@davidjdealDavid Deal

David Deal is a marketing executive, digital junkie, and pop culture lover.

Netflix, the company that symbolizes New Hollywood, has adopted an Old Hollywood approach for generating revenue: merchandising. Recently, Netflix announced the launch of Netflix.shop, an eCommerce operation that sells limited edition apparel and lifestyle products based on Netflix shows. Netflix.shop is the natural evolution of a direction Netflix has been taking for the past few years. If this sounds like a familiar approach, well, it is. Disney created the blueprint for merchandising movies in the 1920s. But Netflix.shop has already made its mark by taking an openly inclusive approach through its partnerships with product designers. Let’s take a closer look at how and why Netflix is selling merchandise through its own digital retail storefront. 

How Netflix.shop Works

Netflix.shop, built with Shopify, is a straightforward eCommerce operation. Since going online June 10, the site has featured T shirts, hoodies, and caps inspired by different Netflix shows. As of June 2021, the inventory is limited but well curated. Items debuting in June include streetwear and action figures based on anime series Yasuke and limited-edition apparel and decorative items inspired by Lupin in collaboration with the Musée du Louvre. In an announcement, Netflix emphasized not inventory but designer cachet: the company has taken an inclusive approach by collaborating with up-and-coming Black designers Kristopher Kites, and Jordan Bentley to introduce a collection of anime-inspired collectibles; and Nathalie Nguyen, a Vietnamese artist who immigrated from France to the U.S. when she was six. 

Netflix.shop takes a storytelling approach by featuring interviews with each designer, who share their personal stories and approach to their work. Jordan Bentley’s Hypland brand makes available streetwear inspired by Yasuke, a Netflix anime series based on a real-life African warrior who reached the rank of samurai under the rule of Oda Nobunaga in seventeenth-century Japan. As Bentley notes in a video interview on Netflix.shop, “There’s never been an even representation for African American characters in the anime I love,” which is why he is inspired by Yasuke. He explains how his passion for representing a Black warrior reflects Hypland’s inclusive and multicultural nature since its founding years ago. 

Jordan Bentley

Kristopher Kites, from the south side of Chicago, shares how his dad took him to a comic store that stocked anime movies, which were his gateway to a world that inspired him. He also creates personal wear based on Yasuke (Kites specializes in links and charms). 

“We are like the modern day Black samurai,” he says, commenting on Black creatives. 

Kristopher Kites

Nathalie Nguyen discusses how, as a 6-year-old immigrant who spoke no English, she communicated through art, often inspired by anime. She aspired to become a painter. But after learning 3D programming from scratch at a tech startup, she gained a following because of her 3D designs that she posted on social media. She has the inquisitive soul of an artist, constantly tinkering with designs through 3D modeling to find different ways to express the aesthetic of Netflix shows. 

Nathalie Nguyen

Netflix’s inclusive embrace of emerging designers reflects the company’s culture. For example, Netflix’s marketing arm Strong Black Lead is committed to hiring people of color and supporting their voices. (Read more about Strong Black Lead here.) In 2020, Netflix announced it was allocating up to $100 million of its cash holdings into financial institutions and organizations that directly support Black communities in the United States. In 2021, Netflix published its first-ever social impact report, which assessed the company’s journey toward being more inclusive. As an outcome of the report, Netflix announced a $100 million investment to improve the diversity of its content, including better representation of LGBTQ+ people. The company will fund organizations that help underrepresented communities find jobs in TV and film. Netflix.shop also delivers on this commitment to making the world more diverse and inclusive. 

A Logical Evolution for Netflix

Netflix has been in the merchandising business for a few years now – just not through its own branded website. For instance, in 2019, Netflix and bike maker Mongoose agreed to offer a limited edition Mongoose based on a fictional bicycle used in Stranger Things, which was followed by the licensing of more Stranger Things-inspired bikes. Netflix also launched 75 co-brands, including those with Burger King, Coca-Cola, H&M, and Nike.

These relationships — hybrid in-show product placements plus real-world merchandising — offered a glimpse of how Netflix would monetize its titles more broadly. Notably, the tie-in capitalized on the growing popularity of Stranger Things, which was a turning point for Netflix’s commitment to merchandising. 

But even then, Netflix viewed merchandising and co-brands as a way to gain exposure Netflix shows as opposed to being a serious revenue stream. At the time, CEO Reed Hastings said that Netflix did not want to “get distracted with alternative revenue sources,” because its subscriber engine is what drives revenue, Hastings said in the earnings interview.

“The core focus is, create all these merchandising opportunities, tie-ins, touch points, so that you feel the ‘Stranger Things’ energy so that more people join,” Hastings said. “We do monetize all that. It’s just we’re monetizing it through our giant engine rather than through little sidecar vehicles.”

But that’s not the case now. In 2020, Netflix hired Nike and Disney veteran Josh Simon to lead its Consumer Products division. Since he came aboard, Simon has tripled the size of the Consumer Products team and arranged distribution deals with Walmart, Target and Amazon to sell Netflix-inspired clothes, toys, beauty supplies and housewares, Walmart sells merchandise inspired by Netflix’s Over the Moon. Stranger Things-branded merchandise is a common sight at Target. 

