Netflix’s recent announcement that it will sell Disney and CBS television exemplifies how Netflix is avoiding the major strategic error that can occur when a company stays the course in the face of a serious threat.
In Netflix’s case, that threat is easy to see: At some point down the road, we’ll all stop getting our movies in the mail in little red envelopes. Instead, we’ll download our movies directly onto personal computers, televisions or mobile devices such as an iPod or a phone.
The temptation for Netflix is to hang onto DVDs and little red envelopes as long as possible. That would be the sort of behavior that savaged Kodak and Polaroid, which held onto the notion that world of photography could continue to revolve around film and prints even as digital technologies took over, and that saw dozens of major retailers get swept aside because they were in denial about the threat from Wal-mart.
Instead, Netflix is preemptively trying to position itself as the intermediary that will let customers download films, TV shows and most anything else from whatever source.
Netflix has its work cut out for it. Netflix is moving into an adjacent market, with all the red flags raised by such a move. The company is making the move because of trouble in its core market–one of the main indicators of failure that our research raised about adjacency moves. Netflix may also find that the market for TV shows is very different from the market for movies–we’re used to paying for movies but not for TV shows. Finally, Netflix may be overestimating its hold on customers–just because they get movies in the mail from Netflix doesn’t necessarily mean they want Netflix, or anyone else, to be an intermediary online when it comes to downloading video.
Still, the move to offer TV shows seems to carry little expense. And it demonstrates that Netflix is well aware of its precarious position and is experimenting with business models that would let it maintain its relevance in a world without red envelopes. At least for now, Netflix seems to pursuing the wise course.
