BBC vs Netflix. Living up to your potential

A few weeks ago I tweet this facetious chart: BBC vs Netflix (subscribers).

The story in this chart is one of an incumbent and startup. The incumbent was started just under 100 years ago in 1922 by government. The startup is just over 20 years old, founded in 1997. The startup has already pivoted from DVD distribution to streaming. The incumbent has, to an extent but hasn’t seen the same returns.

The question which this chart prompts is: why didn’t the BBC build Netflix?

Before you read on: I am not in favour of privatising the BBC or destroying it. This is a thought experiment.

The question and the comparison are simultaneously completely irrelevant and deeply serious. Irrelevant because anyone who works at the BBC will tell you about how the charter binds them to certain commitments; any talk of getting away from that is pointless. Deeply serious because it’s an example of how overly focusing on the incumbent business model can encumber you.

I’m always interested in how incumbents encumber themselves with expectations of themselves which were created in the past but which they don’t aggressively challenge.

Clay Christenson showed in The Innovator’s Dilemma that incumbents allow new entrants to disrupt them, in part by managers behaving well; each manager is making the right decisions for the business as it thinks about itself at that point in time, but very few are making decisions which reflect where the business could be in its future.

In a sad sort of way it’s hilarious how often this happens. The old world constrains our thinking, so it’s fun to take an example (near) monopoly which could have grown but didn’t.

Let’s play with numbers

The basic cost to the end customer of the BBC and Netflix are (in the UK at least) very close. The license fee is £154.50 (or £54 for a B&W TV (LOL!!)). At £12.88/month, the license fee is very close to the Netflix subscription of around £12.55 ($15.99 for 4 screens).

That’s £12.88 for BBC vs £12.55 for Netflix. Which, given the chart of revenue and the 75 year head start that the BBC had on Netflix begs the question: why?

In 2018 Netflix’s revenue was $15.79B while the BBC’s was around £4.3Bn which breaks down as £3.18B from the license fee and £1.23B from “other”, including licensing content. While that’s not to be sniffed at it is a thundering way short of Netflix’s.

While Netflix only provide films (at the moment) the BBC provide news, sport, reality shows, a website (news, sports etc), plus film. They are also a big part of the UK culture. In the 90s I remember feeling like nobody could possibly produce better quality than the BBC. I would listen to Radio 4 in the morning and I loved every moment. I felt like this was part of me.

The BBC has to, by Royal Charter and an Agreement provide certain content. According to this, the BBC’s mission is:

“…to act in the public interest, serving all audiences through the provision of impartial, high-quality and distinctive output and services which inform, educate and entertain.”

It has to provide impartial news and information, support learning of all ages, show the most creative, highest quality and distinctive output and services. It must reflect the diversity and culture of the UK. There is plenty of detail to this in the docs linked above.

Missions are interesting. They are particularly interesting when it turns out parts of your mission are done better by a massive change of plan.

The first few points — the news and information and learning — are areas where the BBC is amazing, and yet if you were building something to achieve those today would you do it in the way they are doing it? I’m not sure.

I think for those, you would build Google and YouTube. But that’s not the role of of the BBC. Except Google have probably had a bigger impact on news, information and learning than almost any other content thing in the past 20 years.

So, disconnecting the mission from the implementation (which for the BBC is creating and distributing content) how should someone at the BBC in 2010 who could see the future and see the graph above have reacted? And yet, if in 2010 you saw this graph of the BBC vs Netflix, and you were in charge of the BBC back then what would you do?

Would you split the film distribution and content business from the news business, run the news as the non-profit / public benefit? Or do you keep them as one but aggressively push a more commercial, world-wide subscription business effectively building Netflix as part of the BBC and creating a business of £12.39Bn (equivalent to the $15B above)?

This would probably have been distasteful — the BBC is there for the public good and to provide a lot of content for free at the point of consumption. And yet, Netflix (also Google, YouTube, Spotify) overtook the BBC as my primary source of entertainment and information years ago, thereby negating the idea that the BBC is a primary source of information. The old format of broadcast media or on-demand but with the distinct feel of broadcast just doesn’t appeal anymore.

