6 Points on the "Netflix Method"

Lately there has generally been a steady flow of news and views on the OTT market and about Netflix’s global expansion. I’ve been reading and keeping up with Netflix in the press, and combined some of my observations with the daily learnings, musings, and conversations had with those in the business to lead to this summary of my thoughts. So, here are my ruminations on the Netflix Method to doing business, and on what I glean to be 6 planks critical to erecting Netflix’s platform.

…And remember, there are certainly no “right answers” in business …however, the closest thing to a “right answer” is to be profitable! 

1. Think ahead and base a business on it, even if it means you’re starting point isn’t exactly where you expect to end up – I remember getting a Netflix account when I lived in Denver, CO. back in 1999. It felt so groundbreaking to receive DVDs at home, all based on a monthly subscription fee, and then not having to worry about returning them until you were good and ready! But why the name “Net”-flix….? Reed Hastings was thinking well in advance, and able to get his base business proposition/position established first in 1998, while waiting for the industry and market to develop to the point that he could actually launch his consumer distribution via internet/broadband. It seems from the name and brand he started with back in 1998 that he was basing his business on the expectation that eventually movies would be easily delivered to consumers electronically. He was right. On a personal note, in 2000, I started a new digital television channel with two partners (James Meyers and Scott Anderson). The channel’s concept was to create programming blocks using curated scenes from films. The kicker about the business was to be that with advanced digital Pay TV platforms, one day you would be able to pull up on on screen menu, and purchase products related to the same movie scene (e.g. a DVD of the movie, a poster/t-shirt of the movie, a subscription to HBO which was airing the movie, or an airing of the movie on PPV or VOD etc.) without leaving the living room. Well, we made some progress towards launching the channel, but had to shut down the venture in 2002. Ultimately, we were too early with our concept, and while VOD would eventually spread far and wide, it was just too late for Scene TV. My point is that had Netflix come out in 1998 trying to raise money based on the premise that they would be what they are today - a global television network delivered via broadband - they may have had a tougher time having success. In retrospect, I wish there had been a way for us to get a more simple conventional linear version of Scene TV up and running first, and then we could have progressed and eventually add the Electronic Sell Through (EST) aspects which we envisioned from the start. Our vision may have been too far out, but if we'd just gotten a more "understood" version of Scene TV up and running, we could have ultimately evolved into what we had originally envisioned, just like Netflix did. Damn, wish I’d met Reed Hastings way back when….

2. Do the big picture stuff right – Yes, it’s sexy and great media coverage to get the Big Picture stuff right. Netflix has done that in spades - - they’ve broken ground in the industry on several occasions, including when they started by delivering DVDs to your home, then switching their emphasis to electronic delivery of movies, then going big with original programming, and of course, their steady ambition to launch around the World as a global entertainment “network”. They’ve continued with their commitment (and over commitment) to original content, and have expanded their reach into territories all around the world with the same mantra. This is the big picture stuff, and it’s great.

3. Get the small picture stuff right too – the Not-So-Sexy small picture stuff is what Netflix also do very well. Netflix's success world-over is NOT just down to producing big ticket shows for the local audience (Yes, that's sexy as hell) or the big media and marketing campaigns that accompany them, but there are so many other technical "platform" specific operational aspects that are vitally important to sustainable success: e.g. Billing - need to have solid local relationships that allow for smooth and simple billing and payment; ISPs - get to know your local ISPs and Broadband providers, strike deals with them and even supply them with additional servers if necessary to help handle the added video traffic; Device Distribution - start getting yourself on devices, whether STBs or Smart TVs. So, in many ways we have to think of these “small” things in a big way. Give them such importance so that you won’t really walk away from them without thinking hard and applying the right resources. At the end of the day, the small things really aren’t that small, if accomplished correctly. That's how you erect barriers to entry.

