Bob's Gutsy Leadership Blog

Netflix: Underestimating a Fast-Growing Threat?

Netflix has always been the innovator who was way out in front of the current market offerings. It was 1997, when only 7% of households had a DVD player, that Netflix launched its “movies on DVDs by mail” service. At that time, virtually all movies watched at home were rented on VHS tapes from one of the 3000 Blockbuster stores. By 2007, Blockbuster had grown to 9000 stores and was clearly on its way to bankruptcy since most people got their movies by mail on DVD’s from Netflix, since over 80% of homes had a DVD player, and renting a movie on a DVD from Netflix avoided the trips to Blockbuster.

It was also 2007 when Netflix once again got out front of the current offerings (its own DVD service) and launched its streaming service, but few people could take advantage of it, since less than 20% of homes had the adequate broadband capacity to stream a movie. Netflix knew that would change quickly and it did and Netflix grew to its current enormous size.

Today, the number of new challengers to the Netflix streaming service is exploding. Direct TV Now, Hulu, Sling and many others offer a variety of options. Amazon, YouTube, and Apple are growing their own streaming services, and with their deep pockets, will be significant threats. Media industry giants Disney and WarnerMedia are also building major streaming services, and both are hellbent on taking significant business from Netflix. Many of these firms are investing very heavily in new programming to compete very directly with Netflix.

Let’s look at Disney in more detail. Disney recently unveiled its streaming product, content, and pricing strategy for Disney+. This ad-free subscription service will offer everything from the Disney, Marvel, and Star Wars film collections, as well as new, original TV shows. Also available will be licensed programming across its vast library of franchises – which will now also include content from the movie and TV assets which Disney recently bought from 21st Century Fox TV. Disney+ will be priced at $7 per month, which is $2 less than Netflix’s cheapest tier.

Another area where Netflix will face pressure is in its licensing of movies and TV shows. Rivals such as Disney are expected to pull their existing programming off Netflix, which could make Netflix less essential to customers over time. Industry reports suggest that a majority of Netflix viewing in the U.S. is of licensed offerings.

All this comes at Netflix when their share price is down 10% versus its high of 11 months ago, and it is spending very heavily on new content to keep their offerings fresh: $13 billion in 2018, and it will very likely match or exceed that level in 2019.

Here is the surprise: The guy who founded Netflix and still runs it, and drove all that innovation over the years, is saying: “there’s a ton of competition out there, and Disney and Apple add a bit more. But, frankly, I doubt any of it will be material to us.” He sounds like the Blockbuster guy in 2007, super proud of his established franchise of 9000 stores!

While in the past, it has usually been Netflix that is out front of the current offerings, now it looks like they are the mature offering that is under attack, and not doing much about it.

Great leaders are paranoid about competition and always working to stay many steps ahead. Has Netflix lost that characteristic?

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