Netflix is Playing for the Endgame


Every now and then, the business world presents us with a lab experiment that we can observe in realtime. Netflix's announcement that it is splitting off its DVD-by-mail business from its streaming business is just such an experiment. The DVD business will now go by the name Qwikster, and the streaming business will stay under the Netflix brand. It is Clayton Christensen's innovator's dilemma incarnate, and Netflix is very publicly trying to solve it. Like its 60% price increase did earlier this year, this move is understandably causing consternation amongst some customers. It's a bold move, one that will cost them in the near term, but Netflix I'm sure has done the calculus and is looking at the endgame 5-10 years out, not 5-10 months.

In his blog post about the split, Hastings says:

"For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something — like AOL dial-up or Borders bookstores — do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly."

Hastings goes on to acknowledge, "It is possible we are moving too fast — it is hard to say." This is frank admission of the complexity of the strategic landscape. The media content and distribution business is in a period of massive flux, and while we can say with near certainty what the end state will be, near-term predictions are hard to make.

About five years ago I did this somewhat tongue-in-cheek "timeline" of pivot points for a client in the TV business:


Half-jokingly it made the point that there is a giant hairball of complexity, consolidation and confusion that the industry is going to have to go through, but if you can survive that, the obvious end state will be that any piece of media will be available whenever an individual wants, wherever they are, on any device they like. (We're about half way through the hairball at this point with DVD Rental vs Video-on-Demand being the current pivot point. I over-estimated the speeds at which changes would settle out, but it was never meant to be a precise timeline, just directional.)

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Photo by Jason Kempin/Getty Images for Sunshine Sachs

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