Netflix: Winning in 21st Century Media

How Netflix is winning in the unpredictable and fast changing landscape of 21st century media.

 

Netflix has successfully disrupted not one but two industries. When Netflix was founded in 1997, it was only a “DVD by Mail” rental service. The value proposition did not challenge movies and basic/cable television like today but rather business like Blockbuster, the ubiquitous and popular video rental chain that was forced to file for bankruptcy in 2010. But in 2007, the company entered a new territory entirely by offering streaming services. Suddenly, a huge catalogue of films and television shows were available on demand for a small price.

 

Creating Value

Today, Netflix is winning by creating value for the consumer who wants to be able to view content in non-traditional and traditional ways. The customer gets a catalogue of film and television, including original premium content, available on multiple platforms at any time with a customized and curated aggregation method by using big data analytics. The following are some examples of what Netflix does to create value for this customer.

 

Content

It is able to give its customers a highly curated landscape of media, especially with niche original content, for a low price and without having to plan in advance. Furthermore, Netflix has taken advantage of “the long tail” theory, which basically suggests that there is demand for many different kinds of content such that a typical “mass market” retailer would not be able to offer in one place. Netflix can give customers very popular and much more niche all in one place.(http://www.huffingtonpost.co.uk/christopher-goodfellow/netflixs-long-tail-is-for_b_4716228.html) Netflix has also successfully entered different geographies by focusing on local language content for the territory. For example, they offer dubbing and subtitles on most of the content. Additionally, they have as much as 20% of “local language” content available. (https://www.wired.com/2016/04/saw-future-netflix-japanese-reality-show/)

Furthermore, Netflix now competes directly with premium cable offerings like HBO and Showtime by offering their own original content. Their first series, House of Cards, was just the beginning of developing a varied and popular stable of content of their own.

 

Accessibility

Netflix was one of the first, if not the first, streaming content services to be ubiquitous in availability to reliably across on traditional television screens, computer, and mobile. Though not entirely, it solves for the problem we saw in the Samsung case the other day about a consumer who wants to experience content on any device and time agnostic. Furthermore, it caters to consumers who have completely different media consumption habits than previous generations. For example, the “cutting the cord” behavior in the cable television industry where consumers no longer want to pay for channels they do not use or for live television at all. Netflix offers a solution for customers who choose to go OTT (Over the Top) and depend only on a wi-fi connection.

 

Curation

Netflix’s data analytics and algorithm have been improving over time to make navigating the catalogue much simpler as well customizable. Netflix started working seriously on its algorithm to predict user ratings on films when they announced the Netflix Prize, which gave a million dollars to the team who was able to build something better than Netflix’s software. By focusing on this area very early on, Netflix has been able to help customers feel excited, not overwhelmed, by all the options available. Furthermore, it saves the hassle of “channel flipping” or searching guides when the algorithm is able to learn from a consumer’s viewing habits and suggests new content for the user to discover.

 

 

Capturing Value

Netflix captures value by charging only 7.99 for streaming a month. This grants the user access to a huge catalogue of streaming content and now downloadable content. They used to focus purely on licensing huge catalogues of content from the available players. However, as they’ve moved from licensee to content creators, they have opportunities to reduce costs of licensing and bargaining as their content continues to succeed. They will continue to capture value by building scale and volume by bringing the same value proposition to global audiences.

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4 thoughts on “Netflix: Winning in 21st Century Media

  1. Great post – thank you! I think the biggest change that Netflix has caused in the industry (which you touched on) is the shift in viewing patterns of its users. Namely on-demand viewing and binge-watching. No longer do people want to be told when they can watch something, leading to chord cutting and a decrease in theater attendance. And the binge-watching phenomenon, as well as Netflix’s investment in A-list talent, has lead to an explosion of high quality television. It will be interesting to see how this affects the type and length of content created in the future.

  2. Thank you for the post on a company that’s survived a digital transformation itself. The point around curating original content is going to become even more important going forward. Much like Netflix, Amazon Prime can offer on-demand content for the OTT crowd and has expertise in building recommender algorithms; the only way for Netflix to differentiate is to have content Prime doesn’t have.

    On a related note, I’m curious to see how the competition between Prime and Netflix plays out. I’d lean in the direction of saying that Prime has a stronger value proposition since it is packaged with free 2-day shipping on Amazon purchases. When I think about my purchasing decisions, however, I purchased both and never really thought of it as a choice; Prime is my package delivery service that happens to come with streaming content while Netflix is my streaming content service.

  3. Hi…the title says it all. Netflix certainly is the new age media enabling customers to watch content at their will and of their will. As you rightly pointed out their next growth area would be from global markets. However, it remains to be seen whether they focus more on local content in each market that they expand into or provide global content as well. Are there any regulatory challenges in showing U.S. shows in let’s say India where some of the American shows are still not available on the Indian IP address.

  4. Thanks for this post on Netflix. While they clearly disrupted the traditional television and movie rental markets, I am a little skeptical about whether they are winning. On-demand content is a crowded space now. Attracting subscribers has forced all of the players to splurge on original content. I wonder if Netflix’s balance sheet would look different when their off-balance sheet commitments come up for payment. While international expansion seems logical, entering markets with weak copyright laws is difficult – why pay Netflix when you can watch online for free? I think one of two things will happen going forward – either Netflix will disrupt itself (again) to survive, or it will get acquired by someone who enjoys more economies of scale. For now, the on-demand industry is a hot battlefield with no clear winners.

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