I've written a couple posts in the past on Netflix:
NetFlix backtracks, but did they do enough?
Who is Dumber? Bank of America, NetFlix or Bell Canada?
Where Netflix messed up (what happens when you ignore PR)
As you can tell from the titles of my blog entries, it's no surprise that I'm not surprised by the spectacular unravelling of Netflix over the past year.
If you are interested in Netflix I'd suggesting reading a great article that overviews what is going wrong with the company - Why The Netflix Death Spiral Is Imminent.
Netflix has made the biggest mistake a start-up can make - assuming that bigger is better. In a 'content is king' world, they've made the assumption that it's worth paying one-billion dollars to stream television shows from the CW network. They also are paying 30-million per movie to stream Dreamworks movies.
This is 'fields of dreams' type of behavior - don't worry about how much you spend, just build it and they will come.
The problem with this model is that it's totally the opposite of how a start-up should grow.
Look, when Netflix content was crap to start with people came. People were looking for an 'entertainment' alternative to their $100-a-month cable television package.
So when Netflix started jacking up prices (which is clear now why they had to do this, when you're paying a billion here and 30 million there) they attempted to grow based on faulty logic - that being that their customers were looking for more and more content from television.
It was a giant miscalculation and reading of who their customers are. Sure, their customers won't complain about getting 90210 on Netflix, but they will be seriously pissed off if suddenly they are paying twice as much BECAUSE Netflix paid CW a billion dollars to stream shows like 90210. This is the cable company model, we'll just keep throwing more and more food on your plate (most of which you won't eat) and charge you more for it.
Anyway, Netflix lost 800,000 subscribers in the third quarter. It still has over 20 million subscribers though.
Here's how Netflix can stop this downward death spiral it is in:
- Think like a start-up. This means, money DOES matter. You have to do more with less. You've built an amazing content delivery channel, now figure out how to make it better without spending billions (on to my next point....)
- Leverage Internet media (BE DISRUPTIVE). All start-ups have to be disruptive to breakout. There is TONS of amazing content on the internet that would charge Netflix absolutely nothing for the opportunity to stream to their viewers. Off the top of my head:
- The Real News Network
- The Young Turks
- Yahoo Finance TV
- Current TV
- RussiaToday
That's just a few outlets, there are hundreds of others that offer tons of news and entertainment. Point being, Netflix, while offering tradition offerings, could easily incorporate an 'emerging media' or 'Internet media' section and leverage all these organizations that are challenging traditional media.
- To the above point, by offering (selective) second-tier outlets a place on Netflix this then puts the fear of God in to the top-tier providers and they start worrying about Netflix being a channel that promotes their competition. This in turn brings top-tier providers to the table at a reasonable cost.
- Also, offer / leverage live streaming content. Think of Occupy Wall Street. Imagine how cool Netflix subscribers would find it if they could tune in to live streams of OWS. Yes, they can already do this on the internet, but 99 per cent don't know they can (and probably wouldn't even if they knew how), and yet a lot probably would watch if only for a minute or two if it were accessible on Netflix. If it were part of their entertainment hub, then it becomes valuable content.
- Netflix needs to change its tagline from "Watch tv shows online" to something like "Connecting you to a world of Entertainment and Information". It's not about 90210, it's about interesting content. As long as the content is interesting, people will pay.
This is how a start-up should think, leveraging trends and the competitive landscape to generate a relevance to consumers (in a b2c model anyway).
My basic point is this, somewhere along the way Netflix started to see itself as an online variant of blockbuster and / or traditional television.
OK, fine, that worked when the price was 7.99 - it doesn't work now. The model is broken when you have to spend a billion dollars to get content from one network.
What Netflix needs to do is redefine it's mission. It's mission should be to deliver content to viewers that they are willing to pay for. Simple as that. Their strength is that they've got the viewers (at least 20 million anyway), they've got the delivery mechanism (Netflix)... now all they need is growing, evolving content.
Some might argue 'But who wants Internet content? People can just go to YouTube and find it.'
Wrong. That's another Netflix potential strength. Most people do not spend hours and hours searching for interesting Internet content. They find out about it when friends tell them about something they saw online. Also, even when they know it's there, most people are not going to sit at their PC every day to watch it.
Netflix is perfectly positioned to deliver that 'convenience' offering...bringing people interesting content they never even knew existed. Now obviously, shows that don't end up with a lot of viewers you drop from rotation, over time building up a quality rotation of Internet-based media that people enjoy (remember, this is costing them nothing to do).
Not to mention, with the integration (and promotion) of Internet-based media Netflix becomes a major acquisition target for Google in my opinion (or even Apple if Apple goes hard in to TV). But as long as they are only streaming traditional media (just like Hulu and others) I don't see why Google or Apple would want to acquire them (because as we are seeing, the content model doesn't work when you have to pay 30M per movie that you stream to your customers).
Right now Internet media is all over the place. Every outfit is doing their own thing. Netflix could so easily become the outlet for these properties... then suddenly their viewers are getting movies, television AND all kinds of new and interesting content - from news, to comedy, to music.
And that's all Netflix customers really want... to be informed and/or entertained. That's it. Now, you don't toss up crappy content from the Internet, but there are tons of Internet outlets now that are not crappy. They don't have multi-million dollar budgets, but they are still very well done.
So there you have it, why I still think Netflix could become the powerhouse people once thought it would be. But it has to change its vision and mission, it has to change its narrative, and it has to stop trying to be an 800-pound gorilla and start trying to be a cheetah.
Start acting like a start-up and Netflix can still save its brand. Keep acting like a bloated, know-it-all big shot tech company where money is no object and the skies the limit and watch this stock crash to zero over the next couple of years.
(Oh and on a side note, what's happening to Netflix is twice as absurd when you consider that for those that partake in P2P downloading, every television show and movie from every cable network or hollywood producer is available for free off bit torrent mere hours after it appears on television. But that's a different discussion, as most people want to pay for content and are uneasy downloading 'pirated' content (rightly so - pirated content is bad - people should be smacked when they download off bit torrent =)). So it's not a competitive threat to Netflix today... but the Internet, specifically P2P, will ultimately destroy the revenues of all traditional content providers.)
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