The Success Conundrum At Netflix

by Sam Vasisht, May 20, 2011, 12:15 PM

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"Some are born great, some achieve greatness, and some have greatness thrust upon them," are famous words from Shakespeare.  The same can be said for companies.  The company I am referring to is Netflix.  It has achieved greatness.  I have been a loyal customer for longer than I can remember and I have only good things to say about the service.  I have not, for a single day, lamented the demise of Blockbuster. 

Further, the company's proactive shift from DVDs to streaming will go down in business annals as an exemplary case study of how to boldly cannibalize your core business in the face of change and undertake a disruptive path into the future before someone else does it to your detriment.

The recent report from Sandvine that Netflix is the single largest source of web traffic in the U.S., and announcement from the company adding Miramax as a streaming content partner are just examples of Netflix forging on.

While all these are great things, Netflix is also having greatness thrust upon it.  With recent subscriber numbers, Netflix is being touted as the largest video subscription service, beating out Comcast, the pay TV behemoth that itself has been a pioneer in the evolving video landscape.  These statistics, plus Netflix's earlier bid for original content, beating out HBO for  the "House of Cards" original series, have some calling Netflix a cable killer.  Not surprisingly Reed Hastings, Netflix founder and CEO, has backpedaled on this notoriety.    Aggressively going after original content (and other premium content) is one thing, but being heralded as the big cable-killer is quite another.  Netflix is not ready for that mantle yet.  It has enough on its hands that should be higher priorities.

While Netflix's move into streaming may be driven by necessity, this also puts the company on a more level playing field with scores of other established and new online video services, including the likes of Hulu (and Hulu Plus) as well as the payT V industry's own TVEverywhere initiatives.  Netflix's traditional business had higher barriers to entry and greater economies of scale, providing it a more defensible position than the streaming business offers.  Netflix has been very smart in recognizing that, despite its advantages in its traditional business - where by the way, there was no direct competition, other than a feeble attempt by Blockbuster to unsuccessfully try and replicate Netflix model - it needed to slowly harvest that business to fund its streaming model.  At the same time, its competitive advantages in the new world of streaming are more tenuous.

 

With everything migrating online, whether one is a pay TV operator, content producer, OTT service, or another, various industries are on a collision course.  Netflix is not a fragile upstart, but it has far less firepower than established pay TV providers, both in terms of the depth of its pockets and the bargaining power with content providers.  On the other hand, it has agility, good leadership and tremendous customer goodwill on its side (the e last of which is largely absent, if not entirely missing, for most pay TV operators.)  Becoming a larger irritant to the big guys is not something Netflix needs at this precarious stage of its transformation.  At the same time, the traditional pay TV industry players are on pins and needles, given the overall disruptions that are taking place in the video industry, and all the talk about cord-cutting and cord-shaving.  The sleeping giants may be restless, but best not to awaken them prematurely.   No wonder Hastings is going out of his way to ameliorate the issue with his cable industry counterparts, but the damage may already be done.  It will be interesting to see how the game gets stepped up on both sides.

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0 comments on "The Success Conundrum At Netflix".

1. Noah Wieder from SearchBug, Inc.
   

   commented on: May 23, 2011 at 2:01 p.m.

   Netflix on my ipad, what a great time we live in! My only regret is not buying Netflix stock when I became a subscriber. I've tried other content providers apps on my ipad and no one comes close to Netflix. If content providers were smart, they would all make deals with Netflix.

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