It was very recently announced that the percentage of Americans who subscribe to Netflix is now equal to the number that subscribe to cable TV services. To understand what has made Netflix so successful, let’s first consider the following story often told by Gary Burnison, the CEO of Korn/Ferry.
Imagine you are a typical 9-year-old kid in Kansas who is experiencing a typical long, hot, summer day. In the distance are towering cloud columns that, over time, blanket the afternoon sun. The kid knows exactly what is coming in one-two hours. Namely, you will begin to feel a cool breeze in the air, followed by the blackening of the sky. The cool breeze will give way to an eerie calmness. The animals in the grassy field nearby will start to scamper to the barn. The kid knows it won’t be long until there is loud thunder, lightning, a torrential downpour, and maybe even a tornado. He also knows you don’t just stand and watch. You move into action, making sure things are put away and the animals are safe.
Getting back to reality, Blockbuster opened their first store in 1985, renting movies for VHS tape players. It experienced explosive growth as it provided consumers with a very inexpensive and convenient way to watch a movie. Ten years later, in 1995, “towering cloud columns” appeared on Blockbuster’s horizon. First DVD’s were invented. In 1997 a new company, Netflix, began offering movies on DVD discs, delivered by mail, even though only 7% of households had a DVD player at that time. Unlike the young Kansas boy, Blockbuster ignored the warning signs. They just kept opening stores. By 2004, Blockbuster had 9,000 stores and 60,000 employees. On the other hand, their business was weak because now 70% of households had DVD players and Netflix annual revenue exceeded $500M.
By 2007, even though most households didn’t have adequately robust Wi-Fi service, some did and were starting to stream video on their PC and TV. Netflix observed this and immediately began exploring the world of digital streaming of movies, while watching without concern the rapid decline of its once dominant DVD by mail business. Netflix’s movie-streaming business was a huge, instant success. Not surprising, in 2010 Blockbuster filed bankruptcy.
In 2013, Netflix began to experiment with producing its own television shows and offering them via its streaming service. Traditional media stood by and simply watched Netflix emerge as a very important player with some huge programming winners such as House of Cards and Orange is the New Black. In fact, in 2016, Netflix released 126 original series or films, more than any other network or cable channel.
Stepping back, the leader of Netflix has repeatedly done exactly what the 9-year-old in Kansas did. He noticed what was coming and didn’t wait to get pounded.
The learning is obvious. The skillful leader makes sure the organization watches carefully for the trends that signal opportunities and vulnerabilities and then puts in place the plans to get out in front. Actually, it’s not that hard. After all, that’s what the 9-year-old did!
