Netflix is a company many of us wanted to root for — America loves an underdog story.
In the age when video rentals ruled supreme, Blockbuster was the Goliath to Netflix’s David. Its executives reportedly laughed at Netflix when the struggling company propositioned Blockbuster to buy it outright for $50 million. Such a decision was likely regretted. With CEO John F. Antioco pushed out, replacement John Keyes was dealt insurmountable debt and the looming Great Recession, a deadly combination which ultimately led to Blockbuster crumbling like a detonated skyscraper, while Netflix rose like a weed from the rubble of the vanquished giant.
Netflix was precisely the scrappy ragtag startup the entertainment industry needed to disrupt tired technologies with innovative breakthroughs, and agile enough to stay ahead of its competitors in a crowded space.
But Netflix has seen strong headwinds. Film critic and historian Jason Bailey pondered whether Netflix is in its Blockbuster era in an NBC News article, pointing to “a variety of unpopular decisions” that “threaten to turn the streaming service into the bad guy it once dethroned.”
So, what can technologists, construction owners and C-suites take away from Netflix’s recent pitfalls?
The Fate of Financial Markets Looming: 2008 vs. 2022
Netflix is part of a phenomenon in the tech industry that has seen sweeping layoffs through 2022 and 2023 and has even spurred an interactive tracker, layoffs.fyi, that chronicles the widespread job cuts across the tech sector. For reference, Netflix laid off 300 employees in 2022 (adding to a previous purge of 150 staffers).
How does this compare to the financial meltdown of 2008? Well, unlike 2008, the layoffs we’re seeing in tech seem to be isolated to tech, in part due to hubris.
Let me explain. Big tech was hit with a surge of demand unexpectedly brought on by the pandemic, but companies grew excessively to meet the new demand at a rate that outpaced their actual needs. For reference, Netflix grew its headcount 42.78% within the same period.
What Business Owners Can Learn From Big Tech’s Hubris
- Private corporation vs. initial public offering (IPO) — The “tedious and costly task of an IPO, the founders having to give up total control and the need for more stringent reporting to comply with SEC rules” rank among Investopedia’s reasons why companies would choose not to go public. In a real-world example, Investopedia points out how Snap Inc. was sued by investors after its IPO performed poorly, claiming “the company had made ‘materially false and misleading’ statements regarding user growth.” A similar predicament is explored in HBO comedy “Silicon Valley,” where a fictional CEO, worried about not living up to the unrealistic financial benchmarks of an IPO, wonders if “negotiating [VC firms] down” might serve a better way to achieve realistic key performance indicators (KPIs). While amusing, it raises an interesting point — companies seeking financial backing should be conservative and iron down an agreement that is realistic for both parties.
- Growing at a reasonable rate — Unlike some of its peers, Apple grew at a reasonable 20% rate (reasonable for a trillion-dollar company), and was able to skirt the big tech layoffs. Apple is facing its own headwinds, but its realistic growth rate has set it to better weather short-term headwinds. Further, CEO Tim Cook demonstrated leadership when he took a 40% pay cut to help stave off layoffs. Jeffrey Pfeffer, a Stanford business professor, told Stanford News of a similar story at Lincoln Electric, where the company avoided laying off 10% of its workforce, instead cutting pay across the board by 10%, except senior management (who took a larger cut).
Unlike the tech industry, construction overall was up 27% in January, with more jobs than companies can fill and wages up 6.2%, outpacing overall job and salary growth in other sectors.
As owners look to hire for hard-to-fill roles, we recommend looking to Silicon Valley’s reckoning as a warning, and focusing on building a culture that attracts talent rather than excessive pay packages. For example, a Jobvite survey showed 32% of candidates stated they would be willing to take a 10% pay cut if the company they were looking to join was a good cultural fit.
Straying From the Unique Selling Proposition
Netflix’s early days defined its unique selling proposition (USP):
- No late fees
- A huge selection on an “all-you-can-eat” business model
- Betting big on digital (future technology)
Setting the record straight, the 2020 documentary “The Last Blockbuster” explains that Netflix didn’t kill Blockbuster. In fact, Blockbuster fired back at Netflix, launching a “no late fees” policy and had a growing digital business that was backed by physical stores that made returning rentals locally a snap. But Netflix had capital when neither Blockbuster nor Netflix could predict a financial meltdown.
Today, Netflix sees increased competition while it strays from its USP:
- Moving away from its licensing deals to its own original content, perhaps seeing the writing on the wall, a development out of its control.
- Focusing on big-budget series, which can be financially risky.
- There’s something to be said about quality over quantity, yet Netflix’s tendency to greenlight shows has been lampooned, and the company has canceled popular shows — some before they can reach their potential (often after just one season) — which has led to a phenomenon Forbes calls “a cancellation loop.” It also risks other streamers picking up its canceled shows.
- Netflix recently announced an ad-supported plan, which has limitations and has been mostly panned. Furthermore, an incoming password sharing crackdown walks back a previous stance by CEO Reed Hastings that seemed to condone the practice.
- A history of price hikes — resulting in its premium-tier growing to $19.99 over the years — makes canceling the service an easy choice for consumers as the company repeatedly cancels their favorite shows.
All this to say, Netflix maintains its dominance over the streaming wars, but its subscriber growth may be plateauing as competitors grow at a faster rate.
As for the passwords, ultimatums can hurt a relationship, so forcing one on loyal customers seems doomed to backfire.
If Blockbuster’s example is any warning, these business decisions are problematic to say the least.
Integration, Not Isolation
TV companies have come together and consolidated, leaving Netflix in the cold.
In construction, experts agree that integration over standalone software is key to connect critical workflows.
Bottom Line
Don’t get me wrong — I love Netflix. I’ve been a loyal customer for 10 years. I’m rooting for them to persevere.
Bad decisions made as the company is being disrupted could lead to its Blockbuster era.
As construction owners look to learn from Netflix’s mistakes, I recommend focusing on improving the customer experience; leading through data and integration to streamline jobsite workflows, automate manual entry, and drive insights; and finally, like the early Netflix, adopt technology such as smart tools and automation to help you stay ahead of your competitors and drive better outcomes for customers.
