Lessons from Netflix.

One of my current habits is to download a couple of TED.com talks and listen to them on a run, well to tell the truth, it’s more of a jog these days. This morning I listened to TED’s Head Curator, Chris Anderson, interview Netflix co-founder and CEO Reed Hastings.

And what a fascinating discussion – there are so many lessons but I’m going to focus this morning on just one, the Netflix business model and what we can all learn from it.

Reed Hastings knew from the start that the Netflix business model wouldn’t work for long. He told Chris Anderson, “We did have one advantage, which is we were born on DVD, and we knew that was going to be temporary. No one thought we’d be mailing discs for 100 years. So (we) have a lot of paranoia about what’s coming next, and that’s part of the founding ethos, is really worrying about what’s coming next. So that’s an advantage.”

Contrast that with so many businesses over the years which have fought to cling on to their tried and tested model. Kodak, Woolworths, HMV, Blockbuster to name just a few who have all but disappeared. And not just because they viewed new technology as a fad, although many have made that mistake, but because they ignored the social changes or worse their own customer feedback.

On my return home I visited the Netflix website to explore anything else I could learn and also to see if they were truly “paranoid about what’s coming next”. While a tad lengthy for some people’s tastes, here are some extracts from their “Long Term View”.

  • People love TV content, but they don’t love the linear TV experience, where channels present programs only at particular times on non-portable screens with complicated remote controls. Now internet entertainment – which is on-demand, personalized, and available on any screen – is replacing linear TV.
  • Changes of this magnitude are rare. Radio was the dominant home entertainment media for nearly 50 years until linear TV took over in the 1950’s and 1960’s. Linear video in the home was a huge advance over radio, and very large firms emerged to meet consumer desires over the last 60 years. The new era of internet entertainment, which began about a decade ago, is likely to be very big and enduring also, given the flexibility and ubiquity of the internet around the world. We hope to continue being one of the leading firms of the internet entertainment era.
  • In 2018, we expect to spend close to $8B on a P&L basis on content for our members. In addition we’ll spend approximately $2B on marketing in 2018, getting people so excited about our content that they join Netflix.
  • Netflix is a global internet entertainment services network offering movies and TV series commercial-free, with unlimited viewing on any internet-connected screen for an affordable, no-commitment monthly fee. Netflix is a focused passion brand, not a do-everything brand: Starbucks, not 7-Eleven; Southwest, not United; HBO, not Dish.
  • We don’t offer pay-per-view or free ad-supported content. Those are fine business models that other firms do well. We are about flat-fee unlimited viewing commercial-free.
  • We are not a generic “video” company that streams all types of video such as news, user-generated, sports, porn, music video, gaming, and reality. We are a movie and TV series entertainment network.
  • We are a relief from the complexity and frustration that embody most MVPD relationships with their customers. We strive to be extremely straightforward. There is no better example of this than our no-hassle online cancellation. Members can leave when they want and come back when they want.
  • We are about the freedom of on-demand and the fun of binge viewing. We are about the flexibility of any screen at any time. We are about a personal experience that finds for each person the most pleasing titles from around the world. To deliver this experience to our members, we expect to spend around $1.3 billion on technology & development in 2018.
  • That’s why we are increasingly licensing content on a global basis, so Netflix members everywhere in the world can enjoy the same movies and TV series, free of legacy business models and outdated restrictions.

At best, investment of time, effort, creativity and money in defensive measures will cause a business to stand still – at best. More often, it leads to a drawn out death that’s painful for the team, customers and shareholders alike. By contrast, focusing on what the future holds, taking calculated risks, investing in new ideas, systems and business models is compelling for everyone involved.

The new models in estate agency are widely criticised and ridiculed. Many traditional agents would have you believe that they are a fad and won’t last. And whilst many, if not all the new models, have yet to crack it, they’re making headway and perhaps more importantly are learning as they evolve.

My sense is that within five years, a significant number of traditional agents will have either changed substantially or will have disappeared. But so too with the new models, they must change too in order to survive. My sense though is that many of the new model businesses are more readily adaptable, and that’s a significant advantage as Netflix has demonstrated.

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