStreaming is a relatively new model, so it will be interesting to see what its consumer adoption will be like.

Related links for further learning:

http://techcrunch.com/2012/01/25/reed-hastings-we-expect-dvd-subscribers-to-decline-every-quarter-forever/

http://news.cnet.com/8301-17938_105-20093587-1/netflix-vs-blockbuster-whats-the-best-service-for-streaming-and-dvds/

http://mashable.com/2011/12/06/verizon-netflix/

http://paidcontent.co.uk/article/419-interview-netflixs-hastings-aims-to-challenge-bskyb

http://paidcontent.co.uk/article/419-netflix-sees-overseas-losses-doubling-to-118-million-this-quarter/

http://paidcontent.co.uk/article/419-lovefilm-adding-abc-tv-show-archive-in-uk-netflix-fight/

Learning about streaming, with Klip as a first case study

I’m currently trying to learn more about streaming in its various forms. Streaming is all about the delivery method of media such as audio, film or TV. There are basically two forms of streaming: live streaming and archived streaming.

With live streaming, you take the content and broadcast it live over the internet. It involves having a camera to capture the content, an encoder to digitise the content, a media publisher where the streams are made available to users and a Content Delivery Network to distribute and deliver the content. This way, the user is able to view an event live. Good examples of live streaming are live coverage on YouTube of an Arcade Fire concert at Madison Square Garden or people being able to view the first match of the FA Cup live on Facebook.

Archived streaming is more about ‘on-demand’ streaming (think BBC’s iPlayer and Lovefilm’s Player) or Marks & Spencer broadcasting a vodcast on food you can order for Christmas. The technology used to deliver this is fairly similar to live content, apart from the fact that the ‘content source’ for archived streaming can be as varied as a tape or an audio file.

I don’t think one has to be a great visionary to predict a great future for streaming, with a multitude of devices to stream video content to. A good, recent example of these bright prospects is Klip, a mobile video app that lets you share video content with your friends. These are the reasons this service caught my attention:

  1. It’s the highest ranked social video app in the App store – Klip is an iOs (as in ‘Apple only’) app that lets users view, capture, share and discover video on their iPhone. Other examples of social video apps are Rounds, Vlix and Socialcam.
  2. High quality video streaming – A key aim for Klip is to provide the highest quality video streaming around for mobile device. You simply shoot a new ‘Klip’ or grab one from your Klip Camera Roll and share it with the Klip community, your friends on Facebook, Twitter, on your YouTube channel, or by email.
  3. Underlying technology – Even though I’m not a techie, it will be interesting to find out more about the underlying Klip technology that enables users to swipe a video for a preview. The video will then play at the accelerated speed at which you move your finger across the video. If you shake the phone, all the videos will begin playing on the page.
  4. Adaptive streaming – I learnt that because mobile bandwidth can be unreliable, Klip includes adaptive video streaming which means that it automatically adjusts the quality of the video streaming based on a user’s mobile network conditions.
  5. Cloud component – The sharing on Klip is done around hashtags so that users can easily surface and find content by topic or event. Big on Klip’s product roadmap is the cloud component in its technology, enabling users to search and index hashtags in realtime.

Main learning point: Good to learn more about streaming. The term is often used very loosely and distinguishing between live and archived streaming feels like a good starting point. There will be more examples to follow, but Klip is an interesting one since its aim is to achieve the highest quality streaming as well as encouraging its users to really interact with its content.


Related links for further learning:

http://techcrunch.com/2011/11/18/benchmark-leads-8m-round-in-mobile-video-sharing-app-klip/

http://youtube-global.blogspot.com/2011/04/youtube-is-going-live.html

http://www.wiliam.com.au/wiliam-blog/there-are-two-types-of-streaming-media-live-and-archived

http://www.iabuk.net/en/1/onlinevideoadvertisingcasestudies.html

http://blog.klip.com/

http://en.wikipedia.org/wiki/Adaptive_bitrate_streaming

How robust will Netflix’ business model turn out to be? – Part 3

Just as I thought that the Netflix saga had come to an end with my blog post a few weeks ago (in which I wrote about Nextflix’ CEO Reed Hastings’ announcement to split the business into two separate units), the story has taken another twist. Last week, Netflix reversed its decision to split its business into two parts, streaming (Netflix) and DVD rental (Qwikster) and became a single unit again.

In a very succinct blog post, CEO Reed Hastings wrote: “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs” but he did not offer any further explanations as to his reasons why.

What could those reasons be? Let me just speculate for a minute:

  1. Reed Hastings is speaking the truth – Netflix users genuinely struggled to have to use two different sites. Call me cynical, but surely a problem of this nature would have come to light in early stage user testing or forum groups?
  2. Too much change in one go – Perhaps the pace with which Hastings wanted to introduce business change was simply too high for most Netflix users. An official Netflix statement read: “We underestimated the appeal of the single Web site and a single service.” Nevertheless, make no mistake, online streaming does remain Netflix’ core focus going forward, despite this retracted spin-off.
  3. Unexpected amount of “churn” – The number of people who terminated their Netflix subscription as a direct result of the announced split was simply too high and was putting the overall business revenue at risk. I’m not sure if this was the case, but Netflix users still got a shock when Netflix was unified again, whilst keeping two separate price schemes for DVD rental and streaming respectively.

