Forking the Business

Reed Hastings the inspirational founder of Netflix just owned up to a big mistake in running his business (see his video apology here) and announced that in consequence of this misstep and failure of communication he would split his baby in two: Netflix (the old name for the new business) which would now solely be concerned with selling digital streaming video to consumers on a subscription basis, and Quickster (the old business with a new name) which would be solely concerned with shipping DVD’s to customers who wish to have films on DVD.

In software parlance he is ‘forking’ the code base (the assets of Netflix and the employees will be divided between the two new businesses), and he is duplicating the customer base (users will have two accounts where they had one before) and he is potentially setting them against each other.

So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. An Explanation and Some Reflections.

This does seem like a pretty drastic change to a business that has been steadily evolving towards a streaming mode of delivery for film and TV. I hope it works out for the Netflix businesses and its customers, but it certainly seems risky.

It is worth thinking about these drastic manoeuvres because a similar distribution challenge faces the magazine industry as digital delivery becomes more important. Will it be necessary for magazine publishers to split their editorial, development and design teams, their commercial and sales efforts to build separate digital and print-based work-flows and subscription operations? Some magazine publishers are working now with separate editorial and design workflows? Will this result in an inevitable split between subscribers for print product and for digital editions? Can magazines afford this duplication? Do consumers want two products?

At Exact Editions we are convinced that such a split cannot work, is ruinously expensive and results in sub-optimal solutions for print subscribers and the digital audience. Perhaps magazine publishers have been too mesmerised by the possibility that magazines as digital resources on the iPad could be something completely different from the print object (and perhaps not quite honest enough about the talents that they have to produce something completely different and digital, some ghastly interactive apps have been the result). The key thing that magazine publishers have going for them is that they already (in many cases) have a strong and renewable subscription relationship with their print audience. Actually most music producers, film companies and book publishers would die for a situation in which they had a direct billing relationship with the digital audience. Magazine publishers have no idea how lucky they are. It is therefore vital to transfer this subscriber relationship to the digital sphere as soon as possible. Print publishers can do this because it can be very simple and straightforward to offer those print-subscribers who want it a digital subscription as a complementary part of their print subscription. Enfranchise the print audience as quickly as possible.

Consumer magazine publishers are in an extraordinarily privileged position because they ‘own’ their audience (subscribers who come to them direct) in a way in which very few consumer media operations are able to match (music, film, book and TV producers all struggle through not being able to bridge the gap directly between digital product and digital consumer). From this standpoint the concession that Apple has given to magazine publishers is extraordinarily important.

“Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing,” said Steve Jobs Apple Press Release Feb 15, 2011

Although magazine publishers do realise the importance of ‘owning’ their digital audience, very few of them have yet made the transition that the prevalence of the iPad/iPhone and the army of Android devices affords to them. Relatively few magazines yet have 2% of their subscription numbers through digital subs. By Christmas 8% of the US consumer magazine market will have access to their own iPad, and 4% of the UK audience will be similarly placed. Surely it is time to get those subscription offers in place? No need to fork the business for that.

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