Tesco’s new chief executive Philip Clarke is all too aware that some of the old retail magic has faded. He described the core UK business’ performance, in his first set of financial results, as “below par on any metric”.
So what’s he going to do about it? One solution is strategic diversification into areas with better growth and margins. The foray into the second-hand car market, with tescocars.com, is a case in point. Potentially much more significant, however, is the acquisition (for an undisclosed sum) of 80% of Blinkbox.
Blinkbox? It’s a UK-based film- and TV programme-streaming website service with a catalogue of about 9,000 films which boasts over 2 million visitors a month. Sort of like iPlayer, but more ecumenical in its approach to content and, by the way, you pay £2.99 per rental item and £6.99 for a download.
And the significance of this is? The “assault on the living room” is being touted as the next big thing in retail. In the United States, it already is. Netflix, a DVD and streaming rental business set up in 1997, is now a stock market phenomenon. Last year, its value soared 33% to $12.5bn (£7.65bn). And it’s easy to see why: $161m profits on revenue of $2.2bn, and over 20 million customers who pay a flat monthly fee for the privilege of receiving its video-streamed and DVD catalogue.
Symbolic of its waxing market power, Netflix recently moved into the original content market. Spectacularly, it outbid the US TV networks for the right to remake Michael Dobbs’ House of Cards, with Kevin Spacey in the lead role of the Machiavellian FU.
But that’s over there. As yet, Netflix has no European presence, which leaves the UK market wide open to exploitation. The nearest thing here is LoveFilm, which was bought out by Amazon at the beginning of this year (valuing it at £200m). It was set up in 2003 with a subscription-based DVD rental-through-the-post service, and diversified into video-streaming last year. It has just concluded its first major content deal, which involves distribution rights to 50 Disney films.
The UK may be behind the in-home entertainment curve, compared with the USA, but Tesco’s Clarke has every reason to suppose it will soon catch up. Rapidly expanding broadband width provides the pre-condition. But someone with deep pockets, an unrivalled national customer database and a visceral understanding of distribution will provide the wherewithal. That someone could just be Tesco.
Original programme content, however, will have to wait.