"Neither Redbox or Netflix are even on the radar screen in terms of competition."

Jim Keyes, who was at the time CEO of Blockbuster--which was, at the time, in business--famously uttered these words about a nuisance of a foe to his entrenched and doomed leader in the video rental space. With a tone of condescension tough to mask, Keyes all but assured Blockbuster's fate.

As it turns out, when you have everything, you also have everything to lose.

He made two mistakes in one prophetic sentence. He overestimated Blockbuster's ability to adapt to the shifting sands of technology and consumer habits. And, he underestimated Netflix's ability to do just that. Alone, each mistake could have proven fatal. Made together, Blockbuster's cockpit was filled with smoke. Game over.

Blockbuster would not be the last representative of the establishment to underestimate Netflix. Today, the video streaming service with the simple red logo, crafted with just the slightest crown-like arc to its form, pipes video entertainment, including it's own first run series, to more than 50 million U.S. households. In the first quarter of 2017, Netflix officially overtook traditional cable. Reporting numbers that simply would not have been believed a few years ago, Leichtman Research found Netflix with 50.85 million subscribers, while the top cable providers claim just 48.61 million.

Remarkable.

Ironically, this is a run that almost wasn't.

In the early 2000's, Netflix founder and CEO Reed Hastings offered the DVD by mail shop to Blockbuster CEO John Antioco for $50M. He declined. Today, Netflix's market cap is in the neighborhood of $65B. Billions are greater than millions. Bad move John.

So, being left without a suitor, Netflix simply went on one of the more innovative runs in American commerce history, executing a series of strategic pivots that not only rode the wave of consumer behavior and habits, but changed the way video entertainment consumers behaved.

Changing behavior with innovation is a category reserved for only the select few in the history books of American tech. Microsoft surmised that personal computing would be just that, personal, and made software available to the masses. Apple created a new market by designing and building devices in form factors non-existent just years before. Google re-imagined how we discover anything, and became not only a noun but a verb.

Netflix, through a series of pivots away from its DVD rental model, changed how we are entertained. Here's a chronicle of those shifts and how each changed the game.

Pivot:

From one-off rentals to subscription

Why It Was a Game Changer:

Netflix started as a DVD rental operation delivered through the mail, but in 1999 changed to a subscription billing model with unlimited films for one monthly price. This shift created a new expectation from consumers and as their subscriber base grew, allowed Netflix to build a less lumpy, more predictable revenue stream. Today, subscription revenue is the golden goose.

Pivot:

Netflix bets big on streaming and non-TV devices

Why It Was a Game Changer:

In 2007, Netflix was able to see, really before any of the other major players the consumer trend towards long form videos viewed on devices. Their suite of apps allowed their subscribers to watch content on phones, tablets, and gaming devices. And, this move alone may have forged the early paths towards smart TVs. Customers voted with their wallets, as subscriber numbers grew to over 20 million in under 3 years.

Pivot:

An entire season at once

Why It Was a Game Changer:

Serialized TV had always been consumed week to week. Always. But, with this move, Netflix created a new behavior. Binge watching. Soon to follow, Netflix and chill.

Pivot:

Original content

Why It Was a Game Changer:

In 2012, Netflix released its debut original "Lilyhammer" to little fanfare. Undeterred, they released a slew of original shows in 2013, including the storied "House of Cards." Netflix proved that original content could be produced and exist outside the major networks. The entertainment industry piled on with wildly successful shows like Breaking Bad (AMC), Justified (FX), and Game of Thrones (HBO). Many describe today's creative yield as the golden age of television, thanks in no small part to this Netflix game changer.

The traditional cable conglomerates appear to be next. It was only 10 years ago when the wide, 500 channel cable bundle was sold as a feature. But, for today's consumer, it appears bloated, wed to an already outdated distribution model. Cable is clearly trying to adjust with heavy investments in on-demand technology, but one wonders if they've pulled a "Blockbuster," assuming finicky consumers would remain tethered to their gas guzzler.

The traditional ad business seems to be doing the best job of adjusting on the fly. As consumers shift away from ad-based broadcasts, ad dollars have quickly shifted away from networks and towards social platforms and unique product placements. Netflix, again, influencing behavior and habits.

And, so here we are, Netflix continues its ascent. Is their innovative run slowing? Can they continue to literally change the manner in which we behave?

We shall see. They appear to be approaching something close to a summit. Can they innovate at that altitude? From that perch, there's usually only one way to fall.

When you have everything, you also have everything to lose.

Your move again, Netflix.

Published on: Jun 22, 2017
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