ITEX: Netflix not coming to NZ - blames poor broadband and content deals

Netflix vice president of product innovation says current NZ data pricing makes service difficult to sell here

Poor broadband penetration, internet infrastructure and difficulties securing regional distribution deals is keeping Netflix from coming to New Zealand, says Brent Ayrey, vice president of product innovation at Netflix.

“There are no current plans to launch Netflix in New Zealand,” said Ayrey, during his keynote presentation at ITEX.

Netflix provides an on-demand streaming subscription service for television and movies in the US. Its plans start at US$7.99 a month and subscribers can download as much content as they want.

“The way we think about our international opportunities is that it’s a little bit tactical in terms of the content we can access, and then it’s about broadband connectivity."

Ayrey says that broadband penetration in New Zealand is only at 66 percent, and current data pricing would make the service difficult to sell to consumers."Generally when we look at potential markets, metered broadband is a deterrent.”

He expressed concerns that New Zealand's broadband infrastructure would not be able to handle the amount of data Netflix requires, with Netflix accounting for 33 percent of all downstream internet traffic in the US.

"It's really a function of do people watch TV? Do we have the content? Does the internet infrastructure work? The answer for at least the last question for New Zealanders is no."

Ayrey says that Netflix also faces considerable challenges getting distribution agreements from the major studios, a problem the company encounters globally.

In New Zealand for example, Netflix would need to compete for distribution rights with Sky Television's iSky streaming media offering, and Fatso (which is majority owned by Sky) for DVD by mail. Sky has been in New Zealand for more than a decade has had formed distribution agreements with the various studios.

"The dream for us is to get to scale and buy some of that content globally, but today the structure is very much geographically determined. Different markets have different sets of rules, different structures, different players and different distributors. It's fairly complicated."

Future Trends

Ayrey's keynote speech was on product innovation and emerging trends that will effect internet products in the future. He says there are four key trends to consider for companies creating internet products.

Connected TVs

Ayrey says that by 2015 there will be 500 million internet connected televisions in homes around the world, which is especially relevant to content companies.“It’s not a huge deal right now, but it’s becoming more and more significant.”

Always connected devices

He says that consumers will be using tablets like the iPad and Amazon Kindle Fire more, and moving away from desktops and laptops which will be relegated to hardcore working devices.

He used Amazon, which competes with Netflix with its Instant Video service, as an example of a company which has jumped on this trend by selling its Kindle Fire tablets below cost. “This is a very different strategy to the one Apple deployed. The reason they’re doing this is because they want devices in people’s hands so they consume Amazon media.”

Move towards natural interactions

“There is an accelerated shift away from old control methods like keyboards, mice, and controllers to something new and easy,” says Ayrey.

He talked about how easy it is for both his one year old daughter, and 88 year old grandmother to interact with his iPad using touch gestures. Ayrey says that with Microsoft’s Kinect motion control, and Apple’s Siri voice control, we will have a suite of tools to make interacting with machines easier and more intuitive.

“It’s very clear that these new modes of interaction will replace the keyboard, mouse and other hard stuff that took some of us many years to get comfortable with.”

Real-time serendipity

The last trend he talked about was social, specifically sharing the activities of people using online services.

“For Facebook the last five years was about connecting people,” says Ayrey.“The next five years will be about connecting activity.”

He says that Netflix users sharing their video watching habits on Facebook directly increase the number of people streaming their movies and TV shows. Facebook is encouraging app developers like Netflix to make the most of its new news feed feature, a ticker which shows your friends’ latest activities, what Facebook calls ‘frictionless sharing’.

Ayrey says he sees this, and other recommendation engines like it, as what consumers will be looking at to discover their next purchase, and the value in companies harnessing it.

“We’ve found that the best source of information on movies to watch or products to check out is your friends. And if your friends can automatically endorse a product through Facebook, that’s really powerful.”

Product development

When talking about developing great products, Ayrey told the ITEX audience that there are many ways for companies to make product innovation decisions, some of which work better than others.

“One of the approaches I’ve seen many companies take is letting the loudest person in the room make the decisions,” says Ayrey.

“The problem with that is the volume of influence they have often outweigh what’s right for the customers. So most companies need listen to their customers to make the right decisions, but this too is flawed because people really don’t know what they want.”

He used the redesign of the Netflix website earlier this year as an example. The layout was changed to reduce the amount of information on the site, simplifying the design and removing some of the features available to customers.

Ayrey says the change resulted in several expletive filled emails to the CEO from dissatisfied customers, however usage data showed an increase in movie streaming from the majority of their users after the change.

“It’s not that you don’t listen to the complaints, it’s just that you need to make sure you keep it relative to all the other metrics.”

Netflix use split testing when rolling out major changes, a method of testing where a control group is compared against groups with different variables at the same time.

For instance, in a recent change to the PlayStation 3 version of Netflix, users were allocated to one of four different dashboard designs randomly. Using the streaming data collected from the four groups, Netflix were able to choose which dashboard they wanted to move forward with.“Measure people’s behaviours, not their attitudes,” says Ayrey.

In September of this year Netflix announced on its blog its plan to spin off the DVD by mail business. This decision, compounded with the raise in subscription fee only weeks before, caused outrage among its customers, with 800,000 subscriptions being cancelled in the subsequent months.

When asked how Netflix handled customer complaints then, Ayrey replied: “Very poorly.”

“That was not a data driven decision. It was driven out of a different dynamic, which was the desire not to be like many other businesses that fail because they get too caught up with their old technology,” says Ayrey.“We were a little too aggresive to leap to the next technology.”

New Zealand connection

Ayrey is no stranger to New Zealand shores. He grew up in Christchurch, and worked at iHug and NZ Post before moving to the US in 1999. He later went on to work at Yahoo for seven years, and has been with Netflix for the last four years.

Netflix started as a subscription movie by mail service in 1999, gaining popularity for its no late fees and no return times policy. It introduced an on-demand video streaming service in the US in 2007, and now has 25 million subscribers, in 45 countries, with most of its growth coming from the streaming side of its business.

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