Netflix is Disruption Royalty
Remember when we wanted to rent a movie how we would have to get into a car and head to the local video store? How we would rent a physical DVD or if you’re from WAY back, a VHS (not sorry beta-max people)? It was a lot of fun to saunter down the halls of my local Blockbuster trying to get myself and four other friends to agree on a movie. Nowadays, the same thing happens in the comfort of our own home when it comes to choosing what to watch on Netflix.
Netflix, is one of my favourite case studies. They have disrupted their industry, not once, or twice, but now three times, and I’m sure there is more to come. They are disruption royalty. If more companies approach their industries with the kind of tenacity they did, we might have more innovation in the world today.
And we all know that innovation drives progress.
So how have they approached disruption, and in doing so changed their industry three times?
1) DVD Mail Rentals.
Long before the era of internet streaming there were countless video rental stores. It was accepted that if you wanted a movie to watch on a Friday night you would brace the chaos at your local movie store, hoping there was one last copy of Lion King left to rent. But Netflix thought about this situation differently. They said to themselves, “What if instead of asking people to go to a store to rent movies, we shipped them movies through the mail?” Netflix could get access to a lot of movies that were not really “A-caliber” films but people didn’t care in the end. Customers had access to a vast array of films that would be conveniently delivered to them. And no late fees. And what Netflix learned throughout all of this, was which films its customers liked. Which is huge because through that they could recommend which films they will like but haven’t seen yet. And thus, we got a glimpse of Netflix’s secret weapon – their algorithm for recommending films. It was, and still is, this algorithm that customizes our movies options to our liking, which is the most valuable piece of technology at Netflix. They created a great following through their mail DVD rentals and were so successful, at one time they became a significant portion of the US Postal service deliveries! There focus was speed, so they continued to open distribution centres all over America, and eventually offered same day delivery service to some of its customers. How did Blockbuster compete? History speaks for itself.
But it wasn’t convenient enough.
We’re all accustomed to Netflix streaming service now, but it wasn’t always the case. They took what many considered a big risk putting their library online to be streamed, especially when internet speeds weren’t that ideal, trudging forward to make it a reality. Of course we all would have expected Blockbuster to do this, but as Greg Satell at Forbes describes, they didn’t.
Fast forward to today, where Netflix is now streaming in almost every country around the world, and leading the 4K revolution. They found a place to deliver other companies content in the most convenient way possible, and it’s everywhere. I can walk from my Smart TV to my phone, to the Xbox to my computer, and Netflix is on all of those platforms (expect Nintendo Switch!).
But the content creators took note. If you were DreamWorks and you watched Netflix making a ton of money off your content, you’d try and find a way to make that money yourself. Traditionally, Netflix would negotiate the prices for access to a movie from these studios and then have the right to host the film or show for a certain period. And so, what do you imagine studios like DreamWorks decided to do? Jack up their prices to push Netflix out of the market, and find a way to either partner together with other studios, or create their own streaming service. Case and point; DISNEY! Up to this point, Netflix was a content distributor of other people’s content. And when the makers of that content wanted more money for their films Netflix was put in a hard spot; without good content for their service a lot of their new customers who had grown accustomed to high-end content would unsubscribe, resulting in the death of Netflix.
Netflix was doomed.
3) OG Content
Of course, we know that’s not the case and it’s why I love Netflix so much. They were ahead of the curve on this and could see how things would play out if they didn’t move quickly. And so, they did; into the expensive world of content creation. They made the executive decision to make their own content that they could distribute on their own, whenever and wherever they wanted.
Normally stations or studios would choose which shows and movies to create based off a television pilot (a show that was produced in the hopes that it would catch on and become a big hit for the stations. An expensive risk for studios) or a decision made by someone in a head office who was merely focused on how much money a film could make. Sometimes it worked, sometimes it didn’t.
But when it came to Netflix, they had direct access to every one of their subscribers viewing habits which gives them a huge leg up on what kind of content people would find valuable. They could see what types of films their audience was watching, and what they rated them. The could drill down and even see minute things like how much of a episode people watched, or what parts of a show they skipped. Have you noticed the “Skip Intro” button that we all love so much? They have access to all the data the studios wanted access to. And the icing on the cake, was that Netflix has decided that it doesn’t give out this data. Which means, people putting valuations on the content are in the dark outside of what a title has out of five stars. This flies in the face of traditional TV ratings, which drive advertising prices.
Thus, Netflix began creating content. First with House of Cards, and then with Orange is the New Black and so on and so on.
In 2018, Netflix is could spend up to $13 billion on original content.
They are now the true kings of the castle.
From humble beginnings, mailing DVDs across the country to now being the number one media giant in the world, Netflix has taught us one thing: that if you don’t disrupt yourself and your industry someone else is going to. Just ask Blockbuster.
Cover photo by Thibault Penin on Unsplash