Main learning point: even though Netflix and its CEO were halted in their tracks to split up the business, there’s no doubt that Netflix strategic focus will be on streaming in the years to come. I’m sure that when the time is right (and Netlix’ users are ready) Netflix will spin off its DVD rental business and concentrate solely on online content streaming.

Related links for further learning:

http://mediadecoder.blogs.nytimes.com/2011/10/10/netflix-abandons-plan-to-rent-dvds-on-qwikster/?scp=2&sq=netflix&st=cse

http://www.youtube.com/user/JeffreyHayzlett?feature=mhee

http://www.adweek.com/news/technology/netflix-reverses-its-qwikster-rebranding-135673

http://www.cnbc.com/id/44851424

http://mediadecoder.blogs.nytimes.com/2011/10/10/netflix-abandons-plan-to-rent-dvds-on-qwikster/ 

http://news.cnet.com/8301-31001_3-20118063-261/qwikster-nixed-netflix-catches-some-flak/

How robust will Netflix’ business model turn out to be? – Part 2

Back in February, I asked the question about the (long-term) sustainability of Netflix’ business model and I guess that some major events in Netflix’ life over the past week have provided some useful insights into answering that question:

  1. Splitting the company in two – On the Netflix blog, Netfox CEO Reed Hastings last week announced the split of the business into two separate parts. Netflix’ traditional DVD-by-mail business will be renamed Qwikster and the name Netflix will be retained for the company’s streaming activities.
  2. It’s not a spin-off – In his blog post, Hastings made it clear that both businesses remain part of the same company. However, Netflix has come to the realisation (albeit a bit slowly so it seems) that DVD-rental and streaming are two very different activities. Hastings explains: “So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”
  3. Different brands, charged separately – Netflix’ recent price hikes meaning that its customers now have to pay separately for streaming and DVD rental (as opposed to paying a ‘package price’) caused quite a massive uproar and a decrease in the number of Netflix subscribers (and a significant share price drop to boot). I guess Netflix execs must have felt that to fully justify this price increase it had to package up both products separately, each with their own website, mobile platform, etc.
  4. Streaming is the future – To me, this split clearly shows that Netflix sees online streaming of content as its future. In his blog post, Hastings acknowledges that the days of DVD rental are numbered: “DVD by mail may not last forever, but we want it to last as long as possible.” One can imagine that in the not so distant feature Netflix will sell its DVD rental business (or terminate, depending on customer demand) and concentrate solely on its streaming business instead.
  5. Will Lovefilm follow suit? – Lovefilm which recently got acquired by Amazon is increasingly focusing its efforts on streaming. The Lovefilm Player is a good example of this strategy, streaming video content directly to users’ TV sets or game consoles.
  6. Content streaming is the way to go – In the past few days the ‘new Netflix’ has been announcing a video-on-demand rights deal with major Hollywood studio DreamWorks to beef up its content portfolio. Not only is this a logical step in Netflix’ ongoing quest to stream content across multiple platforms, moves like this one are critical if Netflix wants to gain a strong foothold in the content streaming market.
Main learning point: when I wrote about Netflix a few months ago I couldn’t envisage that it was going to overhaul its business model and approach to market. Whether this move was made out of choice or forced upon Netflix following a massive PR disaster, the fact is that Netflix has made its strategic intentions very clear: the days of online DVD rental are numbered, streaming is the future!

 

Related links for further learning:

http://blog.netflix.com/2011/09/explanation-and-some-reflections.html

http://thenextweb.com/media/2011/09/16/netflix-its-not-about-the-price-its-about-the-lack-of-choice/

http://techcrunch.com/2011/09/18/netflix-qwikster/

http://www.engadget.com/2011/09/26/nyt-netflix-strikes-deal-with-dreamworks-will-begin-streaming/

http://www.businessinsider.com/netflix-splits-in-two-the-dvd-business-will-be-renamed-qwikster-2011-9

http://www.wallstreetdaily.com/2011/09/27/netflix-announces-deal-with-dreamworks/

http://multiplayerblog.mtv.com/2011/09/19/netflix-video-games-qwikster/

Amazon is really getting into interactive TV

Back in January, Amazon acquired Lovefilm to strengthen its position in the online video market. It has now bought Pushbutton a London-based digital agency specialised in interactive television content and services for new platforms such as Internet Protocol Television (IPTV), internet-enabled TV sets and tablets. Pushbutton counts the linkes of Sky, BBC, Virgin and Microsoft among its clients as well as Lovefilm, for which it has developed applications on Sony’s “Bravia” Internet-enabled TV range as well for the Playstation 3.

