How Netflix Continues to Remain ‘The King’ of Online Streaming, yet is Dominating Hollywood
A Deep Dive Into The Innovative Nature Of Netflix
Innovation and Entrepreneurship (Enterprise) are two different terms with varying definitions. Nevertheless, there is however a relationship between innovation and entrepreneurship, which sometimes may lead to confusion. The key difference between innovation and entrepreneurship is that invention means creating something new. This could be a concept, a commodity, a pattern, or a function. On the other hand, creativity is making a great idea of a business opportunity. Entrepreneurship continues with creativity. There is a risk involved in entrepreneurship that is not part of creativity.
If you don’t know, (but let’s face it… we all know) Netflix, Inc. is an American media service provider and production company with headquarters in Los Gatos, California, founded in 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California. The primary business of the group is its subscription-based streaming service, which offers access to online streaming and an extensive library of films and television shows, including those produced in-house. As of April 2019, Netflix has received more than 148 million subscribers worldwide, with 60 million in the United States, and a total of more than 154 million rentals, plus free trials. It is available worldwide except in mainland China (because of local restrictions), Syria North Korea, and Crimea (as a result of US sanctions).
An innovation that is significant to Netflix and will help compete against competitors is working with other companies. In November 2019, Netflix and Nickelodeon announced that they have signed a new multi-year distribution agreement for children and families throughout the world to produce original animated feature films and television shows based on both the Nickelodeon character library and the all-new IP. It indicates an extension of the company’s ongoing relationship which has already brought many popular titles to Netflix, including animated Rocko’s Modern Life specials: Static Cling and Invader Zim: Join the Florpus. Specials centered on The Loud House and Rise of the Teenage Mutant Ninja Turtles are also forthcoming. While the deal has not been put into action yet as it has been recently signed, it can be said that this deal will boost Netflix sales since Nickelodeon has been a popular company for decades and is loved by many people as they grew up on shows produced by Nickelodeon, resulting in a nostalgic feeling, which may lead to more people signing up for the service to see how the new content possibly ties in with previously released content.
“Nickelodeon’s next step forward is to keep expanding beyond linear platforms, and our broader content partnership with Netflix is a key path toward that goal,” said Brian Robbins, President at Nickelodeon.
This innovation will also help Netflix compete against competitors, especially new competitors such as Disney+ because it will give them an advantage over the variety of content each streaming service has, especially since Disney is taking down Disney-owned content from other platforms to put on their own. Therefore, it might attract more customers to the streaming service and also help with customers remaining loyal to the company due to exclusive content.
Besides, Netflix is continuing its innovation by expanding into a production company in producing original content as well as receiving critical acclaim, being recognized as a major production company. Recently, Netflix received 112 nominations for the Emmy award, mostly from every network or streaming service, toppling HBO which had accumulated the most nominations for 17 years. ‘Roma’’s success in both theatrical and online environments, such as streaming services, can be attributed to several factors: its widescreen architecture, its Dolby Atmos sound processing, it’s 70 mm projection in some theatres, and its many accolades (including 10 nominations for the Academy Award). Nevertheless, the popularity of Netflix’s Roma novel release model shows that audiences are no longer able to distinguish between large screens and small screens in their film making and other streaming platforms taking this step, this indicates that this style of market and film release model is here to remain.
For the 2020 Academy Awards, Netflix received 24 nominations, more than any other Hollywood studio. “The Irishman” received 10 nominations, including Best Picture, Director (Martin Scorsese), Actor in a Supporting Role (Al Pacino and Joe Pesci), Adapted Screenplay (Steven Zaillian), and Visual Effects. Another Netflix movie, “Marriage Story,” received six nominations — Best Picture, Actor in a Leading Role (Adam Driver), Actress in a Leading Role (Scarlett Johansson), Actress in a Supporting Role (Laura Dern), Original Screenplay (Noah Baumbach) and Original Score (Randy Newman). Other Netflix films with nominations include “The Two Popes,” “I Lost My Body” and “Klaus.” This innovation enables further success for Netflix because as a result, the company gets further respect and recognition as a company but also as a production company. This recognition allows Netflix to work with famous names because famous actors and actresses such as Al Pacino and Scarlett Johansson will see that Netflix is taking its role seriously and leads to them wanting to work with them. After all, they produce quality content and would want to be associated with it, thus helping both the famous names associated and Netflix gain widespread recognition, allowing Netflix to further their success.
