Ideas Post

WHAT NETFLIX NEEDS TO DO

Netflix stock fell 35% today. That is an enormous enormous drop. Sure, it might bounce from here but the drop was well deserved.

Netflix was the original powerful streaming service. It felt like nobody could beat it. They were spending over $10 billion a year on content to keep out competitors.

The problem is: that is chump change for Apple, Amazon, and even Disney, HBO, Hulu and others.

Right now, probably the most critically acclaimed show on TV is "Severance" on Apple TV. Not only a great story but a director/producer like Ben Stiller, and actors like Christopher Walken, John Turtorro, Patricia Arquette, etc.

Great content is a commodity. You can't buy a stock because of it.

But, to misquote Mark Twain, business history doesn't repeat but it rhymes. We've seen this story before and it gives clues as to what Netflix should do.

    1. 1980 HBO

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    HBO was the first premium cable service. You paid money, and you got to see movies without commercial breaks. Amazing!

    They also started having original content in the form of sports (particularly boxing) and later edgy TV shows they became famous for.

    2. But then they had competition

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    Showtime started, then the Movie Channel.

    Suddenly, paying money to see movies without commercials became a commodity. And Showtime even started showing boxing.

    Premium cable was becoming a commodity.

    3. HBO's solution

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    Don't compete.

    Instead, start another premium cable service that does the competition for you.

    HBO started Cinemax.

    4. Why Cinemax?

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    Cinemax was like HBO's baby sister.

    It was cheaper. And it didn't have newly released moves but instead had movies released between 1930 and 1960. It was cheaper, much cheaper, to buy those movies.

    Cinemax also started having more adult type tv shows. In fact, it was nicknamed "Skinemax".

    HBO, with their 20,000,000 subscribers, was able to bundle the two services. Suddenly, it was a better deal than what Showtime was offering.

    5. It worked and HBO remained the best

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    And it's not surprise that the people who were executives at HBO at the time ended up running almost all of the other media companies.

    Jerry Levin (who was CEO of HBO then), became the CEO of all of Time Warner for awhile.
    Michael Fuchs became CEO of HBO and later of Warner Music
    Frank Biondi because CEO of Viacom (MTV, Nickelodeon, Comedy Central, etc) and later Universal
    Matt Blank who was head of marketing at HBO became CEO across the street at Showtime.
    Chris Albrecht, who was head of original programming, is CEO of Starz.

    And on and on. Some execs of the old HBO are at Netflix, Amazon, etc.

    6. So what should Netflix do?

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    Netflix 2

    7. Make a new streaming service they can market it to their tens of millions of subscribers.

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    8. What would Netflix 2 look like? how would it differentiate itself?

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    - Perhaps shorter form content
    - perhaps all reality shows get moved to Netflix 2
    - maybe live, broadcast-style shows like news shows or business shows get put on Netflix 2.
    Broadcast style business shows or even stock picking shows are hugely popular but are only useful live so it's a different business model for Netflix. But, given their popularity, still make sense for a streaming service (like a Netflix 2).

    9. In other words, if you can't expland horizontally, expand vertically.

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    This is an important business concept. For Netflix to expand horizontally they would buy and produce more content, which can be very expensive if they are losing subscribers.

    Vertically means creating additional services that offer products that the streaming service currently doesn't provide. And the additional service means you have a new product that can be marketed to your subscibers.

    This is why magazine companies used to own many magazines. If you bought Time, you might as well also subscribe to Sports Illustrated because of the huge coupons for it you would see in Time. Time owned Sports ILlustrated (and People, and Life, etc).

    Uber doesn't expand vertically but the Chinese Uber, DiDi, does. they own gas stations for their cars, mechanics, and even some of the cars they own, unlike Uber.

    10. Important lesson

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    Netflix has even seen this before. This is how they beat out Blockbuster. First they competed with Blockbuster but then they split in two to also stream movies directly.

    Again business history doesn't repeat but it rhymes. They should use their own examples, plus historical examples like HBO to figure out their next steps.

    Else their stock wlll long-term go down

    Along with Facebook's, but for other reasons in that case.
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Comments (17)
kriscalulo89 @kriscalulo89
On top of the growing competitions that eat Netflix's market, I think they need to solve the issue with sharing passwords. I also agree with expanding vertically by introducing other businesses that complements the primary business.
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paolo @paolo
This would make for a great podcast episode!
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paolo @paolo
And send this to Netflix!!
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successplan1 @successplan1
How about twitch or Twitter style while watching movies or reality shows ect. Maybe like a webinar you can choose to chat or not.
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JamesAltucher @JamesAltucher
That's great. Like a Discord while you are watching.
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younes @younes
Interesting read! I think they have the technologies to do amazing stuff. They have been reinventing themselves many times. They may have needed a nudge, and the drop may just be what they needed.

