In the past 2 weeks, Netflix delivered tepid Q2 results and a cautious forecast, while Comcast reported strong broadband numbers and an improving video subscriber picture. That's a big reversal from a year ago, when Netflix was flying high and talk of cord-cutting hung over the entire pay-TV industry. So what might we learn from these 2 companies' experiences over the past year? Though I'm sure there are plenty of lessons, here are 4 that come to mind:
1. Evolve core services, don't disrupt them
The video business is changing fast, so a key challenge for everyone is to be nimble enough to evolve and meet viewers' preferences, while still carefully managing P&Ls. That's led Comcast and other pay-TV providers to enhance linear viewing with features like DVR and on-demand initiatives. Similarly, several years ago Netflix wisely introduced streaming as a value-add to its core DVD-by-mail service.
Comcast has continued to innovate its linear services over the past year with initiatives like Xfinity Online (TV Everywhere), Streampix and X1. However, Netflix got off track by de-emphasizing its core DVD business, and putting all of its effort into streaming. This move is akin to Comcast deciding to stop promoting its linear service and just focus on on-demand; not surprisingly it has lead to huge DVD subscriber losses at Netflix. Rather than disrupting itself, Netflix would have had a much smoother year following the Comcast playbook and continuing to enhance its core DVD service.
2. Geographic expansion is tempting, but not necessarily beneficial
Cable operators' geographically-limited markets have spurred many industry observers to suggest Comcast and other large operators expand outside of their footprints and invade others' territories. There's a certain logic for Comcast using its massive scale to attack smaller competitors, but the company has resisted the temptation. Instead, it insists it has more opportunities leveraging its own infrastructure. With its ARPU up another 8% in Q2 '12 to over $148, that approach seems to be paying off.
Conversely, Netflix is in the midst of an expensive international foray beyond its core U.S. market. The company is finding a very different competitive landscape, with new marketing, content and piracy challenges. What if Netflix had instead focused more on its U.S. customers? Examples might have included augmenting DVD rentals with a purchase option for the physical DVD or offering iTunes-style one-time rentals and downloads-to-own for content not yet available in the monthly subscription. Or maybe even using its warehouse, billing and delivery capabilities to sell other media (and even non-media) products? New markets are tempting, but it's often easier to deepen existing customer relationships than to create new ones.
3. Test new products and roll them out methodically
Although innovation cycles are improving in the pay-TV industry, few would accuse operators of moving too fast. Rather, Comcast and other operators often test new products in smaller markets, refine them through research and only then roll them out broadly. While this approach can be frustrating to subscribers eager to move past archaic features like today's program guides, the slower approach means a big blunder is much less likely.
On the other hand, Netflix has been a superbly quick innovator - witness how rapidly it has deployed its streaming service to dozens of connected devices. The downside of this fast-mover DNA is that change can be introduced too quickly for subscribers, as the company found out in the backlash to last year's untested Qwikster and price-change plans.
4. External communications must be rigorous
Even the best plans can go awry if not communicated well. With new, less formal communications channels like company blogs, Twitter, Facebook and YouTube available for delivering messages to external audiences, there's a tendency for the message substance itself to become less rigorous. That's a mistake; especially when conveying problematic news, communications must still be thoroughly thought-out.
This is where Netflix tripped itself up last summer; a short blog post with sketchy logic announcing major service changes, followed by subsequent communications that were also confusing and unsatisfying to many. No surprise, a subscriber rebellion ensued. Contrast this with how Comcast - and others - still develop formal press releases with precise messages which are then magnified through other communications channels.
None of this is to say that Comcast is perfect and doesn't have significant challenges ahead. And Netflix is still a strong company with valuable assets. But when you look back over what's happened with each company during the past year, the momentum shift in digital video is more understandable.