Since the value of Netflix’s share price began plummeting last November due to some numbers that seemed to portend an overly competitive market and a stagnated growth, the US subscription streaming company’s management has been mulling ways to regain traction, and they’ve now come up with a plan.
What’s the problem? As I indicated in my previous article on the subject, the people now making the decisions about Netflix’s fate are not those who founded it and made it what it is, but a second-generation management that also, to make matters worse, comes from the traditional industry, with the consequent culture clash.
The evidence is clear if we take a look at the decisions the company is taking, which are a radical departure: fighting password sharing, along with advertising for users in the lowest price bracket, and live content such as contests, comedy and the like. All of these measures may make sense in terms of the numbers, but they are a far cry from what defined Netflix and what its founder did when the management was in his hands.
Fighting password sharing? A significant percentage of your users are not paying for the service but using the passwords of others may be seen as accepting revenue loss for a company dedicated to streaming, but Reed Hastings’ view was always that this did not hurt the company in the long run, and instead attracted future paying users.
Advertising? If Netflix limits this to a certain group of users who agree to pay less, in return for being interrupted by ads, the impact may not be very high, but it’s certainly a departure from the traditional content-friendly culture that prevailed at the original Netflix. This is potentially a slippery slope: you start with “only for some users” and “only at the beginning of each episode”, and you end up sticking a cut in the middle of the key scene of a cult movie, or simply placing ads randomly like many traditional TV networks do.
Livestreaming? Sure, but again… the original Netflix claimed that this was not its terrain, and taught its subscribers to expect another type of content, more carefully selected, of higher quality. In fact, the main complaint of Netflix users today is not that it has increased its prices, but that it has done so in exchange for worse content, which clearly indicates a change about what kind of shows are now being produced.
Again, where’s the problem? Simply that Netflix’s strategy looks suspiciously much like what a traditional TV network looks like, which will likely end up turning Netflix into something very much like a traditional TV network. Let’s think about it: what was it that millions of users liked about Netflix as opposed to traditional TV networks? Netflix was different, very different from traditional TV channels. And why is Netflix’s future strategy now so similar to that of a traditional TV channel? Because the people who now manage the company come from… let’s guess… the traditional entertainment business!
As so often happens in industries, what we’re seeing here is isomorphism: the progressive mimicry by companies of their competitors, in this case, the rest of the entertainment sector. And that is a problem, because what many Netflix subscribers like myself liked about the service was that it was very different to traditional entertainment industry, whose way of doing things, moreover, we had been fed up with for some time.
We’ve seen isomorphism at work in technology companies: when founders retires, devoting themselves to other matters and abandons day-to-day management, they may be tempted to leave it in the hands of a second generation of managers, and make the terrible mistake of recruiting them not from among their own managers trained in the founding culture, but from the industry. From which industry? Precisely the one in which their company disrupted. As a consequence, the disruptive component is watered down, and the company increasingly converges towards traditional structures, until it ends like all the rest.
This is what almost did away with Apple under John Sculley, that turned Yahoo! into a caricature of itself with Terry Semel, or Google into a company that lost its motto and its identity under Eric Schmidt, all of them traditional managers of “traditional” companies. And now let’s put names and surnames inside Netflix: where does Ted Sarandos come from? From the traditional video store industry, which Netflix, among others, annihilated. And Bela Bajaria? From CBS, Warner Bros and Universal.
Why is Netflix going to look more and more like those companies? Frankly, it doesn’t seem hard to explain. Can’t we see a problem in entrusting the management of a disruptive company to such profiles?
In terms of innovation, this is a slow-motion train wreck.
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This post was previously published on Enrique Dans’ blog.
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