If you’re thinking about business, it’s easy to be inspired by Netflix.
Unless you’re in the movie/entertainment business, then Netflix is very scary for business. Much in the same way that Amazon is scary to retailers. It’s not just because user adoption of streaming services happened so fast (and created so much disruption and devastation to other business models along the way). If you stare at Netflix (or Amazon) really closely, it’s amazingly obvious what they’re doing from a business model perspective. Many believe these brands are so successful because as they grew, they built a moat around themselves that made it (somewhat) impossible for other to enter as competitors. This is true, but it’s not everything. What really happened with Netflix is that they built a business model around owning (mostly) everything, with an eye towards ensuring that they own every part of the supply and distribution channels to the consumer.
Over 45,000,000 reasons that demonstrate the “everything” business model.
Netflix is private is about their data, so the entire media world lost their minds last week when Netflix announced that over 45 million accounts watched the Sandra Bullock suspense/thriller/horror flick Bird Box within its first week of being on the streaming service. This is, according to Netflix, a record for one of its original films. That’s a number big enough to scare everyone in Hollywood (and beyond), especially when you consider that Netflix has over 137 million subscribers. Is it the number of accounts that watched the movie that is truly impressive? My friend (and analytics, digital marketing and artificial intelligence genius) Avinash Kaushik might call this a vanity metric. It’s a big number that looks impressive, but did it add economic value to the brand? What does this number really mean?
It means that Netflix now owns the cradle-to-the-grave relationship with its customers (and your business should too).
This is the big deal. If you break down the full Netflix business experience, it looks something like this:
- Content creation. The brand is creating it’s own, unique content that doesn’t rely on other producers or content creators.
- Content distribution. Because they own the distribution platform, Netflix controls and owns the entire distribution platform.
- Pricing. Netflix has become so big (and so important) to consumer’s entertainment experience, that they can shift the monthly fees up (slowly), and nobody balks.
- Define the data. Because Netflix doesn’t follow standard industry protocol, they define the data metrics. In this case, they’ve decided to lead with the idea that an “account” watching a movie is the key metric. They have also decided that this metric only counts if the account watched 70% of the total runtime of the film. They also state that an account is just one person, when in reality, many people may have watched the movie together from this one account. This is not the same as buying a ticket at a movie theatre.
- Self-reporting. Because there is no regulations, Netflix both self-reports this data (making it hard to validate), and also decides how much – and when – to do this… or if they even want to do it at all.
- Growth means valuable real estate. Why did this movie take off? It only scores a 65%+ on Rotten Tomatoes. Regardless of whether it’s a good or bad movie, Netflix owns a very important and influential piece of real estate: Their home screen. That top of fold piece of land on their homepage is not only theirs to do with it as they wish, but Netflix doesn’t run ads or rent those tiles out to anyone. They decide which movies get that pole position. This is a huge deal. Think about it: you can buy an ad or rent space on almost any other platform’s homepage (and this includes Amazon). Netflix decides and influences what shows and movies get this constant and repeated coveted marketing slot. Do those impressions, repetitions and auto-play trailers get people to watch? You bet they do.
- The cost of advertising is nothing. If they own everything above, and didn’t take out any billboards or traditional advertising, how much did it cost to promote Bird Box? Next to nothing. It ran as a trailer and held one of those coveted homepage tiles. Because of their popularity, they also get a ton of free PR from the trade publications and mainstream media.
- Remove the friction. This is Netflix’s true function. No need to go to a movie theatre (parking, babysitter, buying tickets, waiting in line, insane popcorn prices, etc…). No need to pay to own a download. No need to wait for a piece of content to be downloaded (and then stored) on a hard drive. Their vast swath of choices creates a “something for everyone” or “something for every mood” scenario that makes it hard to leave. It provides powerful convenience and customization. Don’t dismiss the power of removing friction.
- Success breeds success. This growth has attracted some incredible talent to Netflix. Who would have thought that movie power juggernauts like Martin Scorsese would agree to produce films for Netflix (instead of a major motion picture studio). This also leads to moments like Oscar contention, which keeps Netflix popular, and at the top of the industry.
- Reverse engineer. Netflix has been looking into buying physical movie theatres. Netflix also announced a few months back that they would give movie theatres exclusive rights to show some of its original films before they hit the small screen.
So many lessons. So many opportunities.
It’s easy to marvel at Netflix’s growth and how they operate as a business. The biggest opportunity is to go back and read through the list above, and compare it to how you run your business. Do you control your content? Can you shift from a one-time sale to a subscription model? Who controls the data and how your industry understands it? Can you create a new way to look at your data? As your brand grows, are you building valuable real estate along with it? So many little nuanced ways to think about business and new business models.
It’s easy to admire what Netflix had done. Take it, learn from it and apply it to your industry. That’s even more admirable.