Netflix: The Best of the Decade

On November 24^th, Taylor Swift was recognized as the Artist of the Decade by the American Music Awards.  If a similar award was given to a firm in the video streaming industry it would have to go to its pioneer, Netflix.  At the start of the last decade, Netflix had 12 million subscribers, all in the U.S., and most of them consuming video content on DVDs received in the mail.  Just one year into the decade, Netflix had expanded into Canada, grew its subscriber base to 20 million, and began delivering a majority of its licensed content over the internet instead of through the postal system. 

With the floodgates opened, Netflix would spend the rest of the decade adding award-winning content to its platform and scaling across the globe.  It will end the decade with nearly 160 million subscribers in over 190 countries.  It will end the decade with more of its content being created exclusively for Netflix viewers.  It will end the decade being ten-times more profitable than what it was at the start.  It will end the decade, however, with having to face new competitive threats from former business partners. 

While sticking to its core competency proved to be the right strategic move for Netflix over the past ten years, will it continue to be going forward?  Afterall, the market entrants are no small fries.  They are legends that spent most of the last decade a bit complacent and unwilling to adapt to changing consumer taste preferences   But, that is now a thing of the past.  The disruption to Netflix and the broader industry is coming from content providers going direct to consumer with their own offerings, bypassing content aggregators like cable and satellite providers.  Leading the charge is a re-energized, re-focused Disney.

Since the inception of cable TV, the success of broadcasters (e.g. ABC, CBS, NBC) and cable networks (e.g. ESPN, HBO, Discovery) was tethered to the rise in popularity among households to pay for a bundle of channels delivered to their television set via a cable box or satellite transmission. At its peak in 2009, 100 million households subscribed.  However, fed-up with rising prices for these fat channel bundles, households began cutting the cord early in the decade.  As broadband technology improved and more streaming services (e.g. Hulu, Amazon Prime) became available, cord-cutting accelerated.  The decade will end with less than 88 million U.S. households subscribing to payTV.

For Disney and the other content owners, the challenge is and will continue to be how to hold onto their lucrative relationships with payTV operators (for now) while building out their own competing platforms.  While it is uncertain how consumers will respond to unbundled, somewhat customizable choices for how they allocate their screen time, Disney is primed to be a favorite among consumers and the “one to beat” among its competitors in the decade ahead.  Its success will derive from its extensive content library and theatrical dominance combined with recent acquisitions (e.g. BAMTech and Fox) and product launches (ESPN+ and Disney+).  Its success, however, won’t come easy and cheap.  Disney will have to fiercely compete with the likes of Comcast, ViacomCBS, AT&T (Time Warner), and, yes, Netflix to attract and maintain subscribers.  It will have to spend a lot of money on content creation.  It will have to/want to acquire content by scooping up smaller, fringe firms that have found it difficult to sustain profitability on their own with insufficient scale and consumer loyalty.  In ten years, expect that the video streaming market is much bigger and dominated by the same handful of giant firms (including Netflix) that control the big screen.  Stay tuned!