The Striking Significance of Binge-watching

and why Netflix thrives while newspapers fall

—1—

In early 2011 at his Malibu home, Kevin Spacey received on of the strangest phone calls of his life.

On the other end, was Director David Fincher. While a call from David Fincher is enough to get even the venerable Spacey intrigued, what he was saying made no sense.

According to Fincher, Netflix had guaranteed two seasons of House of Cards, a show that did not even have a pilot yet. This was especially strange, as the service was then best known for delivering DVD’s through the mail.

That phone call signaled a major turning point for both Netflix and the entertainment industry, but the thinking behind it began nearly a year earlier.

In the company’s 2010 annual report, Netflix CEO Reed Hastings wrote that Netflix operates on the principle that “additional subscriber growth enables us to obtain more content, which in turn drives more subscriber growth.”

The plan was ambitious and a significant pivot from their existing business model. But this new focus put pressure on delivering content that was guaranteed to entice viewers.

Licensing and streaming is a more expensive business model than purchasing and mailing DVDs, and competition in the space was increasing. For one deal with Disney and Dreamworks, Netflix was rumored to have shelled out close to $1 Billion.

Their current licensing model was clearly unsustainable. They were being bullied on price because they had no leverage. They needed to differentiate themselves with original programming.

The move into original programming was not without precedent. Amazon, Hulu, Yahoo, and Google had all attempted to enter the space with little success.

Netflix was left with a tough decision. Should they play by the existing rules and hope that subscriptions matched their rapidly increasing licensing costs? Or should they put their valuable data on consumer tastes to good use and create original content of their own?

In a bold move, the company picked up House of Cards for 2 seasons at a reported price tag of $100 million.

Then the company did something that shocked the entertainment world. Instead of releasing the episodes over a long period of time to keep users subscribed for as long as possible, they released all the episodes at once.

—2—

The defeat of the American newspaper has been devastating. Advertising revenues that topped $60 billion in 2000 plummeted below a third of that in 2011.

It’s clear the Internet and search engines like Google have fundamentally changed the habits and tastes of readers. We are no longer interested in general publications like newspapers. Instead we prefer to seek out specific authors, sources, and channels for more specific news.

While destruction looked inevitable for the entire newspaper industry, the Washington Post was different. The Washington Post had a very real chance to become something that could fit the niche tastes of modern readers.

While the paper’s former owners were fiercely determined to keep the paper’s focus local, their locality was inherently of national interest. The nation’s fascination with politics has continued to grow over the past 20 years and the Post was uniquely positioned to become the go-to source of all political coverage.

They had a rare opportunity to build out a niche that would thrive in the age of the modern reader and create a new business geared toward online, topic-driven audiences. Two internal employees pitched just such an idea in early 2006. John Harris and Jim Vanderhai saw an opportunity to claim the political news space online for the Post.

Such a bold move was still viewed as risky in 2006, however, and the Post decided to stick to their core business and try to weather the storm.

Harris and Vanderhai left the post in 2006 to pursue their idea without the support of the Post. They successful launched the site they had pitched to the Post just a few months earlier. They called it Politico.

—3—

While it’s not the first time a new medium has shaken up our consumption habits, the advent of Television in the 1950's being the other notable example, the Internet has taken this disruption to a degree that can not simply be weathered as newspapers believed.

Netflix too had the option to steer the company in a direction more consistent with traditional Hollywood standards of operating. They could have continued to license new shows. Their risks would have been minimized to a degree, but they would have been forced into the old paradigms of content creation, consumption, and licensing.

Instead the company took a risk on original programming so they could maintain creative control. This allowed them to produce and release their shows however they wanted.

Netflix knew that the old model was broken. Consumers didn’t want to wait for a week to see what happens in their favorite show. Today’s consumers want to immerse themselves in content at a time and to a depth that they see fit.

Plenty of good shows had fallen victim to this broken episodic paradigm. Arrested Development, beloved by fans and doted on by critics, was cancelled after just three seasons as consumers simply enjoyed binge watching the show on DVD more.

