Double vision: Netflix changes its stripes for foreign markets

By: Sarah Treleaven
From: Business without Borders

A Q&A with the author of “Netflixed”

When Netflix introduced a DVD-by-mail program in 1998, it changed the way people consume entertainment. But now, in an increasingly digital world, Netflix faces a different landscape and increased competition. Gina Keating recently published Netflixed: The Epic Battle for America’s Eyeballs. In this interview with Business without Borders, Keating comments on the impact of leadership styles and why Netflix is finding it harder than expected to go abroad.

 

comments on the impact of leadership styles and why Netflix is finding it harder than expected to go abroad.

Reed Hastings
Netflix CEO, Reed Hastings
Photo: Getty Images

I understand that several people at Netflix refused to speak to you for this book. How does what you’ve written differ from the company’s preferred mythology?

It’s pretty different. The main thing is, when I started interviewing people about the history of the company, this name kept turning up: Mark Randolph. I had covered Netflix for eight years and this was very curious to me. It turns out that he was one of the main innovators of the consumer interface, of the idea of renting DVDs online. The idea that the concept behind Netflix was born when Reed Hastings got a late fee [from Blockbuster] is just wrong. Once I found out about that, it was not a happy thing for the company.

Why has Netflix, which once appeared so promising, been so volatile lately?

My thesis is that when Marc Randolph and Reed Hastings were both leading, the company had the perfect parents. Randolph was the big idea guy, the consumer-facing guy who loves people and wanted to put out a product people couldn’t resist. And in Hastings it had a guy who could take those ideas and optimize them for the Internet; he turned those ideas into code. That’s what made Netflix so powerful. When the company lost Randolph and his sensibility, the engineer took over and a lot of mistakes came from the lack of someone looking out for the customer.

Reed Hastings has been called America’s worst CEO, but you also call him a genius. What makes him such a polarizing leader?

First of all, Netflix is one of the most shorted stocks. Time after time, people have underestimated that model.  Hastings is a visionary, and he’s often three or four steps ahead of his peers, but there’s resistance to his ideas – not only in the media industry but also in the analyst community. The other part is that this guy just doesn’t care what anybody thinks about his leadership style or ideas for where the company should go. That’s threatening to people. He’s made mistakes, and one of those was pushing out a lot of the management team that held his hubris in check. That’s been a big problem since 2010.

What are Netflix’s key challenges now?

They have many. Carl Icahn buying so many shares is not, in my opinion, a positive thing. [Icahn is a billionaire and former corporate raider who in November purchased nearly 10% of Netflix’s shares] In my book, I talk about the effect Icahn had when he made a similar investment in Blockbuster and it completely took the company off track. I think he thinks that Netflix will be bought; if that doesn’t happen I’m a little concerned about how he plans to get out of that investment and still make money. It could be very harmful to Netflix. The second challenge is that the competitive landscape is much different than when they first started streaming. They have to compete for content against much bigger players. They’re going to have to be so nimble to stay afloat. I think that Icahn’s involvement in Blockbuster prevented them from responding in a quickly changing landscape.

Can you tell me a little about their international expansion? Have they had much luck moving into other markets?

They went into Canada first and that service grew incredibly quickly; they arrived just at the moment that Blockbuster was retreating there. Latin America has been a little more difficult because the consumption patterns, technology and markets are different. It’s a little more trouble than they were expecting. They just launched in Scandinavia and it’s been more costly than they anticipated. But they’re reaching a saturation point in the U.S. and they have no choice but to go overseas for growth.

How are the international markets different?

International markets have all been streaming-based and that’s part of what makes them so appealing to Reed Hastings. The international markets have become the paradigm for what Netflix will be — they’ll be able to go in and negotiate content based on streaming only. Hastings really envisioned that the television of the future would be a lot like an Internet application — and that’s really what Netflix is in every country but the U.S.

You’ve mentioned that one of Hastings’ biggest weaknesses is his difficulty understanding consumer response. Has that been an obstacle in trying to cater to other cultures?

I can’t really speak to that, but I can tell you how they make the decisions they make. They’re extremely data-driven and their data is excellent. The Netflix website collects behavioral data as people navigate it. So, for example, if you watch a whole bunch of TV episodes on a weekend, during a certain time of day, and you fast-forward through certain episodes or certain parts of the episode or stop and watch a certain actor a few times, the algorithms attached to that make assumptions about you that are so accurate that I don’t think the human brain can even process it. And that’s how they go about offering people certain movies. Hastings isn’t making these intuitive leaps about his international audience; he’s watching them. But he has 15 years worth of data on his U.S. customers and almost nothing on his international customers, so there will be a learning curve there.

How can Netflix be used as a model for anyone who seeks to drive a service online?

The main lesson from Netflix is that the technology has to serve the consumer. There is a remove from the consumer when you sell something on the Internet because they can’t see it, smell it or touch it. You have to come up with a very compelling offering driven by an emotional attachment to the company and the experience they create. Randolph understood that, and that’s part of the reason Netflix grew so fast. They took us on a journey to places we didn’t think we would go. How many people had previously watched a lot of Bollywood or anime or Chinese martial arts before Netflix came along?

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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