Bob's Gutsy Leadership Blog

Netflix: Turning TV Viewing Upside Down

Completely changing the business model in an industry is not an easy thing to do.  On the other hand, it creates incredible rewards for the innovators.  Netflix is a primary example of this.  It basically put the Blockbusters of the world out of business in the late 1990’s as it introduced DVD’s by mail versus going to a store and renting a VHS tape.  It refined that model in the late 1990’s moving to an “all-you-can-watch” monthly subscription model for its DVD mail service.  The next change occurred in 2007 when it began offering streaming.

In the last few years, it has turned TV viewing habits upside down.  Traditional broadcast channels have schedule programs once a week at a certain time period.  You had to wait until, for example, next Thursday evening at 9:00pm to watch the next episode. Netflix has ignored tradition and offers all episodes at one time; it is called “binge programming.”

The hope of Netflix is that this encourages “binge watching.”  To gauge this, Netflix uses a new measure called “completion”.  It’s how quickly a subscriber moves through the episodes of a particular show for that season.  Literally, the consumer can look at the vast array of content Netflix has, pick a series that looks interesting, and then watch all 12 or so episodes over a weekend.

The basic business model then is to produce, and also go around the world acquiring, as much content as possible, putting it out on the Netflix servers. Customers then go to the resulting massive menus and select what they want to view, based on their interests.

One result of this is that organizations such as Disney, Comcast, and AT&T have woken up the fact that Netflix has developed a huge following and a gigantic audience.  Thus, they are now aggressively attempting to buy content before Netflix buys it.  To feed this new model of always having a giant menu of up-to-date offerings for their customers, Netflix has become the largest maker of original content for TV. It has also grown from 33 million global subscribers just before its famous House of Cards program was launched to currently having 125 million.

So what should a leader of a business learn from the Netflix example? You need to constantly consider alternate business models that could offer your customers exciting new products that are more attractive than the current offerings that the industry provides.  It is very hard to do this within an existing company.  What it really requires is some very ingenious people.  Typically, in established companies, those are the kinds of folks that get rejected in an interview or fired once they are on board.  Hence, in any organization, it’s probably worthwhile to hire and protect for the status-quo seekers, a few folks who are thinking about things in a completely different way.

Subscribe to the Gutsy Leadership Blog's RSS feed ...