Over the past couple of weeks, people across the web have been raving about the internal deck from Netflix that details the company’s view on its strategic direction for the future. In my opinion, this is not only because of Netflix’s incredible openness in sharing its strategy but also because it also tells a great story as a standalone deck, apart from an actual presenter. A couple thoughts / takeaways that came up when I went through the deck are below below:
- Netflix estimates that the height of DVD-by-mail shipments will occur in 2013, after which time the company expects the rental of actual DVD discs to decrease as it becomes replaced by video streaming. This is another confirmation of the prediction that there will be significant shift soon away from physical distribution of content to digital distribution, which actually brought one thought to mind–if the current shift happening is not just from DVD to Blu-Ray, but rather from physical discs to streaming, what’s the real point of even further iterating on physical formats? If physical distribution in general is going the way of the horse and buggy, then would companies be better served by focusing their R&D on streaming technologies rather than higher-resolution discs?
- Netflix, in its discussion of potential threats to its business model, mentions “$100 CPM” as one example that could greatly hurt the company. “CPM” means cost per 1000 impressions, or in other words, what a company is charged for each 1000 times that an advertisement is seen. Currently, the top end for CPMs across the whole spectrum of media sits at around $30-$40. For CPM to reach $100, the implication is that ads will become so targeted and so effective at reaching potential audiences that the number of ads that a company needs to take out will drastically decrease. As a result of decreased ad volume (though not necessarily ad revenue), the ability for web services to charge consumers for an “ad-free premium version” of the service, like what Grooveshark or Wix do, also decreases drastically, since the basic free ad-supported version would be sufficient. For Netflix, the idea is that “consumers don’t like ads in movies, but if there were only 4 ads, and the movie is free, that would be pretty compelling.” This idea was one that I had never even though of before, but definitely one that completely changes my perspective on the potential for what online advertising might look like in the future.
Now, you’ve heard enough of my own stream-of-consciousness babble, so feel free to click through the actual Netflix presentation below. Definitely a fascinating one!