Netflix’s gamble on House of Cards has clearly paid off. New membership soared in the first half of 2013, increasing 13%. The company has used this halo effect to launch similar shows like Orange is the New Black and put pressure on the rest of the industry to change the way they do business.

The company even took home 3 Emmys in 2013. While that number pales in comparison to the 23 taken home by HBO, it sends a very clear message to the rest of Hollywood: The Netflix model works.

Companies can no longer rely on outdate models of distributing content. The future belongs to the companies that look at how audiences want to consume their content, and tailor their offerings to match.

—4—

From the vantage point of 2006, Harris and Vanderhai’s pitch to pivot the Post toward a Politico model would have seemed like too great a gamble. The Post still had a decent grip on the political news market and was looking only to strengthen existing business.

However, as the Post began to struggle, Politico gained momentum. The Post watched as their relevance and readership alike began to decline.

Politico was faster to break news, easier to consume on multiple devices, and catered to the niche-driven consumption habits of the modern reader.

When the Post was eventually sold to Amazon CEO Jeff Bezos in 2013, their were rumblings of potential synergies with Amazon’s publishing platform. However, it is likely that Bezos’ purchase was merely to provide the money and resources to try and take back territory already lost to Politico.

The Post failed to see the size and significance of the change in the way readers were consuming content. Any content based business is ultimately ruled by its readers. Without them, the business fails. The post either forgot about this crucial fact or grossly underestimated the change in their readers habits brought on by technology.

More than any other newspaper, the post had a chance to adapt and survive the technological challenges faced by its brethren. But they failed to deliver content tailored to the modern consumer.

—5—

The Internet has fundamentally changed the way we consume information. Where once we were content to let information be disseminated to us, we now actively seek it out.

Two years ago, the Atlantic published an essay by Nicholas Carr titled “Is Google Making Us Stupid?”

While Carr’s target was not really Google, he wanted to draw attention to the impact that technology is having on our cognitive processes. His argument was that our deepening dependence on the internet is changing the way we think, and consume information.

According to Sarah Churchwell, a senior lecturer in American literature and culture at the University of East Anglia, the way we think and solve problems is changing too. “In 10 years, I’ve seen students’ thinking habits change dramatically: if information is not immediately available via a Google search, students are often stymied.”

While these shifts are becoming more noticeable, underestimating them like the Post is understandable. The old consumption habits have remained consistent for decades. It’s hard to imagine those habits changing so rapidly, but companies that are catering to this change like Netflix are seeing massive success.

—6—

The modern consumer is no longer a passive recipient of information. They are no longer swayed by advertisements and messaging.

Brands now need to provide valuable content that addresses their audience’s concerns and answers all of their questions.

Audiences are actively seeking information, and they will binge on the first brand to provide the content they are looking for. It’s more crucial than ever for brands to create valuable content to feed their audiences appetites.

Take the case of American Express:

Despite years of success with traditional advertising and direct mail, AMEX was seeing declines in their credit card inquiries, especially from small businesses. Instead of creating a new ad campaign or promotion, the company started OPEN forum.

OPEN forum is a community of business owners and industry influencers. It is a place where they can engage, share information, and gain insights. The site attracts some of the biggest names in business, and small business owners swear by the community and it’s ability to answer the toughest business questions.

While the site benefits users, even non-customers, it also benefits the company. The site is reportedly responsible for driving as many credit card inquiries as any other initiative run by AMEX. The company realized that their consumers no longer wanted a sales pitch. They wanted a community that can help them solve their business problems.

There is no better time than now for brands to take a step back, and see if they are still delivering the content their audience wants. Are customers still using the same channels? Are they still looking for the same information? Audiences in every industry have gone through an information revolution.

Your audience is no longer a stationary target. They are moving to new channels, consuming information in new ways. Your content department needs to be as tuned in and ready to pivot as Netflix to thrive in this brave new binge-watching world of digital consumption.

About the author: Matt Wesson is the content marketing manager at Salesforce. Follow him on Twitter or see more articles on his LinkedIn page.