Netflix, once the great disruptor, is now taking ideas from the industry it upended to jumpstart growth
PUBLISHED TUE, JUN 14 202210:38 AM EDT
UPDATED WED, JUN 15 20221:41 PM EDT
Alex Sherman @SHERMAN4949
CNBC.com
KEY POINTS
-- Netflix is considering pivoting toward how old media does business as it looks to reinvigorate growth.
-- The company’s shares have fallen about 70% this year.
-- Netflix has held several core tenets throughout its streaming existence that executives are now rethinking.
In the foreword to Hamilton Helmer’s “ 7 Powers: The Foundations of Business Strategy,” published in 2016, Netflix co-founder and co-CEO Reed Hastings describes what happens when market leaders don’t adjust to new competitive forces.
“Throughout my business career, I have often observed powerful incumbents, once lauded for their business acumen, failing to adjust to a new competitive reality,” Hastings writes. “The result is always a stunning fall from grace.”
Six years later, Hastings finds himself in the role of an incumbent that has, for the moment, experienced a stunning fall from grace. Netflix shares have fallen more than 70% year to date. The company announced in April it expects to lose 2 million subscribers in the second quarter. Investors have sold in droves as they question the size of the total addressable streaming market — a number Netflix has previously said could be as high as 800 million. As of the latest count, Netflix has about 222 million global subscribers.
Netflix executives are now reflecting on how they failed to adjust to a new competitive reality, one which was masked by massive subscriber gains during the Covid pandemic when billions of people around the world were stuck at home. While the company has consistently churned out big hits, such as “Stranger Things” and “Squid Game,” Netflix is rethinking many of the philosophies that disrupted the industry more than a decade ago.
The change in strategy, even on the margins, is a surprising one for a company best known for disrupting two industries — first video rental and then cable TV. Instead of inventing new ways to upend what’s become a crowded streaming video industry, Netflix is reconsidering nearly all of the ways it stood out from legacy media companies in the first place.
In other words, Hastings has decided his best strategy now is to un-disrupt.
“It’s notable that Netflix is seeking growth by rethinking many of its firmly held beliefs,” said Joel Mier, Netflix’s director of marketing from 1999 to 2006 and a lecturer in marketing at the University of Richmond. “These decisions will clearly help revenue and subscriber growth in the short- to mid-term. The larger question is how they will impact the firm’s brand over the long-term.”
Netflix declined to comment.
Embracing advertising
Hastings has long proclaimed Netflix’s aversion to advertising is due to the added complexity of the business.
“Advertising looks easy until you get in it,” Hastings said in 2020. “Then you realize you have to rip that revenue away from other places because the total ad market isn’t growing, and in fact right now it’s shrinking. It’s hand-to-hand combat to get people to spend less on, you know, ABC and to spend more on Netflix. We went public 20 years ago at about a dollar a share, and now we’re [more than] $500. So I would say our subscription-focused strategy’s worked pretty well.”
Netflix is no longer more than $500 a share. It closed at $169.69 on Monday.
Since making that comment in 2020, Hastings has watched other streaming services, including Warner Bros. Discovery’s HBO Max, NBCUniversal’s Peacock and Paramount Global’s Paramount+, launch lower-priced services with ads without a consumer backlash. Disney plans to unveil a cheaper ad-supported Disney+ later this year.
Netflix considers ads, password sharing crackdown, live sports (cnbc.com) |
