The Rules of the Video on Demand (VoD) Market Game

What Can Help Netflix, Amazon or Any Other Service to Get Ahead of the Game?

We offer to your attention the translated text of a column by Dariya Donetskaya, CBDO of AndAction!, which was originally published in Bright Magazine.

The American Video on Demand (VoD) market is growing at an amazing rate. In 2016, 51% of Americans had at least one paid VoD-service subscription, in 2017 this number has reached 58% (Edison Research and Triton Digital). What’s interesting, it is not only Netflix, the favourite of the market, that is on the rise. Its direct competitors, Amazon Prime and Hulu, grow at a healthy rate too.

On realizing the potential of the market, big companies of related industries hastened to join the race. Facebook, Apple, Disney are the giants that have announced that in 2018 they are going to engage in building their own VoD-services and they have already spent a fortune to get started.

It remains to be seen whether these VoD-services will be successful. However, we can forecast in what fields these companies will compete.

Original content

To stand out from the competition, VoD-services will try to make a unique proposition. The smaller ones do this by choosing a specific niche: for example, Hulu specializes in TV programs.

Others, especially Netflix and Disney, hope to retain customers by producing original programming that is distributed exclusively on their platform.

This seems to be a winning strategy in the long run but in the short run, it results in heavy spending. An article about Netflix published in Barron’s magazine states that the streaming service has to finance this spending with “junk-rated debt” and that Netflix’s cash burn this year will be between $2 billion and $2.5 billion. Netflix puts up with the risk in order to secure its place as the “big boss” for years to come.

Each original movie or TV show becomes a strong argument for paying for the subscription of the platform that created this product. Key market players understand it so they build up their original content library at rapid-fire pace so it is likely that in the future it may happen that one generation will have experience of watching the cinema of Netflix while another generation — that of Amazon Prime, and the complete history of cinema will be available only to those who pay the double price of subscription.

Marketing

VoD-services are confronted by the challenge of attracting new clients. The customer lifetime value for Netflix is $291.25 while the company spends $22.25 to attract a new subscriber, although in 2013–2014 it cost far less: $8 per subscriber. The potential audience wears out and the price of a new user becomes increasingly higher.

Some marketing tricks, such as a free month, are used so often that to meet users’ expectations, VoD-services have to make them default.

Such companies as Amazon and Facebook are in a more winning situation because they have a loyal audience, therefore, they can advertise the new service using internal resources.

Activities in social media also play a key role in the promotion campaign for an original movie. As VoD-services do not provide information about the number of subscribers who watched a specific show, Twitter activity is one of the few indicators of content popularity (for instance, Nielsen Media Research has developed the Nielsen Twitter Ratings System to measure how many people tweet about a TV show while it is on air). Publications and reposts in social media are the new word of mouth marketing, this is why VoD-services put much effort into generating buzz. Sometimes even too much effort: an employee of the American channel ABC anonymously managed a Twitter fan account dedicated to the TV series ‘Scandal’ until the truth was out. It is likely that there are more similar cases but the majority of them is never revealed.

Technologies

Without any doubt, technologies have an influence on the popularity of various VoD-services. There may be a direct correlation: for example, if a VoD-service is incompatible with one of the models of smart TVs, the owners of these devices will not pay for the subscription. Or it may be indirect: comparative reviews of Netflix and Amazon Prime often state that the former service has a better movie gallery while the latter has a gallery that freezes up and flickers when scrolling. At first sight, minor failures are not so crucial (it is unlikely that a subscriber would check and compare various VoD-services). However, lags can spoil the impression from using the service during the free month so that the subscriber chooses not to pay for more.

Apart from the user-friendly or not-so-friendly interface, VoD-services differ in quality of video content. So far no company has managed to offer a full content library in 4K and such technologies as 3D or VR are applied mostly in the test mode.

Interaction with the viewer

VoD-services keep experimenting with the ways to engage their subscribers emotionally with their platform. The easiest method is to apply A/B tests that help to enhance the user interface. A more sophisticated method is developing a recommendation engine that could offer subscribers a relevant movie or TV series before they leave the website. To implement this, VoD-services use artificial intelligence, machine learning and neuroscience.

There is a new trend that has emerged quite recently: Netflix plans to play with the audience by giving it an opportunity to decide whether a TV series should have a happy ending or not and whether the main character dies or lives. This idea existed before: remember TV programmes in which there is a box with SMS-voting at the bottom of the screen. This is a viable method to encourage the viewer.

But there is more to it. The next-generation VoD-service AndAction! suggests engaging the viewer at the stage of film production. The audience can vote for film projects it likes best and by doing so decide their fate. In this fashion AndAction! intents to comply with the wishes of viewers of today who want movies to be made for them and about them.

In the coming years the global VoD-market will be a battlefield of old and new companies and in the end, the survivors will be those companies that know what the viewer wants.