Netflix Ain’t Chillin’

Netflix logoWhat do Netflix and “The Godfather” have in common?

Both showcase visionary brands that have succeeded with unorthodox methods.

In Netflix’s case, to paraphrase Mario Puzo, keep your friends close and your competitors on the payroll.

Wait – what?

Most business leaders aim to pre-empt competitors or to steal business from them, not to pay them.

But not Reed Hastings at Netflix.

Insight Gives Birth to a Brand

In 1992, Bruce Springsteen crooned:

“…Man came by to hook up my cable TV
We settled in for the night my baby and me
We switched ’round and ’round ’til half-past dawn
There was fifty-seven channels and nothin’ on”

-Bruce Springsteen, “57 Channels (and Nothin’ On)”

Five years later Reed Hastings and Marc Randolph founded Netflix on the insight expressed recently by their Chief Content Officer Ted Sarandos:

“…consumers have been at the mercy of others when it comes to television. The shows and movies they want to watch are subject to business models they do not understand and do not care about. All they know is frustration.”

Maybe Bruce inspired them? Maybe their own frustration lit a bulb over their heads?

Whatever their inspiration, Hastings has been leading Netflix to provide on-demand entertainment ever since.

Initially the delivery of on-demand entertainment was physical, mailing requested DVDs to subscribers, eliminating their need to leave the house. By the time Blockbuster executives woke up from their glossy-eyed fascination with the video-rental-store model, it was already on its way out.

Netflix Shifts To Streaming

Though Netflix led with DVD mailings, Hastings claims to have known from early on that delivery would eventually be over the internet.  Having beaten Blockbuster to establish its brand as the on-demand entertainment solution, Netflix launched its streaming service in 2007.

Netflix focused on streaming movies at first. But the year-long delay in access to movies after their theatrical run and the limited distribution rights shifted their focus to television. HBO and AMC were developing original content dramas like The Sopranos and Mad Men that drew big audiences but did not lend themselves easily to syndication.

From their DVD rental experience, Netflix executives knew that subscribers often rented an entire season of “The Sopranos” at once, so they put the first four seasons online. Binge-watching took off.

Television networks were eager to license their shows to Netflix for the additional revenue.  Since no one had asked for “streaming on-demand video” rights before, there was no established market value for them. Netflix obtained the rights for little money.

For a while the networks were happy with this “found money.” Netflix was happy to have the content to attract subscribers. And the shows themselves benefitted.

Vince Gilligan, creator of “Breaking Bad,” said that once Netflix put the first three seasons of the show online “It really kicked our viewership into high gear.”

That effect grew Netflix’s influence.  It also woke the networks up to how Netflix was quickly becoming a competitor.

But like Blockbuster, this realization came too late. By now the networks depended on Netflix revenue to plug deficits left by shrinking audiences.  They also realized how valuable the streaming rights were and began demanding much higher fees.

So here Netflix was paying their competitors while also at their mercy for content.

Visionaries that they were, Hastings and Sarandos could see that the networks’ realization would lead them to stream their own content and that the days of inexpensive streaming rights were over.

At 15 years old, Netflix had hit its brand adolescence.

Brand Adolescence Prompts Business Model Adjustment

In 2012 Sarandos argued that the brand’s future depended on supplying at least some of its own content. He dove into the new world of producing original content and began buying shows like “House of Cards” and “Orange is the New Black.”

With their growing portfolio of exclusive shows, Netflix finally has something that subscribers couldn’t get anywhere else.  I’d say their brand adolescence looks bright.

Netflix’s journey has thrived from their clarity of purpose, their ability to envision the future and their knack for flying under competitors’ radar until they gained critical mass.

Not unlike the Corleones’ business in “The Godfather.”

When was the last time you revisited your brand’s purpose, studied up on current trends and spent time envisioning what your industry will look like in the future?

Maybe Netflix’s story seems extreme to you, but brands in every industry need to evolve to remain relevant.

So the real question is:  will your brand be your industry’s Netflix or its Blockbuster/sinking-network-of-your-choice?

I’m not suggesting that you’ll necessarily need to pay your competitors.

But without a view of where your brand is going…you risk being made an offer you can’t refuse.

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