What the Rise of Netflix Has Taught Us About Business

Amidst all the action, a company called Netflix emerged in California. The business plan was simple: you order a movie, they send the DVD to you in the mail, then you return it once you’re done. This process notably eliminated the need to drive to your nearest movie store for rentals, much as Amazon has made it possible to get nearly anything to your porch with no effort.

A not-so-Blockbuster decision

Speaking of movie rental stores, Blockbuster once had the chance to purchase Netflix. But Blockbuster’s CEO, John Antioco, wasn’t impressed by the offer from Netflix CEO Reed Hastings, even at the reasonable price of $50 million.

“I remembered getting on a plane, I think sometime in 2000, with Reed and Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco,” recalled Barry McCarthy, a former executive. “Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office. At least initially, they thought we were a very small niche business.”

Not long after Antioco rebuffed Netflix’s multiple offers, Blockbuster plummeted in relevance and revenue, with its final movie rental taking place in 2013. That rental was appropriately titled “This is the End.”

Building a thriving business

Netflix, on the other hand, has been on a rocket-propelled trajectory for the past 2 decades. They have faced bumps in the road (anyone remember Quickster?), but clearly, something powerful is happening. And it shows no signs of stopping in 2019.

“This is shaping up to be a breakout year for Netflix,” says the Harvard Business Review. “On January 22, the former DVD-rental company became the seventh member of Motion Picture Association of America. That same day, it received 14 Oscar nominations, more than it had received in all its prior years combined. And on Sunday night, it had arguably its biggest night ever, by winning four Oscars — tying it with Disney, Fox, and Universal for the most Oscar wins by a major studio in 2019. In just over a month, Netflix solidified its position as an insider in the theatrical business in every way.”

After this unprecedented splash at the Oscars, many are wondering how the company has managed to attract so many subscribers and stake a major claim in the film industry while avoiding the time-honored tradition of the theatrical release. The answer lies in the diverse ways Netflix is disrupting the industry.

Here are a few notable examples:

1. The benefits of bundling products

One secret to Netflix’s success has been the “bundling” approach. Rather than trying to sell an individual movie to hordes of customers, as studios must do, they offer a wide array of options to each customer.

When products are bundled, the risk decreases. For example, if the bundle included Weekend at Bernie’s, it’d be okay if you thought the movie was stupid and a waste of time because the bundle would likely include multiple titles you would love.

“Not every consumer assigns the same values to the individual movies in the bundle, but in a large bundle that doesn’t matter: the differences in the individual values average out,” explains the Harvard Business Review. “If a seller can accurately predict the average value a subscriber is willing to pay for all the movies in the bundle, then it can set a price just slightly below that value and extract the maximum value possible from its audience.”

2. The power of data

Another critical arrow in the Netflix quiver is big data. All those metrics and algorithms are more than just wizardry to impress shareholders. They’re a window into 125 million homes, allowing the company to cater its product offerings in a way most businesses would kill for.

Armed with data, Netflix has upended the traditional way of creating and dispersing content. Television pilots are obsolete on their platform. Binge-watching has become a tradition. And Netflix has shown that your industry’s history should never hold you back. In fact, even your own successful decisions shouldn’t be viewed as sacred. Instead, use data to spur something new. And then do it again, again, and again.

3. The focus on culture

Most companies talk about culture, but Netflix obsesses over it. As noted by the Harvard Business Review, they “think just as rigorously about people and culture as they do about digital streaming and content.”

The company has a manifesto, listed on its website simply as “Netflix Culture,” offering a glimpse into how the company strives to empower its people for maximum impact in the world. Highlights include:

• You make wise decisions despite ambiguity
• You identify root causes and get beyond treating symptoms
• You are good at using data to inform your intuition
• You listen well and seek to understand before reacting
• You seek alternate perspectives
• You make tough decisions without agonizing
• You take smart risks and are open to possible failure
• You make time to help colleagues
• You share information openly and proactively
• You only say things about fellow employees that you say to their face
• You admit mistakes freely and openly

While the company’s manifesto has received praise for its clarity and direction, it is also bound by the same data-driven focus, so you can plan on it evolving endlessly. As the document profoundly asserts: “We do not seek to preserve our culture — we seek to improve it.”

What the future holds for Netflix

Outside observers are quick to point out the positive effects of Netflix’s original content. Even when it’s not scoring Oscars, the company is creating quality products that viewers watch with reckless abandon. Add in the aftershock effect of rewatching your favorite shows after you’ve already binge-watched them, and it’s clear Netflix has invented a sustainable model.

As observed by The Motley Fool, “that strategy has been a success, and there’s every reason to expect the company’s growth to continue.”