Why Does Netflix Want to Buy an Out-of-Home Company for $300 Million?
Netflix has no chill.
Every move they make is calculated. As their former VP of Product, Gibson Biddle describes, Netflix has embraced the scientific process to not just be customer focused but customer obsessed.
It’s why many were caught off-guard when news surfaced that Netflix was interested in purchasing Regency Outdoor Advertising for $300 Million.
Let that sink in for a second.
Netflix, one of the most customer obsessed companies we have ever seen, who literally A|B tests everything that they do (See Exhibit A: Netflix’s Tech Blog) is interested in buying a traditional outdoor advertising agency.
It would be reasonable to assume that Netflix has a fairly complex econometric model that would give them a good sense of how effective all of their channels are including Out-of-Home (OOH) Advertising. They likely have also A|B tested to know exactly which placements geographically and by size are most effective.
However, that still doesn’t explain their motivations to purchase an OOH company. Why not simply double-down on OOH advertising in Southern California (where Regency is based) as part of their overall media mix?
There has to be something larger at play.
The Race for Attention.
Netflix plans on spending $8 billion and launching over 700 original series and movies this year. That’s right, just in 2018. That’s what the kids today would call Savage.
All of this content is great until it starts causing problems. It makes it more difficult for consumers to find the titles they actually want to watch and secondly, with so much content to sift through, how do you know what’s good? What’s worth your time?
Out-of-Home can help solve both of these problems. OOH sends a strong signal. If Netflix is willing to spend money on promoting the title it must be good and lots of people must also think it’s good. OOH sends a cultural signal — you should spend some of your attention on the latest Netflix series or movie that is being promoted solely by the fact that it’s being advertised. Prominent OOH advertising becomes a proxy for quality.
The second part of this story is what Scott Galloway refers to as Apple’s gangster move of the last two decades — investing in retail store experiences. And recently we’ve seen Amazon with their purchase of Whole Foods and introducing Amazon Go getting in the game as well. Netflix doesn’t have this option. Their product is entirely digital; they don’t need “brand experience” stores either. However, owning an OOH company in theory gives them 100% share-of-voice whenever they want and it instantly gives them a physical presence.
Now that’s gangsta.
And when they have 100% share-of-voice, blocking out key competitors in arguably the movie capital of the world, they can do more things like this:
And this:
All of which not only creates physical presence but gets further amplification through earned media.
A Final Note
All of this marketing theorizing could be exactly that. The simple answer could be that they looked at the cost of their OOH buys in Southern California and said holy shit that’s a lot of money. We should just buy the company instead. However, we doubt that’s the case (refer to the opening line).