It would be good to have a Netflix version for creators. Self-director low-budget videos, shows, etc. Maybe there is. Or maybe crowdsourcing shows, etc.
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MBurch @MBurch
How would that be different from YouTube?
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younes @younes
It may not be different initially, but they can innovate on top.
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Marmite_ @Marmite_
I agree with Younes. Netflix 2 could be user generated content i.e. short films produced by amateurs using the platform to improve their skills and gain recognition. Some moderation required to avoid trash. Maybe a monthly prize for the one voted the best by subscribers. Maybe a few interviews with the most successful teams. Netflix Shorts. Cutting edge, innovative and the stories would probably be very relevant to peoples' lives and impactful, in contrast to the nonsense of the major films produced today. For Netflix, the content is almost free.
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DSaaStr @DSaaStr
Almost all the major studios now have streaming services and, as they ramp up, they pull their stuff off Netflix. This will continue until all Netflix has is its increasingly weak original content.

Sony is probably the largest studio w/ the deepest catalog (and pockets) that is currently without a streaming service.

I think Netflix's best move might be to break off the platform from the production company and then sell the platform to Sony perhaps with some longish term deal to be able to use the platform to distribute their original productions.
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Collin @harnessmoney
So many great ideas in here. There are a lot of avenues that I think Reed has not pursued because Netflix did not need to, but I think the landscape has shifted. There is a lot more competition now.

Love the idea of Netflix 2.0.
- Netflix Sports
- Netflix Kids - think they might have this already. But make it standalone
- Netflix Reality - Basically Discovery - Vanderpump, Housewives, House Flipping, Dating, True Crime.
- Netflix Talk - All talk shows
- Netflix Heros - All superhero content
- Netflix News - Constant new coverage
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sambou @sambou
The most important thing Netflix can do is listen to their customers and actually care about what they have to say. There are so many things they can do to make it easier to use and easier to find content to view. It's like they live in a bubble and don't care about any feedback (not that you can submit feedback anyway). These companies get big and stop innovating and stop caring about their customers. I have no idea what Netflix cares about.
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PowerofTruth @PowerofTruth
There are a lot of things that Netflix could do but the real question is what will they do? They will either innovate or bite the dust just like Blockbuster did. Right now they're a brown cow and maybe, just maybe, with many of the suggestions above they could turn themselves into a purple cow.
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Janh28 @Janh28
I wonder if it's also a case of blue ocean vs red ocean. HBO started in a blue ocean. When it became more red (more competition) they created another blue ocean by adding another service and creating a better offer than their competition. But where's HBO now? Still around, but in my country they are a very small player in the streaming market.

I love Collin's ideas especially (I'd add Netflix University for learning), but since this is all 'on demand' content anyway, it doesn't really matter if there are other Netflix channels with different genres.

Right now, I use Spotify for music, Audible for audio books, Kindle for eBooks, YouTube for videos not produced by media companies, Spotify and Apple Podcasts for Podcasts, Netflix, Disney+ and Prime for video, is it time for a service that combines different streams of content?

Another thing that Netflix doesn't offer yet (at least in my country) is live content.

And they should use the 1% improvement rule to their entire process. Small changes can have a huge impact. Sambou has some great suggestions for them to start with!

Another idea is to make people exclusive to them, like Spotify did with Joe Rogan.

It's all about increasing your value / offer.
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drleeds @drleeds
They need more shows about people with powers. Everyone loves shows where the characters have superpowers.
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Interesting topic and ideas! Successplan1’s live commenting idea and also what Younes said gave me a similar idea. Some of commenting is like a movie review. How about a Netflix 2 that emphasizes reviews of its content? Maybe subscribers or critics could submit videos where they review content they like and why. YouTube has video reviews but they aren’t really tied to a streaming service. Critics or viewers don’t get any direct say in content choices or contribute content of their own. Maybe Netflix could also get really good at soliciting and collecting audience ratings —more than 1 to 5 stars, number of views, etc. The key ways they might differentiate themselves from content review services like Rotten Tomatoes or YouTube might be the reviews directly impacting what the service buys or keeps, or having more and better data and analytics. The viewers might like feeling more involved and filmmakers might like the feedback. And the service might make better decisions. The critical videos would be part of Netflix 2’s content. They could be criticized or commented on too. One big problem, though, is it could easily be imitated. But Netflix would have a first mover advantage. Maybe they might develop a brand identity as the service that appreciates critical content and gives viewer’s a say. Or they might be able to maintain a lead in doing the data work well or learning how to manage the whole thing or getting exclusive rights to the video reviews. Maybe they could get copyright protection? Another problem I know of is that viewer’s often aren’t interested in reading critical reviews, so even if they were different ( videos vs text, viewers vs critics, related to the service’s content, having a say…) they might not be popular. Maybe the service, with viewer’s help, could figure out why some reviews are more popular than others and promote the best ones somehow.
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