Netflix Dominates but The Calvary of Competitors Are Coming-Technology Firms Conglomerates

The Economist September 12th 2020 pp52-53 |Business|Netflix| “The Hastings doctrine” “Can the streaming giant’s boss preserve its culture of innovation as it grows bigger and more global? (Source of Image)

Summary of Article

Netflix (NF) has had an incredible run from its 2002 IPO. NF has combined a hard-driving flat corporate structure, good timing-first to streaming-lazy incumbents-rise of DVD-plenty of investment money and adept innovation-developing its own content in response to emerging licensing to become the top amongst comparable entertainment firms. It leads Apple, Microsoft, Alphabet, Amazon, Disney, Comcast and AT&T (HBO+Warner) in Fold-Increase in Share Price Since IPO, Market Capitalization, Revenue, and Net Profit but lags behind all of them in Free Cashflow. Traditional business belief is that “cash is king” but NF has just recently turned this positive as well.

CEO Reed Hastings and Netflix has accrued plenty of attention with his “culture [powerpoint] deck” having been viewed 20 million times. As with all firms, Netflix now faces challenges as the streaming-entertainment industry matures against a backdrop of strong-platform companies like Apple and Amazon increasingly playing in this space along with conglomerates like Disney, Comcast and AT&T. Competing with conglomerates may require a “trade-off between flexibility and efficiency.” Given its strongly embedded “culture” bringing on others, to better compete “head-on”, through M&A maybe earthshaking for NF. Other challenges include the potential rejection of the “hypermasculine” meritocracy from an increasingly global workforce and general reckoning with different or increasing worker protections. Netflix has relented under COVID restrictions to more at-home work which has strained their ability to assess staff-effectiveness. Hastings said “he does not see ‘any positives’ to home-working.” It’s reported that employee turnover has decreased to 7% from 10% prior to the pandemic-harder to assess employees and hard to fire online. NF is famous for the “’keeper test’, which requires managers constantly to question if they would fight to stop their underlings from leaving-and if the answer is ‘no’ immediately send the individual on their way with generous severance.” Hastings, like any CEO, understands that what applies is “what have you done for me lately?”. The board, shareholders and Hastings understand that nobody is above the keeper test.

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