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Writer's pictureDr. Marvilano

Is Netflix destroying itself with a lazy strategy? How to save Netflix


Strategy is about being different

In the GOSPEL of Strategy, I emphasized many times why your strategy must make you different than others if you want to win. I also keep repeating it in this blog. Until one of my readers asked me: "Why do you keep repeating the same thing?"


Gee… I know I am repeating the same message over and over again. But this is for two reasons. First, I believe a message must be repeated many times for the message to stick in people's minds. In fact, repetition is one of the most powerful learning tricks (as well as one of the most powerful marketing tricks).


The second reason, companies – even the big ones – keep forgetting about the importance of being different. Let's take a look at Netflix's newest strategy.


Netflix's newest move isn't its smartest one
Netflix's newest move isn't its smartest one

Netflix Photo from Unsplash.com


Netflix's Newest Strategy…

After its first loss in subscribers in 10 years, Netflix recently changed its strategy. It introduces a cheaper service, but with advertising. The reason is to win back subscribers. They think it is a good strategy: "We're pleased with the interest from both consumers and the advertising community and couldn't be more excited about what's ahead."


Violation of what makes Netflix successful in the first place

But hey, don't we all know that a winning strategy is all about being different and doing what others cannot do? So how can offering advertising become your new strategy? If anything, it makes it more difficult to distinguish Netflix from its competitors.


The Netflix of old become so successful because of its difference. It beat the cable companies precisely because their fees were high and ads were too many. Cable companies' customers who were fed up with overpaying and endless ads go to Netflix instead.


As the cable companies were losing customers, they were forced to prop up their P&L with even higher fees and more ads – pushing even more customers to switch to Netflix. Netflix won because it offered something no one else could.


Remember when no one else doing streaming and Netflix moved from mail delivery to streaming? It was a bold, inspiring move that cemented Netflix's position as the leading streaming player. Again, Netflix won by offering something that no one else did.


But now Netflix is making the same mistake as the old cable companies. Recently, Netflix has been increasing its subscription fees, launching a clamp down on password sharing, and introducing ads. As a result, it becomes more and more similar to its competitors.


Why would Netflix take a suicide move like this? Lazy thinking!


Short-term pressures can make smart executives do stupid things

Over the past decade, Netflix has been a growth machine that attracted investors. But its success has also attracted fierce competition (Amazon Prime, Apple TV, Disney+, and HBO Max) and slowed down growth.


As growth slows down, investors are panicking and executives are trying to find ways to improve profitability (that's what mature companies do – if you cannot grow fast, you increase your profitability).


So, the easy way out is to milk the existing customers by introducing ads. After all, ads are a big market, and Morgan Stanley has predicted up to $3bn from ads by 2026.


But, you know what, ads aren't differentiating you. Everyone can offer ads. Here, Netflix is transforming itself to become more like its competitors. As I said: easy way out, lazy thinking.


In strategy, the idea of looking at your competitors is not to copy them (i.e., what are they doing that we still haven't done). The reason you are looking at your competitors is to find something they cannot do but you can.



What should Netflix do to turn this around?

Differentiating itself (i.e., offering customers something they cannot get elsewhere) is the answer. For example, Netflix can consider these three things:


Unique Original Production

Although competitors may have a much more extensive catalog and own some of the most desirable franchises, Netflix can win by offering unique series. After all, Netflix is already leading the market with many hit shows such as Squid Game, Money Heist, Dark, and Lupin. Netflix should double down on this strength by producing more hit shows or partnering with entities that have hit shows.


Differentiating with Local Contents

Most of Netflix's competitors cater to the American market. But the world is big. Netflix can start differentiating via local content. Hollywood is not the only one out there – there are hundreds of flourishing film industries in the world – from Aussiewood, Bollywood, Cantonwood, Dhallywood, …, to Zollywood.


Find Additional Growth Engine

This is the realm of corporate strategy. When your current growth engine is maturing and slowing down, you can compensate by finding a new one to develop and invest in. But, of course, for it to be successful, it still needs to be something close to your core competence.


Can Netflix find itself a new growth engine? Not with lazy thinking, but the answer is, of course, yes. It is too early for Netflix to give up and settle quietly in a saturated market.


Once Netflix finds itself a new growth engine, it can unleash the scale, capabilities, and assets of its current streaming business to expand this new growth engine rapidly.


 

As you can see, Netflix has a future, but ads aren’t it. It needs to find something else to move forward. Something that will make Netflix unique again – because the essence of strategy is about being different.


 

To understand what makes a winning strategy, check these guiding principles of winning strategy.


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