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Investing is where you find few great companies & then sit on your ass - Munger
Whereas traditional PAY-TV OPERATORS ARE LOOKING “CRACK-DOWN” ON PASSWORD SHARING as the MUSIC INDUSTRY HAD UNSUCCESSFULLY TRIED IT in the early 2000’s, Netflix has adopted a more relaxed practice among its subscribers’ practice of sharing passwords. In fact, Netflix has (quietly) turned password sharing into a fundamental advantage for itself by letting it proliferate as a viral marketing and adoption growth strategy, a concept that most analysts covering the company for years still don’t grasp and regularly ask when it will put a stop to the behavior and recapture the revenue “leakage”.
What needs to be understood is that given the fixed cost structure of licensing and producing content, it behooves Netflix to have its service adopted and habituated across the largest swath of users as possible, even the supposed freeloaders. Instead of disenfranchising its customers with the threat of cracking down on a behavior that antagonizes its customers and potential customers, it has designed its service’s pricing based on the number of simultaneous streams viewed, effectively offering a discount for larger simultaneous streaming bundles that paying subscribers are free to share.
To wit, Netflix has priced its service by the number of simultaneous streams accessible at $7.99 per month for one stream, $10.99 for two ($5.50 per stream), and $13.99 for four streams ($3.50 per stream). The brilliance of this offering strategy is that it makes Netflix indifferent to its customers sharing passwords and, in fact, benefits from incremental user adoption/habituation when they share unutilized (already paid for) streams with new to Netflix or price sensitive friends, family members, roommates, neighbors, strangers or whomever! In fact, Netflix makes this super easy by allowing the creation of many separate profiles that track individual’s content viewing and offer personalized recommendations for each separately under the same subscription plan.
This sort of “bundled” pricing discount also makes the service very affordable to potential users in areas of the developing world where a $10-14 per month subscription would be unaffordable but by sharing a 2 or 4-stream bundle among friends, makes a $3-5 per user much more affordable for access to high quality content. As we saw with the impact of Apple launching iTunes during an era when the music business suffered from rampant piracy, when consumers have an affordable and convenient option to purchase content, they generally adopt it enthusiastically.
In one last anecdote on culture, Netflix used its legal CEASE AND DESIST to an IP infringement around its surprise hit series “Stranger Things” as a humorous marketing opportunity, further playing off to its image as a “no-jerk” company in contrast to the tone the broader media industry tends to take with such matters. The free marketing this generates and the goodwill this builds with customers compounds as a result. No wonder the younger generations of customers have been deciding they JUST DON’T WANT TO DEAL WITH TRADITIONAL PAY_TV ANYMORE!
https://intrinsicinvesting.com/2018/07/20/netflix-and-rise-of-global-scale-media/
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