The Elephant In The Room, Possibly Speaking French

Michael Hedges July 24, 2014 Follow on Twitter

In this convergence of media and technology predicting success is tricky. Some might call it a fool’s game. Brilliant research and analysis aside, consumers can’t describe the next big thing. They’ll know it when they see it. Then, watch out.

Subscription video-on-demand service Netflix reported mid-year financial results this week; delighting stock traders with its profits then disappointing with lower profit next quarter guidance when the company rolls out the service in six European countries. Broadcasters, pay-TV and otherwise, are nervous at new pressure on consumer entertainment spending. Show producers – and their agents – are lining up to pitch their best concept.

Second quarter revenue hit US$1.34 billion, up 25% year on year. Net income figures were even better, US$71 million, more than double like period last year. Netflix originated as a mail-order DVD service in the US, similar to Amazon with books. Both disrupted brick-and-mortar bookstores and DVD rental shops. And then they moved on.

In addition to quarterly financial results, Netflix claimed 50 million subscribers worldwide, more than a quarter outside the US. The service has operated in the UK and Ireland for two years, then Scandinavia and then the Netherlands abour a year ago. As hinted for several months, Netflix arrives in France, Belgium, Germany, Austria, Switzerland and Liechtenstein in September, largely countries with French or German-speaking populations. Despite the “at projection” financial results, stock traders punished Netflix for suggesting the European launch will lower Q3 results.

The prospects in Germany and other German-speaking countries for subscription TV services have long been debated. With public television channels remaining free-to-air and compulsory household license fees to pay for them, pay-TV operators have a built-in revenue threshold. Viewers naturally compare cable and pay-TV offerings – and charges – with programming on public TV versus the €18 to €30 per month license fee. 

Germans already have a choice of subscription video-on-demand (SVoD) services: Vivendi’s Watchever, Amazon’s Prime Instant Video, ProSiebenSat’s Maxdome, Deutsche Telecom’s Videoload and, of course, Apple’s iTunes. To cut through the competition Netflix will need to find the price point, not discussed in this week’s announcement, and attractive content. Among hardcore TV fans Netflix has something of an edge with well-received original serials like Game of Thrones, Orange Is The New Black and House of Cards. Netflix has licensed to Sky Deutschland the second season of House of Cards, but in the post-modern age of binge viewing multi-season runs have become passé. Several sources suggest Orange Is The New Black will be included in the new European offering.

The French market is, of course, different. SVoD services have popped up but current law delays online release of films for 36 months after theater release. Serials proprietary to Netflix could be a “tsunami” (Europe 1 July 22) of TV viewing. “We want to invest in French society and French content and we want to give an avenue for French content to get out around the world,” said Netflix CEO Reed Hastings in the Q2 investor conference call. “We’re looking to make some investments with original content. So instead of House of Cards, it might be called House of Versailles.” That was a joke.

Joking aside, Netflix is constructing a server facility in Paris with “the capacity to provide five million subscribers,” noted Les Echos (July 21).

Film and TV production houses have been rapaciously gobbled up by bigger film and TV production houses, generally those owned by very big broadcasters and distributors. Netflix is a competitor for them all, which became very apparent with the US$80 billion offer – so far, rejected – by 21st Century Fox, principally owned by the Murdoch family, for Time Warner. Both 21st Century Fox and Time Warner have huge production and distribution capacities. Time Warner owns the HBO network of cable and satellite channels that was a game-changer in the US TV market a generation ago as much as the original Fox TV channel. Rumors abound of Time Warner bidding for Netflix to thwart, in part, a take-over by 21st Century Fox.

As with every disruption there are opportunities. “I just signed a two year contract with Netflix. We go in September,” said German show host and comedian Harald Schmidt, quoted by der Standard (July 22). “I have no idea what Netflix is but according to (my producer) it is hipper than Twitter.”

See also in ftm Knowledge

Media Business Models Emerging

After a rough transition media business models are emerging. Challenges remain. There are Web models, mobile models, free models, pay models and a few newer models. It makes for exciting times. This ftm Knowledge file examines emerging business models and the speed-of-light changes. 137 pages PDF (January 2013)

Order here

Media in Germany

Home to Europe's biggest broadcasters and publishers, Germany is a highly competitive media market. Transition to digital television was easy, other media not so simple, unsuprising with Germany's complex regulation and business structures. This Knowledge file reports on media leaders and followers. Includes Resources 214 pages PDF (July 2013)

Order here

Digital Transitions

Media's transition from analogue to digital has opened opportunities and unleashed challenges beyond the imagination. Media is connected and mobile yet fettered by old rules and new economics. Broadcasters and publishers borrow from the past while inventing whole new services. This ftm Knowledge file explores the changes. 88 pages PDF (March 2012)

Order here

Media in France

French audiences are moving fast to every new platform. Mobile and Web media challenges the old guard while rule makers seek new directions. Media life in France... and a few secrets. includes updated Resources 147 pages PDF (November 2011)

Order here

Media in Spain - Diverse and Challenged – new

Media in Spain is steeped in tradition. yet challenged by diversity. Publishers hold great influence, broadcasters competing. New media has been slow to rise and business models for all are under stress. Rich in language and culture, Spain's media is reaching into the future and finding more than expected. 123 pages, PDF. January 2018

Order here

The Campaign Is On - Elections and Media

Elections campaigns are big media events. Candidates and issues are presented, analyzed and criticized in broadcast and print. Media is now more of a participant in elections than ever. This ftm Knowledge file reports on news coverage, advertising, endorsements and their effect on democracy at work. 84 pages. PDF (September 2017)

Order here

Fake News, Hate Speech and Propaganda

The institutional threat of fake news, hate speech and propaganda is testing the mettle of those who toil in news media. Those three related evils are not new, by any means, but taken together have put the truth and those reporting it on the back foot. Words matter. This ftm Knowledge file explores that light. 48 pages, PDF (March 2017)

Order here

More ftm Knowledge files here

Become an ftm Individual or Corporate Member to order Knowledge Files at no charge. JOIN HERE!