According to Ofcom, “TV is the most-used platform for news nowadays (79%), followed by the internet (64%). Radio (44%) and newspapers (40%) are next most used.”. So does this mean that the BBC should not provide news, or that it should provide it over the web/internet? Or, again, should that part of the business be broken off and the, apparently more profitable business of streaming content be turned into a commercial business and taken global?

So purely for fun, imagine if the BBC had, in 2000 seen the curve of increasing data connectivity and decided to build an on-demand, worldwide content provide which would start by considering every license payer as a subscriber, meaning that parts of the BBC’s websites, streamed radio and all its TV would only be available with a subscription login.

From that user base of most of the UK (which is 7 billion people; the BBC has 25.8 million license payers), I would change the relationship to a ‘subscription feel’ rather than a ‘service provider feel’ which we have at the moment, where the TV license feels like your gas or electricity bill or your council tax. None of those are things which people either get excited about paying for or encourage others to sign up to.

If you can, as an incumbent organisation change how your customers feel about their relationship with you, it can open new ways of thinking and new business models.

Going global without invading

Once you have changed the fundamental emotional relationship with the consumer, you have got a model which will work anywhere in the world. But do you go with “the British…” global content company? I think not. We (the British) have to be honest: we have a very bad history when it comes to exporting our ideas. Our most impactful period was one of the world’s bloodiest.

So my first thought is absolutely do *not* brand it with the BBC though because that is going to come across as colonial and patronising and, as Netflix shows the benefit of your brand doesn’t necessarily carry commercial weight or success.

But…

What are they doing..?

Mid way through writing this, I found that “BBC and ITV set to launch Netflix rival”. Which is billed as “Welcome to BritBox. The biggest streaming collection of British TV…ever. Dramas, comedies, mysteries, documentaries, soaps, lifestyle and more.”

It is reported that “The new venture is not intended to replace the BBC’s iPlayer or the ITV Hub — the on-demand services where programmes are available for a restricted period of time.”

BritBox, perhaps the most colonial sounding name. I assume it’s meant to sound like “Brit Pop”, but to my ears is sounds colonial and limits the potential of the brand. It may exploit the respect, aspiration or whatever of Britain (it’s unfortunately true that many see association with Britain as a route to success), but that’s not universal.

I’m not sure that’s very clever because what you’ve done is reduce the size of the market for your new thing because of your incumbent thinking about your old market.

Perhaps this is also a reason not to go exclusive on any deal (e.g. providing the license fee) which will constrain you in future. For example, if you talk to people at Google they’ll say the ambition for anything they work on is that it is globally applicable; local is much less interesting. If you have to make regional exceptions which tie you to a particular model, you’ve just shrunk the total addressable market and limited your ambitions.

The other thing BritBox might do is create confusion in the mind of the consumer. Why both with this, when I can get the same content (or similar content) elsewhere. (But it’s useful to note that the content industry thrives on confusion; PRS, distribution rights and other forms of intellectual property control create artificial barriers to distribution which are not natural on the internet.)

A small, telling number

A figure which speaks to the limiting factor of the old model is that, “As at 31 March 2018, 7,531 black and white (mono) TV Licences were in force.” [BBC license fee website]. In what commercial world does providing a service for 0.000001% of the population make sense? Only a world where you’ve been bound to a specific model which you can’t shed.

(Incidentally, I want to talk to any one of those people. I can’t decide if they’re old people determined not to change or hipsters.)

BritBox or not?

At this point, I don’t think the BBC should bother doing it and I think whatever they do will probably be uninteresting so this is purely about hindsight and how to think about your own organisation in the “BBC vs Netflix” graph, above.

The bigger lesson for me, the graph that I tweeted said one thing: do not hang on to your old business model. As a business, learn how new organisations will solve the problem you think you are solving and be prepared to move. By moving you are likely to open up huge potential markets but if you want to do this you must be prepared to change the fundamental relationship you have with the consumer.

Dan Frost | TheLeanCTO.com to startups and the ambitious; Tech lead in R&D in edtech at Cambridge Assessment; enthusiast of ideas, podcaster, writer at thebaseline.co.

Follow me on twitter — https://twitter.com/danfrost. Or say hello in the comments.