The thing to remember about Netflix is that, despite looking like a distribution company for a Hollywood-centric industry, the company is all Silicon Valley.The company is poised for growth, especially now that it's restructured itself to put more emphasis on streaming movies, TV shows and other video content and pull back on the traditional DVD rental side of the operation.
The thing to remember about Netflix is that, despite looking like a distribution company for a Hollywood-centric industry, the company is all Silicon Valley.
The company is poised for growth, especially now that it's restructured itself to put more emphasis on streaming movies, TV shows and other video content and pull back on the traditional DVD rental side of the operation.
But when it comes to growth, the executives are interested in global markets where broadband penetration is high and diversifying the catalog to include more foreign language content. They're eyeing different devices for streaming and how families - versus individuals - use the service. They're well aware that the next wave of competitors could include heavy-hitters such as Google, Amazon or Apple.
But, no, they have no interest in getting into the Hollywood side of the business, possibly creating content of their own or taking an equity interest in a studio. In a Q&A session to discuss fourth-quarter results yesterday, CEO Reed Hastings responded to a question suggesting such a move:
When we start taking creative risks, that is reading a script and guessing if it was going to be a big hit and who might be good to cast in it, it's not something that as fundamentally a tech company or a company run by at tech CEO like myself is likely to build distinctive organizational confidence in. And so we think that we're better off on letting other people take creative risks, get the rewards for when they do that well. And then what we do is focus on matching the different products that are made with the right consumers the sort of very technological aspect of matching it and streaming it. So I would say, that the scenario that you outlined would be quite a change in direction and quite unlikely.
It's a smart approach for a company that seems to have nothing but an open road of growth opportunities in front of it. Because Netflix has shifted into the world of streaming, it's riding out some of the turbulent waves that are crashing in other parts of the industry.
Consider DVD rentals: Redbox, for example, works on a different model of video distribution because it's more new-release centric. With reports of home video content - DVD, VOD, etc - slipping, Netflix's model doesn't feel as much of the impact. The streaming model adds value for the customers because they tend to consume more content. Because the plans are designed for all-you-can-eat consumption for a flat monthly rate, the company doesn't feel the pinch that comes a price-per-movie model found at video stores and Redbox-like kiosks.
At the same time, Netflix is also ripe for some competition with its model. The company is just starting to dip its toes into International markets - and it's got a jump start on the front because it already licenses foreign-language content for the U.S. market. Still, asked about whether Google, Amazon or Apple could be a competitive thorn in its side this year, Hastings replied:
Definitely, there's a lot of firms, including the ones you mentioned that could be more direct competitor with us. The Internet's creating a ton of opportunity for a lot of firms and there's all different models between the pay-per-view models for new releases, the ad-supported model. So there's a lot of different companies with different strengths. But as you know, we've been through a lot of competition in the past. We view that as a natural part of the process and we're just focused on building our business as best as we can.
Certainly those companies are already interested in being part of the video viewing experiences. The upside for Netflix, unlike the other guys, is that it is focused on expanding its video distribution network from a technological point of view, whereas the others have their fingers in a lot of different technology sauces, making it harder for them to devote the kind of detailed attention to the market the way Netflix can.
And, of course, there's the whole head-start thing. Netflix has done a good job of shifting the focus of the company quickly and has made great strides at getting apps into set-top boxes, mobile devices and gaming consoles.
It's that sort of technology that Netflix sees as a driver for its next wave of growth.