The Brand Man Speaks

Netflix isn't Doomed.

So says Holman Jenkins Jr. in an opinion piece in the Wall Street Journal today. I do not agree. His conclusion? Despite the huge fall off in subscribers and the costs involved in obtaining more streaming content (of value to subscribers---not just stuff nobody wants to watch) he believes both investors and subscribers will see that no one source will meet their needs because of a fragmented marketplace for at- home entertainment content and that Netflix is still a good value and will survive.

The Netflix premise that took consumers on a "journey" was for a very good price (less than going to the movies) you had a bunch of choices that you could order online delivered right to your door sometimes next day for viewing for as long as you wished. Brand loyalty was built on this premise along with a very identifiable icon, the red Netflix envelope. Streaming was the next order of business but there were many subscribers who wanted both, one or the other, but wanted the choice their way. I am one of the those folks who wanted it his way. Both DVDs and streaming at a fair price. I was a huge fan of Netflix so much so that I bought the stock because I believed the vision and the journey was exciting to many millions of people despite the other options out there and on the horizon.

However, (and I will keep reminding people for some time to come) great companies should not fail to understand that building that brand loyalty is as important (if not more so) than what may appear to be great strategic business modeling to analysts. Many analysts said that Netlfix couldn't maintain the value proposition they had given consumers for much longer and the price increase was a necessity for survival. That may be true. Unfortunately, when a key element of your brand strategy involves price-value you have to be extremely careful when you increase your pricing structure not to go to the point (too quickly) where price elasticity of demand along with sheer shock value hits consumers hard in the face.

Many companies deal with increasing prices all the time as a course of doing business. When you do so in such a way to make the consumer stop in their tracks to say, "wait wow that's a big increase do I still need or want this service?", you are in trouble. If you don't have a very demonstrable plan to show those consumers the value they are getting (as well as if you are smart--adding more value along with the price increase) you are taking a huge risk that likely will alienate your core audience and destroy your business.

In my opinion that is what has happened to Netflix and although I would love to see them fix this mess and get their stock price back up (for me to break even) I just haven't seen or read anything that convinces me that this will occur. I also know that the company's cash flow has been greatly weakened by the greatly devalued stock and huge subscriber base loss over the past few weeks and there is now question if they can survive to pay their current bills, forget acquiring more content.

Lesson: Never underestimate your customers, their emotional connection to your brand or their expectation of your product or service.

Watching out for you everyday.

Eli

 

Netflix drops idea to separate businesses into two. Qwikster dead!

Just off the presses, very smartly Netflix makes the decision to keep their streaming and DVD by mail businesses the same under one aegis Netflix and drops the new business Qwikster idea.

Chalk up one for branding experts who have been screaming across the web for several weeks since the original decision to create two separate entities that this was one terrifically bad business destroying idea. (I have written on this myself in an earlier post:Netflix)

Now if only Netflix would "fix" a few other of their messes they might get back to the business of entertaining the world with ease!

Watching out for you eveyday.

Eli

Netflix: What are they doing with their brand? Destroying it? And this Qwikster DVD brand?

It was no surprise (full disclosure I own their stock) that Netflix's stock took a nose dive after the rather arrogant price raising strategy they took some weeks ago.

To anyone who has studied economics the law of elasticity of demand reigns supreme today as it has for years. To raise prices dramatically and NOT offer some value added to offset the price increase was clearly a very poor strategic move. Not only did Netflix lose many customers, many downgraded their services (including myself) and felt hurt by their actions. This brand had developed somewhat of a cult following. People were extremely loyal...to a point...but found this action unacceptable and insulting.

Today Netfix spun off its DVD by mail division into a new brand to be called Qwikster. Why you might ask? I asked the same question. For those of us who still have subscriptions to both DVDs and streaming the idea that one would have to deal with two different operations is just another nail in the coffin. Making it more time consuming to do business with this company will only serve to make more people drop the service and go elsewhere. More work less convenience, ugh. Not a good strategy.

I don't even like the idea that my familiar red DVD pack will no longer say Netflix but some obscure new name Quikster? Another ugh.

