retail news in context, analysis with attitude

by Kevin Coupe

We've focused a lot in recent months on the strategic decision by Netflix to position itself as a content provider and competitor to broadcast networks and the likes of HBO, rather than just as a content delivery system competitive with services like Redbox and iTunes.

This decision led Netflix to begin producing its own original series, such as the much-praised "House of Cards," and to place decisions about how to consume the series firmly in the hands of customers by making all 13 episodes of the first season available for online streaming all at the same time. (You could watch one a wee, one a day, or binge on all 13 episodes in one sitting ... it was up to you.)

What this did was allow Netflix to create for itself both a differential advantage and a kind of private label product - both of which were designed to give it a competitive edge.

It is an approach that is having repercussions elsewhere in that industry.

For example, Amazon.com said yesterday that its decision to produce a series of pilot programs for original children's programs and situation comedies, and then allow customers to watch them, rate them, and decide which ones should be turned into series, appears to have been successful - the pilots were the most watched TV shows available for streaming on the Amazon Instant Videos service over the weekend, with thousands of reviews posted by viewers. (Eighty percent of those reviews, apparently, were positive.)

Netflix itself is feeling pretty good about the situation. Here's how Variety described yesterday's announcement:

"Netflix reported 29.17 million domestic subscribers in the first quarter of 2013, surpassing HBO for the first time. Netflix, which ended 2012 with 27.15 million domestic subs, added just over 2 million subs ..."

And reportedly fewer than 8,000 people subscribed to Netflix to watch "House of Cards" and then discontinued their subscriptions.

The lesson here, it seems to me, is how important it is not to accept the limitations or definitions that may be forced on us by markets or analysts or even customers. It wasn't that long ago that Netflix CEO Reed Hastings was being lambasted for some admittedly poor strategic pricing decisions, but he moved past those, fixed his mistakes, and now look at the company.

It's been an Eye-Opener.
KC's View: