Lovefilm founder and COO William Reeve tells us why he wouldn’t recommend the company’s movie downloading service to his friends.
He explains how the DVD rental company got through last month’s postal strikes and why it’s not the right time for its highly popular service to go mobile.
And he gives us a few thoughts on the subject of Hackathons, having recently brought over the brainstorming concept from the US.
We see you recently held a Hackathon to generate new ideas for the business. How did it go?
It went really well. I read something about Facebook doing a Hackathon and looked up what it was on Wikipedia, and we invented a way of doing it ourselves.
We had to debate a couple of things – whether to open it up to the whole business – and we had to come up with some rules so that the whole tech development team didn’t have to down tools for the day.
We ended up with a decent level of participation – around a dozen people worked on creating ideas during the day and another four or five people assessing them in the evening. Everyone was really enthusiastic about it. It got people thinking outside the box.
Do you have any tips on making Hackathons effective?
The real trick is how you follow through with ideas. We had two people working on one idea – a mobile feature – and they integrated it with our website and made it customer-ready in one day.
It pretty much worked and we liked the idea but we still haven’t gone live with it. Obviously, if you have 500,000 customers you have to carefully think through the marketing.
My tips would be to make sure you get senior business people involved at some point in the process – probably, like we did, as the audience. We had about half our total tech and web team in the UK there, as well as people from customer services and marketing.
Also, think about how you support the winning ideas in taking them forward, and design it in a way that suits your business.
When do you plan to hold the next one?
We have a code freeze at Christmas and we’re going to do use that time to do another one.
I think we’ll aim to do it roughly quarterly from then on. We got some really good quality ideas and everyone that did it enjoyed it.
Where are you at now with the mobile service?
I think we haven’t quite decided whether the market demand is at a level that we would need to support a rollout of it.
It’s with the marketing folks at the moment – the issue being that mobile interfaces are so crap that you haven’t got that many customers that would be prepared to put up with it. And this one’s based on text, not for smartphones or anything.
It looks great and functions well but we would need to see ‘x’% of our customer base being prepared to use it before we got too excited about it, and we’re not sure that’s the case yet.
How is your download service going, in terms of subscribers?
It’s going. The issue is that we’re not offering as good value on it as we’d like to. We’re all about convenience and good value. Although it’s competitively priced, it’s not something I could tell my friends they should use.
Buying a download of something like King Kong for £20 when you can buy the DVD for £15 – why would you do that? We would love to offer it more competitively but our hands are tied by the studios on this stuff.
The studios vary in their stance, but on things like King Kong, they want to make sure nobody in their retail supply chain grumbles about downloads. By pricing downloads more expensively they feel no one can complain because even if we steal a retail sale, they are making more money out of a download.
Other studios are a bit more enlightened than that, and understand that there are a lot of costs that come out of the retail chain when you downloads, and those savings should be passed on to consumers.
But there’s a situation where different studios have different policies, there isn’t consistency in pricing and there isn’t a range of content we would be proud of.
We have some good titles – a few thousand, but our DVD service has almost 70,000 titles.
How long are these issues going to take to sort out?
It’s not going to be solved at the rate the media think it is. Two years ago, people thought piracy and DRM was an issue, but one of the things we have helped to prove is that is not an issue.
We have had King Kong on the day of release but no one has been pirating it from our downloads.
We have helped to demonstrate the technology, because we believe it will become a huge business for us. But the proposition’s not competitive with buying or renting DVDs or other ways to consume entertainment.
How many users of the service are there?
It’s growing and the customers that do use it like it. I’m not going to give you the exact user numbers.
It’s a small percentage of our business and it is not growing any faster than DVDs for us. But it is growing in line with our business.
Have you looked at ad-supported downloads?
Yes, we’re quite excited about doing that – that gets round some of the value for money issues. There’s still the convenience issue – people still have to watch it on their laptops, but they are happy to do that.
How is advertising within your parcels developing as a revenue stream?
It’s growing quite well for us. Our post is popular post, if you see what I mean.
Most of our customers say the envelopes they receive the DVDs in are their most popular bit of post, so it’s a great opportunity if we can put relevant offers inside them.
Nobody is complaining about that stuff – things like chocolate bars and cinema vouchers are going down really well.
We have 500,000 subs in the UK and they know their way around films, as well as knowing how to buy online and trying new things. That’s an audience that’s worth quite a bit.
How big is it? It’s bigger than our digital business.
How badly did the postal strike end up affecting you? What can you do to alleviate it if it happens again?
We were all right. We found that most customers were happy to send discs back earlier or wait a bit longer.
The problem, we found, was that most customers didn’t blame us while the strike was on, but as soon as the strike stopped, they assumed everything was back to normal. But actually, there was a huge pile of post sitting there in the Royal Mail logistics system and it took a few days to return to normal.
It was annoying, but we’re through it now and most of the impact was contained.
When the strike happened, we were also able to do a special deal to offer free downloads to affected customers. We had quite a lot of uptake of that and we brought quite a few people into the download fold.
Can you tell us a bit about customer retention – the techniques you use to segment and prioritise customers?
We manage churn more carefully, if anything, than customer acquisition. There are a range of techniques we use – many of them not yet at anything like the level of sophistication we would like them to be at.
There are lots of things that affect churn that we aren’t yet acting on internally, for example. But we are trying to act on them where we know about them.
If we can predict you are about to churn then we can take pro-active steps to stop you churning.
Are there many customers that you don’t mind if they churn?
There are a few but not very many – generally ones that try and take repeated trials out of us or always wait for our special offers, so much so that they are taking the mick.
What about high usage customers?
We’re generally all right about them – they may not be that profitable for us, but we value them anyway. Those customers will often be the ones that are shouting at the rooftops loudest about us.
You have to be an absolute monster for us to decide we don’t want your business. What you are probably doing is claiming you have lost so many discs it is costing us more in new stock than postage.
We have got the technique to prioritise certain customers against others, but we don’t use it. We try and keep everyone at a level of service where they will rave about us to their friends.