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What Netflix’s Struggles Can Teach You About Your Digital Strategy (Thinks Out Loud Episode 347)

Netflix's struggles teach you about your digital strategy: Hand holding television remote control

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Netflix had a truly disastrous earnings call the other day, losing more than $50 billion dollars in market cap in just a few hours. But the reasons why it’s struggling should be obvious to anyone with a solid understanding of digital strategy. It’s not that Netflix is a bad company; actually, I think they’re a great company (and, to be abundantly clear, I have zero opinion on their stock). It’s just that lumping them in with Facebook and Apple and Amazon and Google fundamentally misunderstands their value in the marketplace. FAANG doesn’t make sense—and never has. They’re not part of the AGFAM—Apple, Google, Facebook, Amazon, Microsoft—and for good reason.

What is that reason? What separates Netflix from the other major online players? And what can their recent struggles teach you about your digital strategy?

This episode of Thinks Out Loud dives into where Netflix actually fits in the marketplace, why it’s dramatically different from Apple and Amazon (and, for that matter, HBO Max and Disney+), and what lessons you can learn from them to improve your digital strategy.

Want to know more? Here are the show notes for you.

Thinks Out Loud Episode 347: "What Netflix’s Struggles Can Teach You About Your Digital Strategy" Headlines and Show Notes

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Technical Details for Thinks Out Loud

Recorded using a Heil PR-40 Dynamic Studio Recording Mic and a Focusrite Scarlett 4i4 (3rd Gen) USB Audio Interface into Logic Pro X for the Mac.

Running time: 21m 32s

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Transcript: What Netflix’s Struggles Can Teach You About Your Digital Strategy

Well, hello again everyone and welcome back to Thinks Out Loud, your source for all the digital expertise your business needs. My name is Tim Peter. This is episode 347 of the big show. And I think we’ve got a really cool episode for you.

Sidebar: Did You Hear Elon Musk is Buying Twitter?

Of course, I have to start by saying my timing is masterful. I’m a little worried, this episode might get lost in the news that broke literally, as I was hitting the record button, that Elon Musk is buying Twitter. I literally saw the press release come in on an alert, just as I was about to hit the record button. Now I still think we have a good episode for today and at least at the moment, I don’t really have anything to add to the Elon Musk, Twitter dialogue. A billionaire bought a social network.

If you think that’s a good thing, yeah, good for you. If you think it’s a problem, you might be right. It is a good example of why you always want to own your own spot on the internet. Why you always want to own your own land on digital, what I refer to as a hub and spoke strategy, just in case the rented land on which you’ve been trying to build your brand, gets bought by a billionaire, who may or may not share your values. So that’s all I really have to say on that topic for the moment, but who knows, there may be more later.

Netflix Kicked Off Earnings Season… And It Wasn’t Pretty

What I do want to talk about today is that we’re coming up on earning season for the big digital players. And I will have a lot to say about this in the next couple of weeks. But you’ll note, when I talk about the big digital players, I talk about the AGFAM—Apple, Google, Facebook, Amazon, and Microsoft. That’s how I always think of the big digital leaders. Other people prefer to talk about what they call FAANG, F-A-A-N-G, for Facebook, Apple, Amazon, Netflix, and Google. And I think I’ve been a little vindicated in the last week in thinking about them the way that I do, because Netflix got hammered last week, after its earnings report, where it stated that it had lost subscribers for the first time in its history. Its stock was down $50 billion in aggregate value in just a couple of days, after its earning risk release, that’s not good.

But I thought what happened here illustrates the challenge that Netflix has and a couple of really important lessons for your business, and that’s what I want to talk about today.

Sidebar 2: This Isn’t About Netflix’s Stock

I want to start by saying, this is not anything to do with the stock. I actually think Netflix is a great company. I think they’re a very, very good company, whether or not they’re stock prices correctly valued or not, that’s not really what I do here. So please don’t take this as predictions for the stock market.

Only Two Winning Strategies in Digital

Instead, I’ve never thought of them as a particularly important player in digital in the sense that we typically meet. And the reason I say that is because, as I’ve talked about many, many times, there are only two winning strategies in digital. One is, you have to get big. And by big, I mean, you have to be the dominant player in your vertical, you have to be the dominant player in whatever it is that you do. So think Google in search, think Facebook in social media, think Amazon in e-commerce. You have to be the biggest player, or you have to own a sufficiently differentiated niche. You have to really, really dominate the niche.