4. Weaponize your culture - Culturize your weapons – It goes without saying that the weapons for a company are its people and pool of talent. The Netflix culture has been written about in multiple outlets, and most of us have been exposed to the well known Netflix Culture/Manifesto laid out by Hastings in a famous 124 slide deck. Here’s a very good analysis of the overall approach to human resources, written by an insider, their Chief Talent Officer for many years: https://hbr.org/2014/01/how-netflix-reinvented-hr . I think an overarching point that’s made throughout the article is that an organization must create a culture in which adults and professionals can act as such. The right people can be let loose to do, well, the right thing. IN turn, these folks, the “right stuff” so to speak, will be free to build that culture into a weapon itself. How exactly does “culture” act as a weapon? Well, a clear and powerful culture contributes greatly to the public positioning of a company’s product and services, it also gives tremendous leverage to a company within the trade. Powerful culture also drives efficiencies within the operation since everyone has a much clearer idea of what exactly is expected.

5. Stay on your toes (and Innovate while you’re at it) – well, it goes without saying that everyone, everywhere should figuratively stay on their toes. When it comes to a company, that is a lot easier to do when you’ve got a “weaponized culture”, as above. And staying on your toes means engendering two forces within the organization: (1) The people and the the company are always reaching upwards, and (2) the people/company are always striving to be nimble, dancing around like a boxer. Getting a company to stay on its toes can be made easier when there’s a formidable adversary present in a market that actually forces a company to stay on its toes. If you term “innovating” as the creation and execution of new ideas, well then the likelihood of accomplishing this consistently up and down (and left and right) in an organization will be greatly enhanced when the company is kept on its toes.

6. Infamy never hurt anybody… or did it? – It can pay off to be infamous, especially when you’re an industry leader (in some manner or another – market share, mind space, quality etc.). Being infamous in some way may even help you to become a leader! Certainly, Netflix has a good share of infamy, especially when it comes to its commitment to original content, which seems to be growing geometrically year on year. It’s also stuck with its gut instinct to retain “premium” pricing for the service, no matter the territory and even in the face of criticism for its offer of the same high pricing in a notoriously price sensitive (cheap!) market such as India. We gotta hand it to Netflix: they know who they are, and they are glumly and bluntly not deviating from it. Sure, they expect the strength of their brand to carry them forward (especially with a certain target demographic in India), but clearly they are comfortable being positioned as the “premium” SVOD service in India (US$8 per month), while the rest, including Amazon (about US$10 per year of Amazon Prime), will be fighting it out with each other with the same pricing. I don’t think this is necessarily unwise – Netflix must have set themselves realistic targets based on this strategy. If you compare them to a luxury auto brand in India, such as Mercedes, which in 2015 sold 13,500 cars of the 2,000,000 total units sold in India (that’s .675%), and apply the same penetration to Indian Pay TV HHs (120million), then you are looking at 810,000 subs or about US$6.5 million revenues per month, nearly US$80 million annually. Now, I know this is a stretch to compare the two brands from vastly different industries, and my logic is certainly not without flaws (e.g. 120m Pay TV HHs may not be the extent of their market when you include mobile users, HH consumption patterns, switching costs etc.), but it gives you an idea of what Netflix seems to be comfortable with, which I’d say is about a million subs resulting in about US$100 million per year in revenues from India. To reach the same revenues figures, Amazon Prime would have to have about 10x the number of subs, or 10 million. Now, given their massive e-commerce business and much larger commitment to the market, this figure may not be that hard to overcome. But without these Amazon advantages, any regular SVOD service in India will struggle to reach 10 million subs any time soon.

What are other impacts of being an infamous leader or “celebrity player” in the game at least? Being a “celebrity player” in the market allows the company to better define the way the game is played by everyone else, since so many stakeholders in the industry (such as regulatory, suppliers, consumers, competition etc.) will naturally look to and be influenced by the leader’s point of view. Being the “thought leader” can also lead to the rest of the pack mobilizing more efficiently, and actually gunning for you. It can’t be good to live with a bull’s-eye on your back, but I am sure Netflix would rather be the player setting the pace for the industry than the one playing catch up.