Canal+ and Netflix sitting in a tree…

For now at least.

Calm, hot, humid days here in the Caribbean. The air seems to have been sucked-out by the recent storms.

Continuing the woes of old-world companies fighting the Goliath of the Internet, I look at the Canal+ ❤️ Netflix bromance and the competition not far behind.

Enjoy this one.

Canal+ bundles Netflix

In a surprise move and not widely reported, Netflix and Canal+ have signed a deal to allow Canal+ to distribute Netflix content through their TV subscription package for an additional cost. I’ll come back to pricing further down.

The offer is an extras package that is added on to a regular Canal+ subscription to supply a Netflix Standard subscription, in essence simplifying access to Netflix from your Canal+ Set-top box. A Netflix Standard subscription allows for 2 simultaneous devices to stream content in HD.

Canal+ is the leading television provider in France; however, it is having difficulties in keeping subscriber numbers since the advent of stiff competition from the likes of Netflix. This deal looks to be a play to strengthen its subscriber numbers by adding all the current and possibly new Netflix Subscribers to its numbers. Netflix is likely to count them as subscribers too. I’ll leave you to make up your ends if that is fair or not. According to some, Netflix currently counts around 6 million subscribers in France with Canal+ already falling behind with 5 million.

Regardless, there are two issues to the pricing model that is worth considering. The first is that Canal+ states that this pricing is unlikely to remain for long, a move that is likely to not go down well with subscribers. Read, prices are going up, it’s just a matter of time and whether or not the service is successful or not.

The second issue is that a Standard Netflix subscription in France currently costs 12€ per month, Canal+ is offering its bundling at an initial price of 15€. On the face of it, you’ll be paying 3€ per month more to have the “convenience” of watching Netflix without opening an app on your Television. There are other perks included that might justify the price, but that’s debatable.

The strategy is a little like Apple’s TV app offering, where the idea is to group your streaming television and movies subscriptions in one interface to reduce friction when you want to watch something. However, Canal+ will have difficulty competing with something that (admittedly only available to Apple users) is free.

There are other issues in this deal that have not surfaced yet; I’m trying to get more information going forward.

Data collection, unmentioned in any of the articles I read researching this topic and, considering it is central the way Netflix operates, I’m surprised no one has talked about it. Netflix collects and uses data on watching habits, which in-turn it monetises by producing original content that is impressively targeted to its audiences. The days of the Hail Mary strategy of producing a show and hoping it sticks are almost over. Today’s shows are highly curated, specifically targeting essential metrics. The general public has absolutely no idea this is happening! Again, judge for yourselves based on your moral compass, I’m not pronouncing either way.

The question is, how much data sharing between Canal+ and Netflix is in the deal?

If it is none, then the deal is virtually worthless to Canal+ unless their goal is to pump subscriber numbers to look good in front of investors. Pig Lipstick. 

If it is some or all, then it needs to be in a position to monetise that data to help it produce shows similarly to Netflix. You see the problem, it becomes a direct competitor once again, and once again, the result is likely to be the same as before, i.e., Netflix wins out.

Again, another example of an old-world organisation struggling with the difficulties in navigating rough and dark seas that is the Internet. And additionally an indicator that other media streaming organisations locally may enter the fray — Flow, Digicel?

OK, Netflix wins for now, but does it keep winning?

What is fascinating with this disruption of the Television industry comes back to a saying I’m fond of: Nothing exists in a vacuum.

While Netflix is growing subscribers and putting pressure on incumbent Television providers, particularly those attempting their forays digital-first subscriptions, Netflix is finding itself in an increasingly challenging environment itself. You may be forgiven for not knowing this, as the pressure Netflix is experiencing is from behind and not from you the subscribers.

Netflix boats 150 million paying subscribers worldwide, which is frankly, astounding for a company founded to mail DVDs to customers across the USA cheaper and more conveniently than going to a Blockbuster store!

Fun fact: They still mail out DVDs to 2.7 million, yes million, customers in the USA, and get this, it is incredibly profitable for Netflix adding nearly $2 billion to its income!

However, competition from others is starting to come online. Two notable announcements from Disney, with their Disney+ subscription at $6.99 per month in the US launching on the 12th November, and Apple’s AppleTV+ subscription at the same price and available in 150 countries. Disney and Apple together, provide rude competition for Netflix, not because of the content library or subscriber numbers, but because of the Cost of Goods Sold or COGS.

Disney is also the owner of franchises like StarWars, Pixar, Marvel, National Geographic and 80% of ESPN 

When Netflix started streaming, it inked deals with distributors and studios to digitise and pump bits down a broadband line with the realised promise of gaining viewer numbers for the shows on the service. That worked well for several years and catapulted Netflix into public perception as being a TV service.

As it gained subscribers, profit and consequently competition, Netflix had to find a differentiation stagey to stay ahead of the curve. It chose to produce its content in what is marketed as Netflix Originals, leaning heavily on the respected Netflix brand. Again, not existing in a vacuum only meant it was a matter of time before others would produce proprietary content, or as in Disney’s case, pivoted to a streaming service using its arguably more respected brand. Disney’s advantage is that it is already a great content producer, with a back catalogue that is the envy of just about any organisation in media. Perhaps the BBC is an exception, but that’s a different story.

So what is the real problem for Netflix going forward?

Content is not cheap to produce, and it is not getting any cheaper thanks to the competitive forces from Apple & Co. Netflix is currently running costs of Originals creation and acquiring other content at $7 in every $10, according to the Technology Business Editor in the The Times. Apple has pledged $6 billion in content creation. Studios, distributors and all makers of TV and Film are noticing and putting up prices on one hand, and production quality and complexity are expanding — increasing costs — as a strategy to stand out from the crowd.

Disney and Apple are not ‘just’ moving picture purveyors either. Disney’s empire is vast and diverse, allowing Disney to finance Disney+ from the profits of Disneyland, rights, trinkets and other merchandise. Apple similarly doesn’t rely on AppleTV+ subscribers to exist, which explains the offer for all new Apple hardware purchases to include a year of AppleTV+ for free. Your iPhone, iPad and Mac purchase essentially subsidises the new venture, until it can live independently off its earnings.

Classic disruption!

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