When Netflix outbid HBO and AMC for its $100 million wager on House of Cards, industry experts questioned the revenue potential of a single big-ticket show. What pushed Netflix executives to bid higher than bigger, more established competitors?
According to Jonathan Friedland, chief communications officer of Netflix, audience insight gave executives the confidence they needed to pursue rights to the show. “Because we have a direct relationship with consumers, we know what people like to watch and that helps us understand how big the interest is going to be for a given show,” he told the New York Times. “It gave us some confidence that we could find an audience for a show like House of Cards.”
In order for House of Cards to be profitable, Netflix needed to acquire 565,000 new subscribers following the launch of the new show. The company brought in about 17 million new members.
Netflix’s success has put the pressure on traditional media companies to pursue direct-to-consumer efforts. Media giants are now in a race to produce over-the-top (OTT) content and launch subscription video-on-demand (SVOD) services that consumers can access without the need for a cable or satellite subscription.
"In the past, media companies focused on producing content without ever interacting with the audience."
Entering this new space, however, hasn’t been easy for established media companies, many of which don’t have experience servicing consumers directly. In the past, media companies focused on producing content without ever interacting with the audience. Direct-to-consumer is a new, unconquered world.
To succeed in this new landscape, media companies need to be viewer-led. Companies need to lean on their community of viewers or subscribers in order to get closer to their audience and make better business decisions. Ongoing audience engagement will help companies answer four key questions about what many consider to be the Wild West of the media industry.
1. What kind of content are people willing to pay for?
Streaming platforms can provide an overwhelming amount of historical data. This could include pause times, drop-off rates, repeat views and who clicked but didn’t watch. But for media companies just getting started in their direct-to-consumer initiatives, how do you know with certainty what content your audience wants?
Figuring out content that will resonate is important because for streaming platforms to survive, having an audience isn’t enough. According to PwC, companies must create fans—active users who share the same ideas, interests and experiences, and who will return frequently to the brand’s properties.
Smart media companies are launching platforms for specific audience niches to build a rabid fan base and uncover net-new ancillary revenue streams. A recent announcement came from Turner Broadcasting, partnering with sister company Warner Bros. to launch Boomerang. The SVOD service will be the exclusive digital home of Hanna-Barbara and Warner Bros. animation content. Other OTT services are now in the market, including NBCUniversal’s Seeso, Sony Picture Television’s Crackle, Lionsgate’s Comic-con HQ and Nickelodeon’s Noggin.
The direct-to-consumer world is so much more than Netflix, Amazon and Hulu. To stand out in this increasingly crowded market, media companies need to leverage ongoing audience insight to identify niche viewer groups that will draw long-term subscribers, not just one-time viewers.
2. What is the most effective revenue model?
Building and launching a direct-to-consumer platform leads to important revenue and monetization questions. Should you charge monthly or annual subscription fees, or is it better to be free and ad-supported? If you’re pursuing the freemium model, how much content should be on the “front porch”? Is there a magic threshold to optimize conversion?
These questions aren’t simply based on economics. A lot of them should depend on audience preferences, attitudes and motivations. Pricing and distribution strategy will inevitably determine the audiences you attract. An ad-supported SVOD service is more likely to attract a younger demographic than a service that charges $9.99, for example.
"Competitive analysis only provides part of the picture."
In the early phases of launching a new direct-to-consumer platform, understanding which model will work best feels like a chicken-and-the-egg problem. As OTT consultancy Piksel has pointed out in its research, “working out the cost of a service before launch is difficult simply because few organizations have the real-world data to help calculate the costs.” Without historical data, how can you make an informed decision?
Studying the current business models in the market is useful, but given that SVOD is still emerging, competitive analysis only provides part of the picture. Media companies need to go directly to potential viewers to get a more accurate picture of their content preferences.
3. How will you keep subscribers—and win new ones?
In the past, media companies didn’t have to worry about driving customer acquisition, increasing customer retention, reducing churn or driving loyalty. These issues fell on the shoulders of multichannel video programming distributors (MVPDs). This, of course, changes in the direct-to-consumer world.
Having to worry about audience- or consumer-centricity is something new for many media companies, but this is an urgent task if they want to succeed in the direct-to-consumer world. After all, acquiring a new subscriber is five to 25 times more expensive than retaining an existing one.
"Having to worry about audience- or consumer-centricity is something new for many media companies."
Becoming viewer-centric is particularly important given that people can easily switch from one subscription service to another. Keeping subscribers happy and knowing how to keep them loyal is key to the long-term success of OTT initiatives.
So what’s the best way for companies to drive subscriber loyalty? You need to “know more about who your users are, what they want and how to deliver what they want,” says a PwC report. Direct-to-consumer success depends on adopting an audience-centric culture and using viewer insight in all types of decisions—both tactical and strategic.
4. How will you close the feedback loop?
According to Ernst & Young, media companies exploring the direct-to-consumer model need to remember that their “number one mission is getting to know their customers.” An organized and modern approach to gathering, distributing and using audience insight is not a nice-to-have; it is a must-have.
As a PwC report on direct-to-consumer strategy highlights, media companies need to pursue “rigorous segmentation, active experimentation and development of user insights” to win in this new space. From assembling a dedicated fan base before launch, to collecting and implementing feedback post-launch, you need to establish an effective way of harnessing audience insight and quickly getting key insight into the hands of the right decision-makers.
The gathering of audience insight over time also requires going back to those same people and asking follow-up questions. Doing this at scale, quickly and efficiently, requires an audience intelligence platform that helps you contextualize what you know about your audience so you can gather insight faster than ever before.
Finally, you need to close the feedback loop with your audience to guarantee high-quality, long term feedback. How did subscribers influence your decision-making? Sharing that information back with them makes them feel heard and valued.
The most important question
Delivering SVOD services is brand new territory for incumbent media companies, raising questions that don’t have quick answers. The most important question to consider is, “What is the cost of failure?”
The stakes are high. Being first-to-market in a new streaming niche will likely secure that ground for years to come. To win, companies need more than data—they need validation through a deep understanding of audience preferences, attitudes and opinions. When you close the gap between your company and your audience, you will turn an audience into a loyal fan base and dramatically increase your odds of success.