In 2000, Blockbuster had a market cap nearing $4 Billion…Blockbuster was cash-fat and happy at the turn of the Century. Their complacency and failure to innovate with the times ultimately led to them filing for bankruptcy a decade later in 2010.
Netflix changed the consumer entertainment world, not once but twice with two big digital innovations:
Netflix is a household name… and even though I’m extremely excited for the final season of Stranger Things to premiere on May 27, 2022, Netflix is undoubtedly in trouble. The stock dropped from it’s $700/share 52-week high in November 2021 down to $179/share today (May 24, 2022).
There’s a lot of factors at play affecting Netflix’s downturn, but I’d argue much of it has to do with complacency and failure to continually innovate against their competitors (Amazon, Apple, Hulu, HBO, etc.).
Are we seeing what happened to Blockbuster happen to Netflix? Well, history does typically tend to repeat itself…
Netflix makes money by charging consumers a flat monthly fee via a Software-as-a-Service (SaaS) model.
Netflix business model today (2022):
3 Pricing Tiers:
They don’t have a free trial
They don’t offer discounts via an annual pricing offering - you have to pay monthly
They don’t run advertisements or commercials
They do however localize their pricing based on geography
Netflix’s pricing is 2-3x more expensive than their competitors
They spend most of their marketing spend on cross-promotion & brand partnerships
They also made some major changes to their SEO and saw a huge boost in organic traffic in 2017
🚨 Here’s an example 🚨 of what their business model might look like today if they were a new startup just starting out
A few other interesting tidbits that I included in the example model above regarding Netflix:
It seems they’ve outlined a couple of strategies over the past few months:
It’s hard to say…If I had $20/mo to spend, would I spend it all on Netflix or would I go for Apple plus ($4.99/mo) AND HBO streaming ($9.99/mo) AND Hulu ($6.99/mo)?
At the end of the day I believe it comes down to whether Netflix can continually innovate both with their business model and product…will Netflix be able to get ahead of the “next big thing in consumer streaming entertainment”?
One emerging market is e-Sports…Amazon has a leg up in this fight with their purchase of Twitch in 2014 for $970M but I wouldn’t be surprised if Netflix went down this route too.
Your startup or small business needs to have a strong financial plan and model rooted in reality. You need to be able to quickly test new ideas/assumptions and tack control of your financial future. At Sturppy, our platform makes it easy to build models for any business, brick and mortar to SaaS, regardless of if you’re just starting out or startup veteran.
Shoot me a Tweet or drop me a note via Email at John.Ladaga@sturppy.com with your own thoughts on Netflix!