This is the question I’ve been asked, again and again, both internally and externally, most recently when I was interviewed earlier this week about the partnership between Netflix and Waoo! – the company I have led since it was founded in 2010.The partnership, which went live on October 31st, is one of the first of its kind, and honestly, it was difficult to convince skeptics that it made sense. Especially because the primary activity of Waoo! is to make IP and Internet TV – so why partner with Netflix?
To understand the background, Waoo! and its owners consider getting as many customers as possible and increasing penetration on its FTTH network of the highest priority. In other words, it is the logic of the dumb pipe which I have written and spoken about before. Regarding TV, it’s a fact that people love traditional TV. But they would also like to have a more personalized TV experience. A personalized TV experience includes a mix of services such as live TV including sports, VOD, SVOD, Smart TV apps, and start-over services. All of these services are ideally working seamlessly across all the devices we have available including phones, tablets, PC’s, and TV’s of course. The one thing these services have in common is that they are expensive to develop and really difficult to make successful in the eyes of the customer. So when Waoo! was launched, my leadership team and I were faced with making decisions about what to develop ourselves and what to achieve through partnering. And clearly, the economics of developing a service similar to Netflix are prohibitively expensive for most companies including Waoo!. Netflix alone will spend USD400M on technology development and USD3B on content in 2014. In the segment of commercial-free and unlimited viewing of movies and TV shows, in the longer term, there is, in my point of view, only space for a few international and global players. Several national players in the Nordics, still need to realize this, but I am certain they will, if their CFOs have a say.
In November 2012, Netflix announced entering the Nordics and based on the rationale mentioned above, Netflix became an obvious choice for Waoo! to partner with. The fact that Google Fiber, a venture which has many similarities to Waoo!, and later UK’s Virgin Media plus Sweden’s Com Hem announced that they also will integrate the Netflix service in their offerings, on a Tivo set top box, made the skeptics, who were not convinced by the strategic rationale, less critical to partnering with Netflix. And looking ahead, as more and more companies like Waoo! will partner up with Netflix, the strategic concerns will disappear. I expect, the first movers in a market to enter into partnerships with Netflix will not be the largest Pay TV provider but instead companies like Waoo!, who have a superior internet access infrastructure and ultimately subscribe to the idea of the dumb pipe.
There are other advantages to the partnership between Waoo! and Netflix and obviously, there are also some concerns that must be addressed. The cost of bringing the Netflix app on the set top box must be kept low and with Netflix having integrated the service on to more than a thousand devices, the process is highly professional, cost effective, and streamlined. And with Waoo! on the other hand having a strong partnership with a set top box provider Airties, it was possible to keep the cost to a minimum. Regarding more specific advantages of the partnership, and of the ones I can mention without breaching any confidentially, I can say that our marketing and conjoint analysis clearly showed, that it would significantly improve the competitiveness of our general TV offering vis-à-vis our local competitors. This is hardly a surprise as we are talking about a service to which one third of the US households are subscribing. Another advantage of bringing the Netflix app on the Waoo! set top box is that it creates a positive incentive for customers to pay for upgrading an older set-up box which doesn’t support the Netflix app. So, to get easy access to the Netflix content on the main TV screen, it’s an obvious choice for a customer to upgrade the set top box instead of investing in or having the hassle of connecting another box.
Summing it all up, many skeptics did not initially understand why Waoo! would partner with Netflix given the fact, that most of the company’s activities are centered around IP and Internet TV. However, by accepting the fact that customers want individualized TV and that only a few international providers can compete with Netflix, my leadership team and I found the decision quite easy and could base in on a simple financial calculation.
To understand the background, Waoo! and its owners consider getting as many customers as possible and increasing penetration on its FTTH network of the highest priority. In other words, it is the logic of the dumb pipe which I have written and spoken about before. Regarding TV, it’s a fact that people love traditional TV. But they would also like to have a more personalized TV experience. A personalized TV experience includes a mix of services such as live TV including sports, VOD, SVOD, Smart TV apps, and start-over services. All of these services are ideally working seamlessly across all the devices we have available including phones, tablets, PC’s, and TV’s of course. The one thing these services have in common is that they are expensive to develop and really difficult to make successful in the eyes of the customer. So when Waoo! was launched, my leadership team and I were faced with making decisions about what to develop ourselves and what to achieve through partnering. And clearly, the economics of developing a service similar to Netflix are prohibitively expensive for most companies including Waoo!. Netflix alone will spend USD400M on technology development and USD3B on content in 2014. In the segment of commercial-free and unlimited viewing of movies and TV shows, in the longer term, there is, in my point of view, only space for a few international and global players. Several national players in the Nordics, still need to realize this, but I am certain they will, if their CFOs have a say.
In November 2012, Netflix announced entering the Nordics and based on the rationale mentioned above, Netflix became an obvious choice for Waoo! to partner with. The fact that Google Fiber, a venture which has many similarities to Waoo!, and later UK’s Virgin Media plus Sweden’s Com Hem announced that they also will integrate the Netflix service in their offerings, on a Tivo set top box, made the skeptics, who were not convinced by the strategic rationale, less critical to partnering with Netflix. And looking ahead, as more and more companies like Waoo! will partner up with Netflix, the strategic concerns will disappear. I expect, the first movers in a market to enter into partnerships with Netflix will not be the largest Pay TV provider but instead companies like Waoo!, who have a superior internet access infrastructure and ultimately subscribe to the idea of the dumb pipe.
There are other advantages to the partnership between Waoo! and Netflix and obviously, there are also some concerns that must be addressed. The cost of bringing the Netflix app on the set top box must be kept low and with Netflix having integrated the service on to more than a thousand devices, the process is highly professional, cost effective, and streamlined. And with Waoo! on the other hand having a strong partnership with a set top box provider Airties, it was possible to keep the cost to a minimum. Regarding more specific advantages of the partnership, and of the ones I can mention without breaching any confidentially, I can say that our marketing and conjoint analysis clearly showed, that it would significantly improve the competitiveness of our general TV offering vis-à-vis our local competitors. This is hardly a surprise as we are talking about a service to which one third of the US households are subscribing. Another advantage of bringing the Netflix app on the Waoo! set top box is that it creates a positive incentive for customers to pay for upgrading an older set-up box which doesn’t support the Netflix app. So, to get easy access to the Netflix content on the main TV screen, it’s an obvious choice for a customer to upgrade the set top box instead of investing in or having the hassle of connecting another box.
Summing it all up, many skeptics did not initially understand why Waoo! would partner with Netflix given the fact, that most of the company’s activities are centered around IP and Internet TV. However, by accepting the fact that customers want individualized TV and that only a few international providers can compete with Netflix, my leadership team and I found the decision quite easy and could base in on a simple financial calculation.
