Will Netflix kill TV?


Despite technological advances that have impacted almost every aspect of our lives during the past two decades, television has remained largely untouched. It’s still a box (well, a slick flat screen) in our living room – and often the focal point of our homes.

There’s been an evolution, sure: black and white TVs made way for Technicolor, one analogue channel became two (then three, four and five), then the introduction of satellite and cable providers gave us yet more options. The advent of time-shifted viewing a decade ago hinted at the future possibilities of TV, but up until recently the industry has by and large always been the same: the shows we watched depended on the time they were scheduled and whether we could access the right channels.

But the rise of video-on-demand (VoD) has changed all that. Linear TV is under threat from internet-based, view-anytime services, led by Netflix. With 57 million members – including me – globally, the company has come a long way from its beginnings in 1997 as a DVD rental service in the US. Netflix, along with rival services like Blinkbox, Amazon Instant Video and Hulu, is freeing consumers from the restrictions of traditional scheduling to watch programming at their own convenience.

Will these services end traditional TV viewing as we know it? There are a number of factors at play.

Data is the new black

The traditional TV model has always been to broadcast content to as big an audience as possible. There’s often no determining who that audience might comprise, save for estimating that a particular demographic might be interested in the show and be home at a particular time of day. It’s the same with the ads during the breaks. But VoD has changed the relationship between consumers and the content they watch.

Using analytics to sift through terabytes of data, services like Netflix can now target individuals rather than demographics. Males aged 18 to 30 become “Chris”; it knows what I like and don’t like based upon my viewing habits. If I binge-watch multiple episodes, fast-forward through specific scenes, rewind, stop a show at a certain point, Netflix is aware and improves my experience accordingly.

This shift presents the biggest risk to the traditional TV business model – advertising. TV will account for 42% of the $540 billion expected to be spent globally on ads this year and, although that percentage is slowly sliding, there’s still no other medium that comes close.

A quote about Netflix

But while broadcasters view the emergence of data as a threat, advertisers see it as an opportunity. Lawrence highlighted the shift in the global TV ad market earlier this year as brands begin to spend elsewhere. Rather than sending out ads to the biggest possible audience regardless of whether they’re interested or not, brands can serve personalised messages targeted at individuals. “Online TV” accounts for just 2.2% of all TV ad spend, but that’s set to double in the next three years.

Content demand

With great technology comes great demand for content.

For Netflix and rival services, retaining subscribers in the long term won’t be decided by ease of use alone. The monthly cost and demands on time will play a role, but the largest factor in customer retention will be the availability of high-quality content. Most of the material that Netflix currently offers is made up of full series that have already been broadcast on other channels and can take up to a year to appear on the service – which is a long time in TV. This delay presents issues, not least because piracy remains a threat; consumers are tempted to illegally download content in order to get it quicker. Another problem is competition for distribution deals. Netflix negotiates multi-year deals with content owners – but who’s to say that at the end of the contract, a rival streaming service won’t gazump Netflix?

With these issues in mind, Netflix has started to invest in a drive to fill the service with original programmes. Having the exclusive distribution rights for shows like House of Cards and Orange is the New Black has proven to be fruitful. The service keeps viewing figures close to its chest, but it quickly admitted that House of Cards is its most-watched show. And it laid the blueprint for further investment. Investment in new content has climbed nearly 63% since 2011 to hit $3.77 billion last year, as the firm continues to put its money where its content is.

Amazon’s Prime Instant Video service is the closest direct competitor to Netflix – and another that realises the importance of differentiating itself through its content. Whereas Netflix has moved to secure the exclusive distribution of content, Amazon has cut out the middleman and launched its own studio to produce its content. Expect Netflix to dig deeper into its pockets in the coming months.

Shifting landscape

So, will Netflix and its peers become the de facto way we watch TV? The figures indicate there’s a change afoot. In the UK, consumers watched an average of three hours and 50 minutes of scheduled TV a day in February – but that’s down by 10 minutes year on year. There’s a faster decline in the US among 18 to 24 year-olds – the holy grail of advertising demographics. Daily viewing time among consumers in the age bracket dropped by about half an hour in the final three months of last year.

The ability to view content on any device and in any location is turning what would usually be “lost” hours (like a daily commute) into TV viewing time. Less time is being sent in front of the TV during “prime time” – and millennials are leading the charge.

It’s a slow process, but as younger, tech-savvy generations of viewers come through, traditional TV as we know it could well become a niche prospect. Will Netflix and VoD kill linear TV completely? Maybe not, but traditional TV is no longer the only game in town – and that will only benefit the consumer with more content choice, greater convenience and, on ad-supported services, relevant messages that really mean something to them. It’s not time to switch off the box just yet, but consumers are certainly switching channels.

Chris has left The Frameworks.

Categories

  • Television
  • Advertising
  • Netflix
  • Online video
  • Video on demand