Netflix Flying Solo In Streaming Land
Distribution has a lot to do with it
Welcome back to Streaming Made Easy (SME). I’m Marion & this is your 5-min read to get a European take on the Global Streaming Video Business.
Every Friday in your inbox. Check out previous editions here.
Enjoy today’s read.
📌 On July 30th from 9am PST / 12pm EST / 6pm CET, Streaming Made Easy will hold a Live Debate Club called “Show me your bundle”. A 1-hour session where each debater imagines their bundle of choice and why theirs would be a winning formula for users and subscription services alike. To attend, sign up here.
Another quarter, another step closer to the 300M subscriber mark for Netflix.
Last week, Netflix announced the net addition of 8.05M subscribers which brings them to a total of 277.65M subscribers globally (+16.5% YoY).
It feels almost impossible to catch up with them but if one wanted to do it today, where should they start?
The answer lies across a variety of topics from content, product to distribution.
Direct competitors lag on all fronts.
Today, no one rivals the quality, depth and diversity of content Netflix has, nor do they match its product excellence (Amazon just gave it another go) or its distribution footprint.
On the distribution front, it begs the question what did Netflix do right that they can say they don’t need to bundle with other streamers?
Let’s find out.
At a glance:
Netflix’s Distribution Strategy
Netflix’s Device Footprint
What Does The Future Hold?
Netflix’s Distribution Strategy
You may already know the story behind the Netflix & Roku relationship. If not, let me bring you up to speed as it speaks volume about Netflix’s vision back in 2007.
Project Griffin
During his ReplayTV days, Wood wanted to solve a problem: record his favourite TV show, Star Trek: The Next Generation, without the frustration of physically taping each episode and managing a growing collection of VHS tapes. After spotting an ad for hard drives in his local newspaper, Wood was inspired and invented the digital video recorder (DVR). ReplayTV competed head to head with TiVo but ultimately filed for bankruptcy.
With Roku, Wood had a new vision: one day all TV will be streamed and with that all advertising.
In 2007, Wood pitched a project to Reed Hastings, later called Project Griffin (in reference to Tim Robbins’ character in Robert Altman movie “The Player”).
The pitch? Building a streaming video box to bring Netflix to TVs.
Wood became VP of Internet TV at Netflix (while remaining CEO of Roku), Netflix invested 6M$ in Griffin and the team got to work.
A few months later, Hastings & Wood parted ways. Netflix wanted to be a streaming platform (agnostic of devices) and Roku wanted to be a streaming device manufacturer. The Netflix player never came out. Instead the 1st Roku player launched in 2008 bringing Netflix to TVs for the 1st time. The rest is history.
Netflix wanted to be device agnostic.
The next step was obvious, they needed to design a distribution strategy to make it happen.
Despite the ambition to be device agnostic, they went the exclusive route (for a year) and developed a streaming app for Microsoft Xbox 360 (accessing 12M Xbox Live members at the time). A year later, came a Blu-ray Disc based streaming video solution for Sony Playstation which was generalised to all DVD players via Software Development Kits (SDKs). Moving forward they were technically ready to easily onboard new devices and platforms.
Being on devices is one thing, being visible is another.
Brilliant move in 2011 as Netflix announced agreements with several manufacturers to include branded Netflix buttons on the remote controls of devices compatible with the service. Little did they know (or did they?) that this spot on remotes would become so valuable in the Streaming Video landscape.
Besides a button on remotes, Netflix built its distribution agreements to ensure they got prime real estate placement on the UI (one of the 1st left slot above the fold) and more.
Everything is documented and devices must go through a certification process, one that even Netflix sees as challenging in today’s highly fragmented device ecosystem:
“At Netflix, we take the task of preserving the creative vision of our content all the way to a subscriber TV screen very seriously. This significantly increases the scope of our application integration and certification processes for streaming devices like set-top-boxes (STBs) and TVs. However, given a diverse device ecosystem, scaling this deeper level of validation for each device presents a significant challenge for our certification teams.” - Netflix Technology Blog (Sept. 2020)
Netflix’s Device Footprint
Every single device manufacturer, telecom operator on earth wants Netflix. Netflix can’t please them all. It’s an iterative process to certify new partners and devices, update existing ones, sunset old ones.
