Can CSPs Still Beat Netflix?

The attraction of online video was well-established long before Netflix launched in 130 countries this January. Viewers have been buying video at an ever‐increasing rate, seduced by one-click access and easy consumption on smart devices, and by an ever-expanding range of providers and content. For subscribers and viewers, these are happy days. For Netflix’ competitors, perhaps less so.

With its recent move, Netflix became undisputed heavyweight champion of this burgeoning global market. Now available in 190 countries from Afghanistan to Zimbabwe, it will undoubtedly attract hordes of content-starved subscribers and their dollars.

So are service providers wasting their time even contemplating how to take Netflix on? Is the battle already lost – and won?

Perhaps not. Let’s look at the secrets of Netflix’ success, as well as the service provider’s secret weapons – better depth of knowledge of the customer and the ability to offer more flexibility for consumers to rent, buy and pay for content.

1. Netflix is simple. It’s easy to subscribe—just sign up with a credit card and you’re done.

2. Netflix has a huge content war chest. And it’s developing original content at an unprecedented pace; last year it spent 10% of its revenue on original content, and this figure will grow to half its revenue in 2016. That’s 600 hours of entertainment each year that’s available nowhere else.

Differentiated content and ease of use are the twin pillars of Netflix’s success. But both come at a cost.

  • Original content is expensive, and the addressable global audience, while large, is finite. In the US, Netflix’ growth rate has roughly halved between 2012 and 2015 and this pattern will be repeated elsewhere. What will maintain Netflix’ return on heavy investment?
  • Simplicity also comes with challenges. A single payment method and a single product has stimulated rapid uptake but doesn’t help to sustain customer loyalty. That customer base is vulnerable to alternative offers.

So the business model isn’t perfect – particularly in the longer term. Where else can service providers find encouragement?

1. Market insight drives customer satisfaction. Netflix is lauded for turning viewer data analysis into content development, but its knowledge is confined to what its customers watch. A service provider knows about its customers’ devices, financial history, usage history for traditional services, the relationships between persons in a household and more. Utilizing this alongside viewing habits could guide a much more enlightened customer experience that extends beyond recommendations to bundles of well-targeted video and ancillary services, and better support, advice and problem resolution on any device, across many channels to increase value and customer loyalty.

2. The subscription isn’t everything. Monthly subscriptions may be suitable for what Netflix itself categorizes as ‘outward‐looking, affluent consumers’. But other models are compelling too – including individual video rentals and the early access to digital copies of premium content. And let’s not forget linear broadcasts of live sports and other time-critical events.

3. How would you like to pay for that? A monthly bill with all of the rigors of balance and credit management offers a well-understood option for premium video. And that’s just the beginning. Add pre-paid —one of the most widely used payment methods in the world—to target unbanked and lower ARPU consumers. Add loyalty schemes, sponsorship, vouchers, gifting of video between viewers. All of these choices add up to an easier and more attractive way for many viewers to pay.

The game isn’t over; offering diverse video packages, wider payment options and a richer customer experience will increase customer loyalty and elevate the service provider’s brand with the global digital market, helping them take on Netflix in a war which has only just begun.

Could your customer experience use a new strategy for the digital era? CSG supports the digital experience of many of the world’s leading brands.

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