Some speculate that Netflix intends to sell off the DVD by mail business because that business model no longer works economically. Meanwhile, the stock plunges again down over 150 pts in recent weeks and there is nothing coming out of that CEO's office that makes anyone in my opinion think this business has anywhere to go but out of business as consumers lose all faith in this brand.

I believe we will see this as a case study of success mishandled turning a game changer into a game loser permanently. Sad, I don't think if the changes had been managed better, specifically rewarding customers who stayed even with big price increases with some meaningful value added experience that this would have blown up so fast and furiously.

The only way out now is mea culpa BIG TIME doing something fantastic for what customers remain, especially those using both services. Other than that, even I am ready to move on and take my loses.

Watching out for you everyday.

Eli

Netflix stock rises amidst a major down market set off by signficant worries about Japan and its global impact, why?

Admittedly, I am a fan of Netflix (own some stock and am a subscriber) and watch consumer companies from the perspective of empirical evidence. That is why I am not surprised by Netflix's recovery from a few weeks of declines after many weeks of sharp increases in stock price.

Here is my reasoning, from a consumer marketing point of view.

Netflix was a game changer of sorts when it first surfaced and has helped dramatically change the way we view entertainment at home. Although the economy is improving, I still see consumers spending a lot of time at home enjoying their upgraded entertainment viewing options. Even today the average home has at least one flat screen, many have multiple units, some homes now have 3DTV. DVDs, DVRs, Apple TV Xbox, Playstation among many other toys allow consumers to make choices about their viewing options and times. With the technology to easily view major movies shortly after release either downloaded to your computer or streamed to your TV set, we have so much entertainment at our figure tips.

The key is I do not see consumers spending much more time OUT of the home for some time to come. Since Faith Popcorn and her concept of "cocooning", Americans as well as consumers around the globe have spent trillions upgrading their home environments to make them more comfortable and not worth leaving. With the housing problem still at hand, it is still too expense for many to go out to the movies, dinner and pay parking etc than staying at home.

And this week, after the disaster in Japan, most financial markets are reflecting gloom and doom, with good reason. However, as things get worse again economically around the globe before we see another turnaround, it is more likely that consumers will retrench into the home environment more, cut back on travel, dining out and other disposable income activities.

Another reason for Netflix success:They seem to be pretty shrewd business folks keeping satisfaction high among users while providing frequent new opportunities for their loyalists to stay loyal.

Additionally, the idea that the Netflix brand name will appear of many TV set remote controls in the very near future (if not already) is a huge win for the entertainment provider keeping their ID in front consumers everyday and having virtually no competition in front of the consumer when they begin the entertainment choice process. How amazing is that?

Pretty amazing to me.

Watching out for you everyday

Eli

Grammys and Tonys rock; and why the Oscars is always so boring

After watching the Grammys last night I was excited to discover music groups and solo acts that I had never heard of before who were awesome and engaging and worth exploring. The night also explains why the Oscars and the Golden Globes are so boring.

The Grammys and the Tonys (for Broadway performances) are designed to entertain, educated, fascinate and open the door to new experiences for the viewing public. It's a free mega-entertainment event that's some of the best television you can watch on non-cable TV.

Last night I discovered Esperanza Spalding for example....an amazing dynamo of jazz talent that honestly I would never have heard had it not been for the Grammys. Wow factor. (Thank god it wasn't that Biebette talentless child!). And what about all the acoustical talent? Incredible music, pure, energetic, exciting to watch. If anything, for me, this night of television reawakened my interest in new musical acts and specifically a desire to go to iTunes and (pay to) download a lot of new stuff. The evening should prove very profitable for the music industry.

And who will forget the aging but ageless body of Mick Jagger who never disappoints. And Barbra Streisand. Well, her voice is not quite what it was but still amazing nonetheless even if she looks pretty chunky she still is an American icon. Having so much diversified talent on one show is just what television should be about. (I even like the fact that the Grammy academy head is named PORTNOW...probably was PORTNOY and got lost in translation somewhere along the way).