What does this acquisition tell us?

  1. It’s all about content – Like the acquisition of Lovefilm, Amazon’s focus is very much on finding lucrative content related opportunities. The increase in number of app-enabled TVs is such an opportunity.
  2. Bring on Netflix! With US online content behemoth Netflix looking to expand into Europe in 2012, Amazon (and Lovefilm) will need all the content firepower that they can get.
  3. The Amazon tablet? With Amazon rumoured to launch its own tablet computer later this year, this acquisition of Pushbutton will help Amazon design and develop user interfaces and experiences geared for tablets.

Main learning point: Amazon is clearly on a path to expand its content catalogue as much and as quickly as possibly. Acquisitions such as those of Lovefilm and Pushbutton do make a lot of sense in that context. Not only is Amazon extending its catalogue of online content, through Pushbutton it now also has the expertise available in-house to design and develop interactive experiences around that content.

Related links for further learning:

http://thenextweb.com/uk/2011/07/28/amazon-acquires-london-based-tv-app-company-pushbutton/

http://paidcontent.co.uk/article/419-amazon-buys-lovefilms-iptv-app-designer-pushbutton/

http://www.geekwire.com/2011/amazon-buys-pushbutton-adds-universal-movies

Wal-Mart and Tesco are going digital

This week has seen two intriguing acquisitions take place: US retail giant Wal-Mart and its UK counterpart Tesco both acquiring promising digital businesses. Last Monday, Wal-Mart bought social media firm Kosmix based in Silicon Valley and yesterday Tesco announced its purchase of a 80% stake in Blinkbox a UK-based online video streaming business.

It looks like we have a got a bit of a trend on our hands here: established retail companies buying into digital expertise and technology in order to successfully exploit the opportunities that social media, video and mobile have to offer.

“We are expanding our capabilities in today’s rapidly growing social commerce environment,” Eduardo Castro-Wright, vice chairman at Wal-Mart, said in a statement on Monday. “Social networking and mobile applications are increasingly becoming a part of our customers’ day-to-day lives globally, influencing how they think about shopping.”

Wal-Mart, a company that already has a strong track record in e-commerce and tracking how customers spend their money, is now looking at social media as another channel to generate revenue from. Kosmix is a social media filter aggregating information by topic from web sites, tweets and other online sources in real time*. The underlying idea is that this acquisition will provide Wal-Mart with valuable customer insights as well as provide a platform to further engage with customers.

Even though it’s a different kind of transaction, Tesco taking a significant stake in video streaming business Blinkbox, demonstrates a foray into “multi-channel retailing” similar to Wal-Mart’s purchase of Kosmix. Blinkbox offers TV and films for streaming and downloading with both ad-supported and paid-access models. It claims 2m monthly users and a 9,000-strong content catalogue and aims to significantly expand this catalogue.

I wonder how anxious the likes of Amazon and Sky felt when they found out about retail colossus Tesco venturing into video streaming. It has only been a few months since Amazon bought Lovefilm in a serious attempt to create a strong foothold into this very promising and lucrative marketplace. “We can link physical purchase of a product to the building of digital collections in a new and seamless way,” Tesco’s UK head, Richard Brasher, said. With Tesco’s current market power, it will definitely become an online video force to be reckoned with.

In short, these are the main things I have learned from both acquisitions:

  1. Social media and (online) retail form a very good combination – Whether it’s Groupon or Kosmix, social media based applications are no longer seen as just an extra marketing tool but as a business opportunity in its own right.
  2. Data is still king – Perhaps less so with the Blinkbox acquisition, but the depth of consumer data that Wal-Mart can potentially derive from using Kosmix technology seems massive.
  3. It’s all about web-based retail services! Both Wal-Mart and Teso are working hard to really grow their revenue from online retail. For instance, the Blinkbox move plays an important part in Tesco’s strategy to create its own online market place for content.

Main learning point: predicting that there will be a wave of acquisitions in the online space is not rocket science. Deals like the ones for Kosmix and Blinkbox, if anything, clearly show that established “brick and mortar” companies are increasingly looking to expand online and tap into the digital talent and technology already out there.

I’m not a technical guru but my developer peers keep telling me that even with ‘real time’ there is going to be a (minimal) time lag. Noted.

Related links for further learning:

http://dealbook.nytimes.com/2011/04/19/wal-mart-buys-social-media-site-kosmix/?ref=technology

http://www.ft.com/cms/s/0/91f2e84c-6a13-11e0-86e4-00144feab49a.html#axzz1K8ruGg4f

http://anand.typepad.com/datawocky/2011/04/retail-social-mobile-walmartlabs.html

http://www.guardian.co.uk/media/pda/2011/apr/20/tesco-blinkbox

http://eu.techcrunch.com/2011/04/20/tesco-acquires-majority-of-blinkbox-to-take-internet-on-tv-mainstream/

http://www.bbc.co.uk/news/technology-13141985