Now, if you’re one of these big guys, you get to be a gatekeeper. You get to set the rules for a lot of other people. And I think that’s where people misunderstood Netflix. They thought they’re a gatekeeper, because they have access to all this content. Thus, they are a gatekeeper and set the rules. But that’s not exactly what Netflix does. You see, if you’re going to be the dominant player in a particular place, you have to be the place where people can go to find everything. If I go to Google, I get all the search results. If I go to Expedia or booking.com, I get all of the hotels. If I go to Airbnb, I get all of the short term rentals. If I go to Amazon, I get all of the possible products I could want to buy. If I go to Uber or Lyft, I get all of the possible rides I need.

The "Winner Takes Most" Approach

Okay, maybe not all, but I get almost all. It’s something that Andreessen Horowitz refers to as, "A winner take most strategy." They are the place that suppliers of the things that they offer, whether it’s Amazon with e-commerce, whether it’s Uber with rides, whether it’s Airbnb with rentals, whether it’s Expedia and booking.com with hotels, whether it’s Google with content, webpages and things like that. If I’m a supplier of any of those types of products, I have to be on one of these big guys, most of the time, so the winner takes most.

And if I go to Netflix, I get lots of good stuff. I get, Stranger Things, I get Bridgerton, I get all kinds of good stuff. But I don’t get everything. In fact, I don’t get most things. I don’t get Harry Potter. I don’t get the new Batman movie. I don’t get Succession. I don’t get Moon Night. I don’t get that new show on Apple TV called Severance. I don’t get Star Trek Picard or Lower Decks. One of Netflix’s problems is they don’t have Disney content or HBO Max content or Apple content or Hulu content or Paramount content. There’s no way for them to be a winner takes most type player. By the way, the same problem exists for Disney+ or HBO Max or Paramount or Apple.

In fact, this has become such a problem for these players, that Vice News just did a piece talking about a resurgence in online piracy of films and TV shows, because viewers are getting fed up with not having one place they can go, to get all of the things that they want to watch. And if you’re a marketplace, you need to aggregate sufficient supply.

Provide a Differentiated or Niche Offering

Now what Disney+ and HBO Max in particular, and Apple and Amazon have in their advantage, is they have other ways to make money. Disney+ has films and theme parks, et cetera, that make its success less reliant on streaming only. If you go to its Wikipedia page, they list its products as amusement parks, comic books, films, music, television programs, video games, web portals, broadcast licensing, publishing, streaming and television. They own apart from the obvious Disney content, Pixar, Star Wars, Marvel, ABC News, ESPN, and lots of other things.

HBO Max, which is owned by Warner Brothers Discovery, its products, according to the Wikipedia page, include amusement parks, comic books, films, music, television programs, video games, web portals. They’re doing this across broadcasting, licensing, publishing, streaming and television. They own things like Batman, Superman, Game of Thrones, Harry Potter, CNN, HBO, Magnolia Networks, Food Network, HGTV, Turner Sports, parts of the MLB Network, if you like baseball, that’s a lot of different stuff. And then Amazon with Amazon Prime, they own the James Bond library. They own the Rocky movies. They own the Handmaid’s Tale. Plus, they’re Amazon, right? Apple, you can do kind of the same thing.

Why Netflix Isn’t Part of the AGFAM

What does Netflix own? Well, film and television production, film and television distribution, and that’s kind of it.

Now, none of that is bad, but you can’t really compare that to what Disney does or what Warner Brothers Discovery does or what the AGFAM does. Netflix is a much, much smaller company by definition, and this shouldn’t have been hard for people to see. Disney mapped out the playbook here for how films and music and magazines and books and comic books and TV and theme parks and merchandising, all support one another. In an annual report, they released… in 1957 (thanks to Andrew Koon for pointing that out on Twitter). But this isn’t new by any stretch. And again, none of it is to say that Netflix is a bad company by any stretch, it’s got lots of ways to win. It could invest if it chose, in alternatives that support its content like merchandise, like them parks, like live events, like other media.

It could. It hasn’t, but it could. So they could be a very successful and very clearly differentiated niche player for a long time to come. It’s possible. It could also get bought by one of the bigger players as those bigger players try to get bigger still. But Netflix being big and being a gatekeeper in the way that an Amazon or a Google or a Facebook or an Apple or a Microsoft is, isn’t in the cards the way it’s structured today, because there’s so much supply of content, that the winner take most strategy can’t work.

Netflix’s Struggles Are Baked Into Its Strategy. Is Your Digital Strategy Making the Same Mistake?

And so that’s the first thing I want to say, if your game plan is to get big and you can’t aggregate all the supply or most of the supply, you’re in a really, really bad position. And there are a number of industries where winner takes most, just doesn’t work. Content of course, being one of them. So it’s not that Netflix doesn’t have ways to win, but being the one true place where people go for content, isn’t it, just like it isn’t it for any of the other folks.

Is "Content Is King" False?

