We don’t like change, but humans are nothing if not adaptable.
Every time a company does something bold, out of the box, we all hate it (see my Hulu article). When they refuse to compromise, they can live or die by these decisions. The iPhone was widely panned for taking away the physical keyboard, then the headphone jack, and recently the home button. But nature and Blockbuster have shown us that refusing to change is a surefire way to lose.
Netflix pivots without apology
Netflix was the first streaming video provider and is still considered the frontrunner in the industry. They are poised to stay there because they can adapt.
Those of us who have been around a while remember when the service launched in 2007. Netflix wanted to select which movie I’d receive and make me wait a few days for it to show up in the mail. Many people scoffed, “Why not just run down to the Blockbuster on the corner?” But we learned that planning could pay off, and convenience was worth a price. Netflix learned what we like to watch and how to build one of the most powerful algorithms in the business.
The summer of 2011, they pivoted again. Splitting the streaming and disc business amounted to a 60% price hike, and subscribers cried out and rushed for the door. But we decided that the convenience was worth the price and streaming was worth the lag and bumps.
After determining that there wasn’t enough good content on the market, Netflix decided to jump into the production business. House of Cards launched in 2013 as a Netflix original. We learned what “binge-watch” meant and changed our mindset about a weekly debut schedule for new shows.
Competitors could make it hard for Netflix to stay on top
Are they poised to remain the industry leader with Vue, Crackle, Hulu, and Amazon snapping at their heels? Streaming services are common in 2017, and competitors have established their own content production. Content producers like HBO and CBS have moved into the streaming space.
Even with all this encroachment on their territory, Netflix is uniquely positioned to stay on top.
Netflix has massive market power, the name recognition of ten years of high-quality service and a subscriber base of 104 million people. They moved into content production before the production services figured out how to enter the streaming market. And they have that one thing that no one else has – the algorithm.
Don’t get me wrong. In order to succeed, Netflix has some pretty big barriers to conquer.
There are a lot of competitors, but Netflix diversified
There’s no question that Netflix is the king of the streaming-video providers, with a service that reaches more than 104 million users in over 200 countries.
Netflix used its massive market power and considerable piggy bank to land Disney. It didn’t last, but the experiment was successful enough that Disney decided to pull out and start their own service. The fact that Disney chose Netflix and now has their own in the works is proof of the massive market power that Netflix holds.
With a market cap in the $60 billion range, Netflix is in the same league as 21st Century Fox and Time Warner. That gives them enough cash to bid on new projects and outbid other companies for Sundance indie projects, adding to the hit shows that drive their subscribers to binge watch an entire season in a day.
Netflix has remained dominant in the US, but they didn’t stop there. Expanding worldwide has given them a leg up. Diversifying their content ownership and expanding globally gives them a broader subscriber base and lowers the risk factor of a competitor stealing their business.
Amazon plans to take over the world, but Netflix is focused on its niche
If anyone can unseat Netflix as the premier streaming service, it’s going to be Amazon. They have a strong market position, and Bezos is determined to bring convenience to the household in every way. As an example, mimicking Netflix, Amazon has changed our mindset from running to the grocery store to pick things up to creating a list and having it delivered to the house.
Netflix proved to us that convenience is a valuable commodity. Amazon has an opening now that cord cutting is scattering subscribers to the wind. Who wants to manage 15 different account names and search 15 different platforms and have to have an app just to watch TV?
Amazon has a history of stepping in when things get complex and making it easier. For a small price. Think Prime. Yes, Costco had us all accustomed to paying a fee just to shop there, but Prime took it to a new level. Pay us a fee, they said, and we’ll give you everything you ever wanted in two days. Or immediately.
Services are producing content, but Netflix has cash to burn
If you were to look at Netflix as solely a video on demand provider, you might have reservations about their ability to meet market expectations with future subscriber growth and margin expansions. After all, Amazon is expanding Prime Video internationally and has even deeper pockets than Netflix. They’re expected to spend $5 billion on content this year.
Although Hulu and HBO may give Netflix a run for their money on content, Netflix has a unique position with established contracts with the movie and TV studios as well as enough cash to pour into expensive projects and is expected to spend at least $6 billion in content this year (and $8 billion in 2018). The company recently announced a price hike that will allow them to invest liberally in new projects.
Lots of services stream, but Netflix negotiated downloads
Services like HBO, Hulu, and Crackle do not allow downloads. Netflix negotiated tricky licensing agreements to offer as much of their library for download as they could. Amazon is the only service with a broad enough library to compete, but their download platforms are much more limited than the broad capabilities of Netflix’s Apple iOS or Android devices and computers or tablets running Windows 10.
Netflix will come out ahead if they keep adapting
Netflix has stayed on top by constantly innovating and giving consumers what they want before they even know they want it. It’s a strategy that’s followed by the best of tech companies.
Netflix’s recent price hike leads me to believe they’ve got another trick up their sleeves. I’m waiting for them to show me the next feature that I didn’t even know I was missing.
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