I have been a moviegoer since childhood. Movies were pure escapism that allowed me to imaginatively travel to different places and different times to vicariously experience the larger world of which I was a citizen. I became an aficionado of Netflix in the early 2000s when I was living in Denver. I rarely went to a movie theatre, but became enthralled with the idea that movies could be delivered regularly to my home where I could keep them for several days before returning them in the mail. So it was with great interest that I watched Netflix vs. the World, which describes the company’s origins and its amazing financial trajectory into the 21st century.
Netflix’s initial niche strategy was to mail DVDs to your home, thus avoiding the trips and late fees associated with Blockbuster Video, a giant in the video rental business and their major competitor. Marc Randolph and Reed Hastings were the visionaries who transformed their little DVD rental company into the major player in the movie streaming business, which changed the way most people enjoyed the cinema experience. A good deal of the film describes the conflict between Netflix and Blockbuster, with Blockbuster eventually not surviving. To be privy to the executive thinking of top management of Blockbuster as it tried to stay afloat financially in the face of an aggressive and savvy competitor is a lesson in economics that is worth contemplating.
Once Netflix won the battle of dominance in the DVD rental arena, they became a financial powerhouse that could also dominate the next technological frontier in the entertainment industry: digital streaming of movies and developing its own original content. The watershed moment was its successful production of House of Cards, a series that debuted in 2013.
Bob Diener, author of Biblical Secrets to Business Success and founder of Hotels.com, writes about entrepreneurship and the ingredients for starting a successful business, ingredients that were part of the management DNA of Netflix founders Randolph and Hastings. First, Diener recommends doing your homework. Make sure you understand all the issues and take nothing for granted. Second, have a high level of customer service. In Biblical terms, he says “love your neighbor as yourself” (Leviticus 19:18) refers to putting yourself in the shoes of the customers and treating them the way you desire to be treated. Super customer service almost inevitably leads to building a long-term customer base. Third, when making a mistake, admit it to your customers. Hiding a problem will lead to erosion of the customer’s belief in the company’s honesty and integrity.
These basic pillars of a quality company were evident in the way Netflix management dealt with problematic issues. For example, before launching their own DVD rental service, they did their homework. They investigated the Blockbuster operation to determine what they could do to challenge their dominance. One area that emerged was the large amount of movie choices that they could make available through the mail, not relying on brick and mortar stores. Another area that highlighted Blockbusters’ vulnerability was the issue of late fees, a major irritant to Blockbuster patrons. By sending DVDs through the mail and allowing customers to keep the DVDs for long periods of time, the major irritant of late fees was removed for Netflix users. Moreover, the convenience of home delivery of DVDs to one’s home mailbox was extremely attractive. No more trips to the store and waiting in line to check out.
What is impressive about the Netflix story is the total commitment of the founders and management to create a new paradigm for the consumption of mass entertainment. Indeed, a guiding light for them was the idea that they were providing people with enjoyable entertainment and that was a worthy goal. In many ways, there were ahead of the curve. Because of that, they were able to chart their own distinctive path rather than merely respond to the challenges of others.