Takeaways from the Netflix Model

TAKEAWAYS FROM THE NETFLIX MODEL How can content providers still drive revenue without raising prices on their existing customer base? Ed Popow, principal, IoT and OTT platforms, Gotransverse, makes the case The media and In fact, the OpenX 2019 Consumer OTT entertainment Report found that 52% of all US adults use at industry has least one OTT service and the average OTT undergone significant user streams more than 2 hours of content changes over the last every day. People spend more time watching 15 years. Between OTT content than they do driving a car or the onset of new talking to friends and family. It also found that streaming services 46% prefers a subscription-based service. like Disney Plus, HBO Now, GO and But how does one stay relevant and continue Max, Amazon Prime, Youtube TV, Crunchyroll to drive top-line revenue and changing consumer demands for more in an environment that’s changing so rapidly? control and convenience around their The answer lies not within the content that’s consumption options, cable and streaming put out, but rather within the revenue model providers are having to find new ways to stay that supports it. Let’s dive into this a bit competitive amid an increasingly diversifying more... ecosystem. Most media providers today offer a significant drop in shares since October 2014. subscription revenue model because it’s Although such a negative reaction to a convenient for the customer and enables the subscription price increase is rare, raising business to predict revenue through recurring prices alone is not the only option when it sales. But at some point, monthly payments comes to driving future revenue growth. will likely need to increase to accommodate for fluctuations in the economy, new competitors, With a usage-based model, companies can the price of adding content, etc. When that charge customers based on their use of a happens, customers might not react positively. service or product, rather than a fixed monthly price. Let’s say a customer binge-watched As an example, take what happened to Netflix. Stranger Things in March but was out of town In April 2016, the company announced that for a few weeks in April. The latter bill would customers who had been ‘grandfathered’ into be smaller than the one in March since the a plan of $7.99 per month would start having customer would only be billed for what they to pay $9.99 per month, beginning in May. Of used. This gives them the ability to manage course the Standard Plan price is now up to their monthly payments on a month-to- month $12.99 per month, but at the time it resulted basis according to what they consume. in an unexpected increase in cancelled Another option for media and entertainment subscriptions, causing the company to miss its providers is a combination of a subscription Q2 2016 projections and experience the most and usage revenue model. “With a usage-based model, companies can charge customers based on their use of a service or product, rather than a fixed monthly price.” Monetization opportunities Combination revenue model For cable and over-the-top (OTT) providers, For cable and OTT providers who want to this option offers a variety of monetization stay relevant in today’s increasingly crowded opportunities. Companies can offer a market, adapting to consumer demands and monthly subscription at a flat rate and then having a flexible pricing model in place is key. offer a variety of usage-based services (ala’- No matter which model media companies carte Premium content) to supplement the implement, be it a subscription, usage-based plan. In addition to helping companies or combination of the two, it should support take advantage of added revenue streams, the company’s growth and have the flexibility the combination model empowers them to scale with changing market demands. to proactively reach out to customers with a usage update, upsell and/or cross-sell By taking into account where the company opportunity when they’re nearing the cap for is headed, how they can best serve their their current plan. If customers don’t scale customers and the type of content they offer, back on their usage or upgrade to a bigger cable and OTT providers may find that the plan, providers can then charge for overages. revenue model they currently have is well overdue for a change. This may be the revenue model of choice for the Comcast/Netflix partnership. Comcast integrated Netflix into its X1 operating system “For cable and OTT providers who initially and then took it to the next level by want to stay relevant in today’s bundling with Netflix for new and existing increasingly crowded market, Xfinity TV subscribers. This gives Netflix access adapting to consumer demands and to millions of potential new customers and having a flexible pricing model in may help Comcast keep some users from place is key” ditching their cable subscription. LEARN MORE.

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