Furthermore, in terms of the streaming service, Netflix’s attempt to innovate in terms of presentation and content reaching wider audiences has been successful. In December 2016, a big user interface update was introduced, replacing static poster images with personalized demo videos that play automatically as you swipe over a title card. The overhaul, which included a mixture of imagination and research into data science, allows Netflix’s viewers to find serendipitously what they need to see rather than check their catalog and ask if something is worth browsing. Additionally, Through multi-armed bandit algorithms, Netflix introduced Artwork Personalisation to appeal to different consumers. Netflix looked for the best title artwork, for example, Netflix Original Series ‘Stranger Things’, that would gain the most from the greatest fraction of Netflix’s subscribers. Nevertheless, given the enormous variety of tastes and preferences, Netflix wanted to find unique works of art that appealed to each particular consumer. This innovation has been successful for Netflix since the personalization of the artwork helps attract consumers to different genres that they might have not previously considered watching movies from those genres and one way that is possible is for example, including artwork featuring specific actors or adapting the artwork to the genres that the consumer usually watches so that they are more inclined to click on the film or show. This is one way Netflix measures success, by the amount of watched hours, so if more consumers watch certain TV shows and films, especially original content produced by Netflix, this will determine business decisions and also impact their success as a company.
Netflix decided to divide its business into two services, Netflix–for online streaming and Qwikster–to continue the DVD rental service with which Netflix originally began. Netflix had said it would have to manage two separate queues for its customers who used both Qwikster and streaming. Some subscribers complained that this would only make matters worse since it would make them work harder. But presumably, with some basic computer programming, Netflix might have found a relatively easy way to streamline that process. Due to criticism and because nobody wanted to buy and use the service, the service was shut down a week after launch. Customers who chose both services would have had to pay for several different packages, each starting at $7.99, or $15.98 for the combination, instead of charging $10 a month for DVD rentals and unlimited on-demand streaming. “With this move, Netflix will no longer offer unlimited plans that include both streaming and mail-ordered DVDs,” unceremoniously revealed Netflix in a July 12 statement. At first, the stock increased to an all-time closing rate of $42.68, with investors attracting additional revenue per subscriber the move could produce. For more than two years the stock would not be hitting that point again. Subscribers communicated their dissatisfaction over having the DVD rentals withdrawn from the convenience of on-demand streaming that attracted them to Netflix. The dual plans amounted to a price hike of 60 percent. The transition did nothing at all to calm down customers, and Netflix canceled service plans less than a month later, leaving the DVD and streaming plans separate.
“There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case,” Hastings said in a statement.
In the third quarter of 2011, the total ordeal cost the company about 800,000 US subscribers its first decline in years. Therefore, for years on, the planned rate increases made investors apprehensive.
One of the benefits of Netflix’s innovation is that the service is on a global level and there is unlimited access to the service. The packed library is accessible to most members with some constraints due to legal restrictions in certain areas. Since it is web-based, this means that users can stream content from anywhere in the world they can connect to the internet. On top of that, the platform is now working on almost every device on the market. Netflix has partnered with numerous device makers to make its services available to as many people as possible in a variety of different ways. Set-top boxes such as Roku, blue-ray players, smart TVs, game consoles such as X-Box, PlayStation, and Wii or others with internet connection all support Netflix applications. This means that Netflix will be able to reach wider audiences, leading to a larger amount of subscribers for the business which will result in more revenue and recognition for the company on an international level. This is a long term benefit as once Netflix reaches international audiences, subscribers will be more attracted to the service, so if the service were to be stopped in other countries, there would be a higher demand for it, and with a larger audience, the company would have to listen to consumer feedback. Therefore, it can be said that this benefit is arguably significant as it goes against certain competitors in the sense that their services are limited at the moment, for example, Disney+.
Besides, another benefit of Netflix’s innovation is its subscriber model, which proceeds to give the company a good reputation and one of the most popular choices for a streaming service. The lack of advertising is an advantage of the subscription model for both the business and consumers. Since the organization does not need to increase advertising sales revenue, it saves money by not having to fund an advertising sales team, consumers benefit from free commercial viewing. While the apparent results are somewhat pleasant, a variety of unintended effects are changing the very structure of the entertainment industry. One is that content creators are no longer bound to the 30-minute/60-minute timeframe of conventional television, and the other is that they no longer need to write in a style while watching weekly. This means that the transition in how content is made, how it is distributed, and how the audience uses it is also causing other sectors to shift. When Netflix rises in cable domination, TV and film producers all need to make changes to keep up. Not only are cable providers forced to fight for streaming rights, but they must also create new content and deliver on-demand to the consumer in the way that consumers now demand. Additionally, the introduction of full seasons in chains allows the company to save money where other content producers can not. The conventional method of releasing the show involves pilots, of the hundreds of pilots, made every year only a dozen or so will become shows, and many of them fail in just a few years. This leads to Netflix looking for compelling content and leasing it for the entire season. Therefore, It dispenses with the pilot process, choosing its data in terms of what executives think is going to boost viewership. Thus, it can be said this is also a significant benefit to Netflix’s innovation because the company’s good reputation makes consumers see that they are a reliable company and will make customers inclined to remain with the streaming service regardless of competitors.
