Streaming giant Netflix has started the year with the launch of Nike Training Club programs. With 30 hours of fitness content available initially, this move marks a major change to the company’s business model. Up until now, Netflix has been all about good old entertainment. So, what has prompted the video service provider to expand into this new vertical and what is it trying to achieve? There are a number of probable drivers behind Netflix’s move into streaming fitness videos, and some are more obvious than others.The primary reason is to attract new subscribers. A new content vertical means potential new eyeballs for the service, and as everyone knows, attracting subscribers is a constant battle for every SVOD service - even the industry giants. Tying this in with the highly desirable Nike brand is a clever move, positioning Netflix as a leader in the fitness VOD space while getting in front of new, and potentially untapped, audiences.Another possible reason for Netflix’s decision to expand into this new vertical is to add value for existing users - an important but often overlooked part of running an OTT service. Netflix has a vast library of entertainment content, and by adding fitness shows to the mix, it ultimately offers something new and exciting for its subscribers. In addition, unlike entertainment content that many users tend to binge watch, workout videos are not something to be consumed in one continuous go, so the value is longer lasting. In fact, when fitness content is done well, many users will even access and replay it time and time again.Another key point to mention here is ROI. In general, fitness content is significantly cheaper to produce than entertainment content, such as a drama series. The potential ROI for a 60 minute fitness video is likely exponentially higher than a drama series where costs can easily climb into the millions per 60 minutes.
Live sports has never been part of Netflix’s repertoire. While it is obviously a massive OTT business, the service isn’t necessarily an attractive destination for Tier 1 sports organizations. In fact, it would likely require a significant investment in both technology and people before it would even become an option. Netflix would have to convince Tier 1 sports bodies that it is a good home for their live events and that is a tough sell for anyone when you haven’t done it before.Tier 1 sport rights are also notoriously expensive, on both a regional and global level. Netflix has to show financial prudence to keep its shareholders happy and investing in sports rights may be viewed as a risky business. It would also most likely lead to a price hike which definitely would not make its subscribers happy. Other streaming giants have ventured into live sports, but the difference is that they often have complimentary businesses that help offset that initial investment - a luxury Netflix does not have.On top of that, it would have to pump a good chunk of capital into its product to create sponsor friendly experiences. Sponsors are a demanding bunch and logos on an event just isn’t going to cut it. Venturing into the vertical of fitness content is much more feasible than live sports.
Being newcomers to the AVOD business model, Netflix needs to continue refining its ad game. The Nike fitness video content will be available to Netflix users on the standard as well as the ad supported tier, thus representing a great opportunity to test and learn.As the industry moves forward into a world where ad related content is increasingly accepted and popular, mastering the business of ad-sales will be crucial. We’re currently in the midst of a huge surge in the AVOD market with global revenues projected to reach $70 billion in 2027, up from $33 billion in 2021. In Europe, revenue from ad-supported services is forecast to double from 2021 to 2027, and in the US, AVOD revenue is set to surpass $31 billion by 2027. It is clear that consumers are much more willing to sit through ads to gain lower cost, or free, access to good content. This is becoming increasingly obvious as many of the leading video streaming providers are starting to introduce ad-funded tiers to their services.A powerhouse like Netflix has the potential to deliver some really valuable user data to advertisers. It knows its audience as well as anyone out there, and the company can use the new fitness offering to further its position in the AVOD space.
Netflix had a very deliberate strategy when it started out. It invested in the platform first and went on to build the best OTT platform out there. Next, it invested in content, so went from having a library of random, old series and movies to becoming a premier content producer. Lastly, it drove up the cost of content, making it more difficult for other businesses to compete. When you are in a position to absorb content costs globally, it makes it really difficult for regional vendors to compete against you. Netflix is the reason there are so many new and very wealthy content creators. It disrupted the studio and agency model.Netflix could well take the same approach with fitness content. In partnership with Nike, it can attract the best creators and offer them a global audience, and at the same time, a global sized pay cheque to boot.
There are of course some challenges ahead. At launch, the Netflix/Nike offering is essentially competing with YouTube fitness content. However, we all know how important it is for many users to be connected on just about every level, tracking each part of their lives. Connected fitness devices are a multi-billion dollar industry for a reason - people want them. This could be a big miss for Netflix if it doesn’t have connected fitness devices on its roadmap. Besides, who wouldn’t want to ride their bike through the streets of Hawkins and enjoy a Stranger Things themed workout?The Netflix/Nike fitness content launch is at the very least a headline generating experiment for Netflix. To be successful and to make fitness a content pillar, it will need to step outside its comfort zone and do more than just stream fitness videos. It will need to deliver the full fitness experience to its users.Accedo has got the expertise and knowledge needed to help your video service grow and expand. If you would like to find out how we can support you, please get in touch.
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