You can watch Netflix on:
✅ TVs and streaming devices: Amazon Fire TV/Stick, Apple TV, Chromecast, Hisense, LG, Panasonic, Philips, Roku TV/Stick, Samsung, Sharp, Sony, TCL, Vestel, Vizio etc.
✅ Smartphones, tablets, computers (iPhone or iPad, Amazon Fire tablet, Windows tablet)
✅ Video game consoles and AR/VR devices (Sony PlayStation, Microsoft Xbox consoles, Apple Vision Pro, Meta Quest headsets)
✅ Set top boxes. This is where Netflix makes the difference. Once they had checked the OTT devices’ box, they moved on to onboard Pay TV, Internet and Mobile Operators and today it’s where they invest the most time and resources as it requires local and regional partnerships.
“From the early days of streaming, we saw partnerships with device makers and pay TV and mobile operators as key to ensuring Netflix was easy to find and use. These partnerships are a win-win — making it simple for people to discover, sign-up, use and pay for Netflix.
In turn, our device and operator partners benefit through increased device sales from consumers seeking devices integrated with Netflix and greater customer acquisition and higher retention as well as the opportunity to upsell higher value data or content packages.”
Netflix doesn’t break down subscriber numbers by distribution channel type so I’m left guessing which I don’t like. I will just say that Pay TV, Internet & Mobile operators bring substantial benefits to Netflix:
→ A wide range of on and off platform activations (like in store activation, sms pushes).
→ Frictionless sign up process with operator billing (many CTV platform lag on that front which puts them at risk of being reader-apps where you sign up elsewhere then watch on CTV).
→ Multiple bundle opportunities (where CTV tends to stick to device+subscription combo).
Netflix device footprint is central and makes them confident enough to say they don’t need to bundle directly with other streamers.
“We haven’t bundled Netflix solely with other streamers like Disney+ or Max because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience.
This has driven industry leading penetration, engagement and retention for us, which limits the benefit to Netflix of bundling directly with other streamers”
What Does The Future Hold?
The data backs this up. Beyond the subscriber numbers, Netflix’s leadership as a solo act shows also regarding churn. Their churn rate is the lowest on the market meaning it’s a subscription you get and keep.
A bundle with other streamers would do little for them. Antenna’s Bundle Benefit Ratio (“BBR”) is the ratio of Curious Customers to Committed Customers. It indicates the degree of upside that bundling may represent for different services (read more here).
However, they haven’t achieved utility status and may never do so.
It leaves them vulnerable to changing market dynamics and customer perceptions as evidenced in the latest Hub Entertainment Research where Netflix is no longer a “Must have” service for the 18-34 demo.
To mitigate that, we may see Netflix:
→ finding a way to tackle at scale tier 2 and tier 3 operators (today, their integration and certification process gets in the way);
→ integrating more Pay TV bundles;
→ building cross-vertical bundles, Spotify being the most obvious one they could start with. And one day, who knows, Netflix with Prime?
Time will tell.
That’s it for today but before you go:
Enjoy your weekend and see you next Friday for another edition of Streaming Made Easy!
Until then, check out Streaming Made Easy on YouTube. In 10 mins or less, I will get you up to speed on a key topic about the European Streaming Video landscape so you can better design and execute your strategy in the region. Check out the 1st two videos.
On top of Streaming Made Easy, I run The Local Act, a streaming video consultancy catering to Streamers, Distribution Platforms and Technology Vendors.
Whenever you’re ready, there are 3 ways I can help you:
→ Europe Made Easy: Get a trusted partner to launch and grow in Europe.
→ Masterclasses: For executives looking to get up to speed on all things streaming. Check out past testimonials from companies like Studio Canal, MIPCOM or EGTA.
→ Content Marketing: Explore how I can put my LinkedIn following + my Newsletter subs to work for your company like I do for mine.
Ping me to see if we’re a fit.
This is a fantastic write-up on Netflix's rise to prominence. As a former Netflix employee who worked on the device partnerships team, you really captured the many key factors that led to Netflix's dominance in the streaming market.
This is brilliant Marion. Love this newsletter, so informative. I can only imagine how long it takes your to craft this level of brilliance