Simon told The New York Times that Netflix.shop will operate as a boutique, with Netflix instead focusing its efforts on more deals with store chains and fashion brands. “Practically speaking, the revenue will come more from those partners around the world in terms of sheer footprint and number of locations and magnitude,” he said. 

But Netflix.shop gives Netflix a way to tap into the popularity of fast-rising shows and drop merchandise faster than it could working with a retailing partner. This way, Netflix can stoke the fires of cultural relevance with its content and brand. For instance, when Netflix sees it has a trending show like Bridgerton on its hands, the company can quickly move to sell merchandise on its own site rather than through a partner such as clothing company Phenomenal, as it did recently by selling Bridgerton merchandise such as sweatshirts. If Netflix sees a show trending on social media, it can move nimbly – an approach Nike is taking by building its Nothing But Gold site. 

The need for speed influenced Netflix’s decision to work with Shopify to run Netflix.shop. Shopify President Harley Finkelstein, told The New York Times that Shopify understand how to handle big merchandise drops ranging Taylor Swift albums to sneaker releases,  “We’ve been battle-hardened around some of the largest flash sales on the planet,” he said.

Publicly traded Netflix does not break out how much it actually earns from merchandising, but it’s probably a small amount – for now. As of 2021, subscription fees constitute its main source of revenue, but we’re still in the early going with merchandising. 

Why Netflix.shop Now?

Why did Netflix decide to make a more serious run for a merchandising operation especially after Reed Hastings downplayed its role only a few years ago? A few reasons stand out:

• Netflix needs to monetize its subscriber base. After enjoying a subscribership surge during the pandemic, Netflix reported a sharp decline in growth for its most recent quarter. The company’s stock value is doing just fine. But the company needs to satisfy investors who worry about the slowdown in subscriber growth. Netflix has resisted pressure to introduce an ad-supported tier as other streaming services have done. Relying on subscription fees alone is increasingly a tough strategy to sell.

• Since advertising is not on the table as an option (so far), merchandising is more appealing. Selling licensed products is a revenue opportunity too big for a content creator to ignore. Sales of licensed products tied to shows, films and characters were about $49 billion in the United States in 2019, and $128 billion globally, according to the most recent study of the industry by Licensing International, a trade group. 
• Netflix is feeling the competitive pressure. Disney rakes in billions from the sale of merchandise spawned by its movies and shows. The company has already turned its Disney+ streaming service into a cash cow for branded products inspired by shows such as The Mandalorian. In 2020, Disney’s Consumer Products division earned $16 billion in 2020 – and that was during a down year. Amazon, meanwhile, basically treats its Amazon Prime Video streaming service as a platform to keep Amazon Prime members shopping on the Amazon retail site; and Amazon has 200 million Prime members. Prime members spend reportedly 133 percent more annually than non-Prime members. As Jeff Bezos once said, “When we win a Golden Globe, it helps us sell more shoes.” Netflix cannot claim any of Disney’s or Amazon’s advantages.

These are compelling reasons, and Netflix – one of the world’s most  – is well positioned to grow its eCommerce business. But the company also as challenge: it’s one thing to cash in on a show such as Lupin that builds enormous buzz early on. But other shows can take time to build the kind of fan loyalty that translates to a steady stream of merchandise sales. And lately Netflix has been quick to cancel shows in their infancy. In 2020 alone, Netflix canceled 18 original series, prompting Ken Renfro of Insider.com to note that “Netflix has a TV-show problem.” The company may need to be more patient to allow shows to become merchandise-friendly brands. 

What’s Next?

Even with the disruption caused by the Covid-19 pandemic, Netflix has a formidable list of original titles dropping in 2021 – 69 in July alone. What will be the next The Queen’s Gambit – a show that not only goes viral but influences behavior? The Queen’s Gambit, the compelling story of chess prodigy, also inspired a surge in sales of chess boards. Next time around, Netflix is counting on Netflix.shop to sense and respond to these rapidly changing consumer behaviors and drop merchandise quickly – perhaps not chess boards, but clothing and personal wear that can be designed and manufactured quickly. 

Netflix’s ace in the hole is its ability to use artificial intelligence to personalize content by anticipating your tastes. The next challenge: using AI to quickly spot trends in consumer tastes and drop merchandise. And this is where Shopify’s AI engine may help. The ideal state for Netflix is “speed to insight/market/value” as described in this blog post by product development executive and educator Mike Edmonds: using AI to understand consumer trends faster than your competitors can and develop products; relying on a platform (in this case, Shopify) to take those products to market; and offering those products through highly personalized experiences that create enduring value.

Don’t look for Netflix to challenge Disney anytime soon (nor would Netflix aspire to do so). But Netflix is now playing to win. Let’s see how quickly the company can apply its keen sense of cultural tastes to consumer products. In addition, by making its content more diverse as it has promised to do, Netflix may enjoy a dividend down the road: a larger, more diverse customer base. 

Note: I invest in Amazon, Disney, and Netflix.

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Source: https://hackernoon.com/the-modern-day-black-samurai-and-the-potential-of-netflixs-new-merchandising-shop-3j5l375m?source=rss