Netflix — once David, now Goliath
Netflix used to be the small fry that was up against Blockbuster, the greedy villain who extorted money from their customers through late fees. At the time, Netflix seemed like the underdog that everyone was rooting for. It was convenient —walking to the mailbox for a red envelope is less work than driving to the nearest Blockbuster. It was abundant — unlike Blockbuster’s brick-and-mortar store that had a physical limit to their movie inventory, Netflix had an expansive catalog of movies to choose from. It was generous — or at least, that’s how it felt to my family because there weren’t any penalties for holding on to DVDs through Netflix. Away with the shameful walk into Blockbuster to then pay penance by forking over your money. Netflix was founded in 1997 and 13 years later, was valued at $203 billion. Blockbuster has now one remaining physical store in Bend, Oregon. To add salt to the wound, you can watch a documentary about it called “The Last Blockbuster” on Netflix.
Blockbuster made some fatal assumptions.
#1. It assumed that the technological trends toward online streaming weren’t a problem to be prioritized — something that Netflix foresaw and spearheaded. Furthermore, Netflix, now an online streaming service, began to create its own content with “House of Cards”, “Ozark”, “Stranger Things” and “Squid Game”, pushing the boundaries of production beyond movie and television studios.
#2. It assumed that customers would remain loyal to the company despite the late fees that everyone detested. You had to pay $1 for each day you were late on your rental return. In 2000, that accumulated to about $800 million for Blockbuster, 16% of its revenue. So now the company was financially incentivized to make a profit in a way that frankly pissed your customers off.
#3. It assumed that convenience wasn’t important to customers. If you think about it, we had to go to Blockbuster but Netflix came to us. In red envelopes and eventually, our own computers.
Now, about 20 years after its conception, Netflix isn’t looking so hot. Netflix shares have fallen more than 70 percent since November 2021. It lost 200,000 subscribers in its first quarter when its goal was to add 2.5 million new members. How are they responding to this crisis?
- They fired about 25 people from their marketing department (which marks their second attempt at restructuring in the past three years).
- They announced that they’ll be cracking down on password sharing outside of households.
- They have plans on releasing a plan that includes advertisements.
- And they are getting into gaming.
In the footsteps of Blockbuster, what are some harmful assumptions that Netflix is making right now?
#1. They assume that we are going to be fine with them cracking down on password sharing.
I hate to break it to them but I’ve been password sharing since our family had a Netflix account. I mean, can you blame us? Netflix once tweeted in 2017 that “Love is sharing a password”. So sue me for loving my friends (but don’t actually — I have student and bootcamp debt to pay off). This approach smells dangerously close to Blockbuster’s late fees.
#2. They assume that other streaming services aren’t a serious threat.
In their quarterly letter in 2019, they stated that they were more concerned about the gaming industry than other streaming services. This could be true. After all, the gaming industry is a very lucrative field — especially with the rise of e-sports. I don’t know the research they may have done on this and so perhaps, they’re right. After all, one of the hallmarks of Netflix is their innovation. However, they should also see that their competitors are to be taken seriously. Other streaming services like Disney Plus and HBO Max are poaching potential subscribers and perhaps, even more frightening, their content. It used to be that Netflix had everything. That was part of what made them unique, desirable. That’s no longer true — Friends is on HBO Max, The Office is on Peacock, all the Marvel and Disney movies are on Disney Plus. And now you have even cheaper subscription services with top-notch quality content — ahem, Apple TV with their $4.99 monthly subscription plan and Emmy-famous Ted Lasso and Oscar-winning CODA. Without a sure footing in the gaming industry, Netflix has to acknowledge and address that there is some real creative competition coming from the other streaming services.
I could be just melodramatic but it seems like Netflix is losing its edge. And unless they ask the right questions, we might be saying goodbye.