However, with benefits, it also comes with risks. One risk for example is rising content costs. The capability for higher content costs has recently been demonstrated by the $100 million that Netflix allegedly paid to renew its’ Friends’ license by the later part of 2019 — up from the $30 million it had originally paid. But it’s not just developing or acquiring content that requires a significant amount of money to run — it’s also making sure the content is visible. This means that as Netflix expands its global expansion next year, the costs of starting and marketing content could also increase. As Pivotal pointed out in a recent research note, Netflix has a share of $19 billion in spending on content — and with Netflix still taking a loss, it needs to show that it can keep growing users at a rate that is proportional with spending. Therefore, increased costs could lead to higher subscription prices which have already been put into place, this could lead to more subscribers leaving the service as they might no longer be able to afford the service and instead transfer to significantly cheaper competitors.
Another risk to Netflix’s innovation is increasing competition. A few streaming services are being released to rival Netflix such as Apple’s ‘AppleTV+’ and HBO’s ‘HBO Max’. But according to analysts, it is Disney’s ‘Disney+’ that poses the greatest risk. Disney’s streaming service, officially named Disney+, arrived in November of 2019 — and its formidable content library could prove compelling to many streamers. It is now to be the exclusive home of Disney movies and shows, as well as content from Marvel, Pixar, Star Wars, and National Geographic. As a result of new streaming services, this means that competitors such as Disney will begin to pull content from streaming services such as Netflix which could result in a loss of 20% of their catalog. This could result in subscribers switching to other services for that specific content. Therefore, losing their competitive edge over other competitors and companies.
Looking at the risks and advantages Netflix has taken, It is evident that the advantages outweigh the risks due to the success that the company has had with its current advantages such as the subscriber model which in return had made Netflix one of the top companies but also one of the most reputable companies in the world. This means that positive feedback and reactions have enabled Netflix to be able to expand on a global level, leading to the opportunity to be able to offer more content as a result of the demand for the streaming service. However, with the risks, while they may have an impact on the company in the short term, it can be argued that they are easily fixable if some changes are made in Netflix’s disruptive business model as well as the methods they use to manage their service and content. It can be said that taking these risks has somewhat been worth it for the business. This is because Netflix has increased funding for their original content, while it may be more costly for consumers and the company, it enables the company to produce high-quality content which helps consumers remain with the business as they know they are getting their money’s worth and are paying a good amount of money for quality content. Also, with competition taking away streaming rights, this puts Netflix in a tough position, however, this could push them in a different creative direction as they may be able to produce more original content and sign deals with other companies to produce this content. This could lead to a higher amount of original content, which could result in more content for the streaming service, replacing lost content. This could also work with changes in the market, adapting content to different audiences internationally, such as producing more original content that can be understood by different groups of people such as content in different languages. At the moment there is a shortage of content on Netflix available in different languages. To stay ahead and innovate further, they could produce a larger amount of content in other languages. This could then lead to more subscribers as well as stay ahead of other competitors because currently, Netflix is the only streaming service that offers original content in languages other than English. If they continued to produce more content that does this, they could attract larger audiences and be more relatable to international audiences on a global scope.
Therefore, Netflix can be considered one of the most innovative companies in the world. This is due to how they paved the way for other streaming services and how that innovation has enabled them to also be considered a production company and not just a streaming service. This is evident by the number of awards and nominations they have received as a production company in major award ceremonies such as the Academy Awards, Golden Globes, BAFTA, and Emmy’s. Also how they adapted technology to help relate to audiences and garner more as a result. I think that the way they are evolving, especially by producing original content in different languages and it being popular amongst many audiences around the world, even those who don’t speak the original language the show was filmed in has helped them remain on top as one of the largest streaming services and production companies in the world and being a member of the FAANG group of top companies. However, they could improve by dedicating some of the investments they put into new content into current content as Netflix releases a large number of titles in a short period. If they instead focused on current projects, they could earn themselves more awards and nominations to help them remain a reputable company while also increasing the quality of their content. If they continue to innovate and invest in the production company and streaming service by investing time and money into new technologies that can enable customer experience to reach higher levels such as the Artwork Personalisation technology, ‘Binge-Watching’ format and interactive content such as ‘Black Mirror: Bandersnatch’, they will manage to beat competitors in the future and remain one of the top streaming platforms in the world.
