A recent article in The New York Times looks at the many reasons why Netflix should scare media titans. In the article, technology writer Farhad Manjoo compared Netflix’s journey in the media space to that of Amazon’s in retail—a company that transformed the industry with its audacious strategy. If you’re in the media industry, your castles aren’t safe as long as Netflix is around, says Manjoo.
The article is another reminder of Netflix’s impressive last few years. The company has been able to transform itself from a struggling DVD-delivery company into an Emmy-winning, innovative media juggernaut. Established industry giants can’t afford to overlook the growing threat posed by Netflix.
Here’s a look at three factors driving the success of Netflix and why they matter to the media business.
Netflix is everywhere.
In early 2016, Netflix CEO Reed Hastings announced that the company’s service is now available to 190 countries—expanding its reach by 130 new countries. (China is the big exception, but the company is working on launching in that market, which could happen as soon as later 2016.) That expansion will surely boost Netflix’s subscriber numbers, which, as of September 2015, stood at around 69 million globally.
Netflix’s reach is still small compared to many media giants, but its ubiquity should be a concern. In the last few weeks, for instance, it has become impossible to avoid online conversations about the Netflix crime documentary Making a Murderer. Other Netflix originals like Orange is the New Black and House of Cards also receive a lot of online buzz. More crucially, the company has become so popular with younger consumers that it has entered the millennial/Gen Z lexicon in the form of the popular euphemism “Netflix and chill.” In the same way that Google and Uber have become common verbs that people use in their lives, Netflix’s cultural impact is starting to be felt everywhere.
Investors are patient.
Netflix stock rose 140 percent in 2015—outperforming all other stocks in the S&P 500. And as the Times article points out, investors are giving Netflix leeway “to spend huge sums to build a globe-spanning video jukebox available to anyone” in the same way that Amazon was able to build its retail machine. While Amazon invested in warehouses to strengthen its position in retail, Netflix is focusing on original content. The company plans to produce 600 hours of original programming this year, doubling what it created in 2015.
With its expanded programming, Netflix is in a position to increase its subscriber base and eat away more ratings and market share from the traditional players.
It has a massive amount of intelligence about its customers.
The biggest reason Netflix is disruptive is because of its massive amount of data and knowledge about its customers.
“Like Amazon, it is amassing a cache of intelligence on what customers want, and it’s using that data to create content that appeals to a wide range of demographics globally,” writes Marjoo. Ted Sarandos, chief content officer at Netflix, argued at this year’s Consumer Electronics Show that the company’s business model and data allow it to create shows that audiences won’t see on traditional TV.
“Like Amazon, it is amassing a cache of intelligence on what customers want, and it’s using that data to create content that appeals to a wide range of demographics globally.”
Indeed, the massive amount of data it has about its customers is allowing Netflix to make big, calculated risks. In 2014, for instance, it signed an unprecedented deal with Adam Sandler for a string of original movies—a move that many studios might consider too risky given Sandler’s hit-or-miss performance in the box office.
“People love Adam’s films on Netflix and often watch them again and again,” Sarandos said at that time about the deal. “His appeal spans across viewers of all ages — everybody has a favorite movie, everyone has a favorite line — not just in the U.S. but all over the world.”
Netflix had the right hunch: The Ridiculous 6, the first film in its deal with Sandler, immediately became the most watched movie on Netflix within the first 30 days of its availability. (The company also famously greenlit House of Cards without seeing a pilot because of user data predicting the success of the series.)
The company’s acumen in customer insight could spell trouble for many established media and entertainment companies—many of which continue to see declining audiences.
As the Times points out, media executives need to ponder this scary—but crucial—question: “What if Netflix is the Amazon of the entertainment industry—the embodiment of a slow, expensive, high-risk effort to consume the entirety of your business?”
Fending off Netflix’s impressive momentum will be a huge challenge for media giants in the next few years. Companies must learn from this growing giant and invest in tools that will allow them to better understand their audience. Only by becoming as audience-centric as Netflix will media titans protect their own turf in an increasingly crowded industry.