In contrast, the Oscars (in just a few weeks) is the emperor's new clothes. Lots of artifical hype and self-congratulations about and for mostly mediocre talent. It is always boring (except women and some men like to watch the red carpet who is wearing what schtick) too long and rarely does it send me to go see a movie I hadn't already passed on. At least the Golden Globes are short and to the point. The Oscars are way too long. Maybe they should have a one hour red carpet event with 30 minutes of warp-speed award presentations and that would be it. Short, slightly entertaining and boom done.

I will probably buy the Grammy album featuring the music from last night plus watch the show replay to learn more about new talent and drop some dime becoming better acquainted with them.

Watching out for you everyday.

Eli

 

Netflix brand evolving while unexpected competition grows from Redbox

I have been a fan of Netflix since its inception. The idea of ordering online, sitting back and having the movies come to your home and just mailing them back (at your leisure) when you're finished transformed how I watched movies. I hated going back and forth to Blockbuster stores incurring late fees and always wishing I had some DVD at home to watch on that unexpected rainy day or "special' evening.

Many didn't believe Netflix would survive. My mom's investment adviser said not to buy the stock despite my strong marketing intuition about the company and its future. To his surprise, but not mine, Netflix has done extremely well in this recession with its stock price doubling.

Netflix is actively competing with itself by offering more downloadable movies directly from the internet to laptop or home TV and smartly understands technology based entertainment is a rapidly moving target. I have yet to download a movie from them, although I have three free movies that are available to me to do so, because I think watching movies on my laptop is disappointing (size and impact-wise) and I have not bought the requisite equipment to send downloable movies directly to my big flat-screen TV....yet.

Despite their success, Netflix has strong competition from an unlikely source, Redbox. Redbox is a vending machine DVD rental business that was started by McDonald's during a time when McDonald's like Starbucks was looking for new revenue streams from ideas inconsistent with their core brands. McDonald's had some success with Redbox but sold the concept to Coinstar this past year after they started investing in the business in 2005.

I understand why Redbox can be successful. $1 rentals of recent releases sold like buying Coke from a vending machine in thousands of locations. However, it doesn't work for me. I hate the idea of having to take the DVD back to some place especially if I am not going that way and find dropping the DVD in the mail so easy and effortless. But I am obviously increasingly part of the minority. Redbox's old fashioned delivery system is growing fast even as movie downloads (on the other side of the technology spectrum) are also developing steam. I suspect I will go the download path far sooner than renting from a Redbox, but that's just me.

Watching out for you everyday.

Eli

Sly Stallone: Does using illegal physical enhancement drugs tarnish the Rocky brand?-by Eli

Sylvester Stallone the actor/celebrity behind the incredibly successful "Rocky" movie franchise was recently charged for illegal possession and transportation of a growth hormone HGH upon entering Australia to promote his latest Rocky movie.

It is not new news that athletes and actors (playing athletes) have used performance enhancing drugs to buff up their bodies....steroid and other performance improving drug use investigations have been heating up lately with allegations of abuse by top name pro athletes in nearly every sport from baseball to cycling.

On one hand given how the American (primarily male) public worships the "superman" athlete...causing increasing use of steroids among young up and coming athletes and even everyday "Joe's" in the gym....I don't fully understand why the stigma remains any longer. Use of performance enhancement products seems to have become a cost of entry into any sport, especially if one wants to be at the top of the game and earn the big bucks....this doesn't mean it is right, but our society "rewards" the use by idolizing these "larger than life" people. The truly natural athlete is virtually obsolete, (see related post about "real men" Real Men are back)

Speaking of natural...there is a problem, however, for the "Rocky" brand with Sly's illegal activities. The Rocky character was built on hard work, sweat, dedication to be great, the underdog prevails....and not artificial enhancement. One might say, "Oh, it was just a movie", yet this is the point. The "brand identity" was created around this everyman becoming champion the "natural" way...that was its appeal.

It likely was not common knowledge that Sly used performance enhancement drugs to get "big" and "ripped" to play Rocky from the get go. With this news so public now, it is probably a good thing that this most recent entry into the Rocky Balboa franchise is the last. The credibility of the movie, the character and the real man himself...as the public unquestionably linked the actor with the part as "one"....is now at stake....and the Brand Promise....that anyone can prevail against the toughest of odds no matter what (including how old you are) has been broken.

Watching out for you everyday.

Eli