Now, the other thing that I want to point out here is, it does beg the question of, is the idea that content is king, wrong? Because if Netflix can’t win with its content, doesn’t that kind of poke a hole in content is king? Well, not exactly. First, I want to be abundantly clear that when I talk about content is king, I’m almost always talking about it in a marketing context, where content supports your core business activities. And in that context, it absolutely is king. You don’t appear in search, if you don’t have content. You don’t appear in social, without content. So content absolutely must support the other things that you do.

By the way, notice that, that’s kind of what Amazon does. And that’s kind of what Apple does. And that’s kind of what Warner Brothers Discovery does. If content is your core business activity, if your entire business is built around creating, distributing and monetizing content, is content king there? Kind of. If you don’t have high quality content, you’re going to lose. Again at no point here, did I say that Netflix or anyone else say, Netflix has bad content, they have some extraordinary content. It’s that you can’t get big. You can’t be the dominant provider, as a content offering, because there are too many other options. Notice that neither Warner Brothers Discovery nor Apple, nor Amazon nor Disney, is the one true dominant content provider. That’s just not the way it works. There’s too much content for any one player to own the whole universe of content.

What Can You Do With This?

So what does this mean for you? Well, first, don’t let what’s going on with Netflix, distract you from the idea that content is king. I’m taking it for granted, if you’re listening to the show, that you actually use your marketing, you actually use digital, to support other things that you do. You’re trying to become a more digital company and content absolutely is king to do that, just as we’re seeing Warner Brothers Discovery or Apple or Amazon or Disney, do. We might need a new acronym for those guys. WADA? WAAD? Maybe not. But the point is, they are clearly using their content in support of the other things that they do and you can do the same thing.

If your core business is something other than content, note the way content plays a complimentary role to your other business activities. Disney for instance, makes loads of money from its theme parks and merchandising. Pre pandemic, theme parks, experiences, and merchandising represented roughly 35% of its revenues and 40% of its profits. Even in its most recent quarter, parks, experiences and products accounted for a third of its revenues and due to some one time costs in some of the other divisions, the bulk of its profits.

So you can absolutely use content in a complimentary way to make your core business better. So you may hear some people say in relation to what’s happened with Netflix, that this is a sign, why content isn’t king. And I would say to that, "Well, sure, if your business is distributing and creating content, yes, you also have to have other ways to grow your business and become big, or you’re going to have the same problem that Netflix has had."

The other thing you need to do is evaluate what business are you really in? I’ve talked before about why you don’t want to become a hidden intermediary and this idea of, can you be the dominant player? Can you be the biggest player in your space, or do you have to focus on being a differentiated niche? If Netflix had always positioned itself as focusing on a differentiated niche, they might be in a better position today because the Street, Wall Street would’ve had a different expectation of what the business was and what they could expect from the business in the long run and that’s not what happened here.

Conclusion: What Netflix’s Struggles Can Teach You About Your Digital Strategy

So you have to think about, what is the business you’re really in, and are you the biggest player there, or are you in fact best served by pointing out what truly differentiates you? It’s not that either is bad, it’s that getting stuck in the middle is a really bad place to be. We all know what happens when you get stuck in the middle, you become roadkill. I’m afraid Netflix may have just learned that lesson quite painfully this past week.

Show Credits and Subscription Information

Now looking at the clock on the wall, we are out of time for this week. As ever, I want to remind you that you can find the show notes for today’s episode, as well as an archive of all past episodes, by going to Timpeter.com/podcast. Again, that’s TimPeter.com/podcast. Just look for episode 347.

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Sponsor Message: SoloSegment

I’d like to take a moment to thank our sponsor. Thinks Out Loud is brought to you by a SoloSegment. SoloSegment provides search as a service to help customers of large enterprises find the content they need. Use SoloSegment to power your search results with a product that focuses on business results and helps your customer find the content that matters to them. SoloSegment does this using artificial intelligence, machine learning and a host of other really cool tech, while protecting customer privacy and improving your business results. You can learn more about SoloSegment and all of the wonderful work that they do by going to SoloSegment.com. Again, that’s SoloSegment.com.

Show Outro

Finally, as I say each week, I very much appreciate you taking the time to tune in. Time is the most valuable resource we have available to us, it’s the one thing you cannot get more of, and it means so much to me that you take some of your very, very valuable time, to listen to the show. It means more to me than I can say. So with that said, I hope you have a great rest of the week. I hope you have a wonderful weekend and I’ll look forward to speaking with you here on Thinks Out Loud next time. Until then, please be well, be safe and as always, take care everybody.

Tim Peter is the founder and president of Tim Peter & Associates. You can learn more about our company's strategy and digital marketing consulting services here or about Tim here.

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