Strategy at Work: Teachable Moments from This Week's News
April 22, 2022 - (Issue # 17)
In This Issue:
Netflix Finally Recrafts a Business Model that Makes Sense
Building an Entrepreneurial Ecosystem
CNN+ is a case study in Inept Executive Oversight
Netflix Finally Recrafts a Business Model that Makes Sense
Netflix entered a marketplace dominated by a customer model that was founded on visiting a local Blockbuster store to find a movie that everyone wanted to watch. Requesting a movie, having it arrive in the mailbox, having a couple of days to return it so you could get your next movie was a game-changer. Blockbuster failed to follow. Then the company moved (often with glitches and limitations) into streaming those movies right into our homes as we increased our internet capabilities. Blockbuster failed to follow and the entertainment industry just watched. Then came Billions in investment in original movies, shows and events. Blockbuster was gone and the entertainment industry saw Netflix as an easy way to monetize their library. In every case Netflix was out in front of the industry. They were focused (almost to a fault) on what the customer really wanted (sounds a lot like Apple under Steve Jobs) and how they wanted it.
The company provided an unlimited sign-on capability as long as there was one subscription and the service exploded. They owned the market. The content providers wanted additional value for their libraries and they had no technical talent (or desire) to do it themselves.
Unfortunately for Netflix (as we see in ALL industries) – what was once a set of competitive advantages – becomes the orthodox table-stakes over time. The explosion in streaming services (Disney, Apple, Amazon, Paramount, etc.) along with the systematic pulling of their content from Netflix has left Netflix where they most likely knew they would end up. They are now just one content provider. They are more expensive than most, have a substantial client base that can cancel at any time, are still investing billions in new content with no ability to develop any more hits than anyone else (they have no magic bullet – just have a lot of bullets).
This week they announced a drop in new customers and their move to match the rest of the industry by offering both ad-free and ad-included options. In addition, they are finally going to try and reign in their huge free-rider issue. Relative to their new competitive set, these approaches are just the company finally recognizing what has been a customer-accepted standard for a while.
There is only so much ‘new subscriber’ growth that any organization can hope to gain. The company is HIGHLY PROFITABLE. They are in a great position to stay relevant and be in a perfect position when this splintering of the industry goes too far and customers demand a consolidation (that will happen). They will never have any more ‘hit shows’ than their competitors. Their availability worldwide, the deep infrastructure they have developed, their singular focus on streaming (most of their competitors stream as another means to make money) and their ability to truly monetize their position should give them a substantial runway to come up with the next generation of competitive advantages.
Building an Entrepreneurial Ecosystem
There are some individuals who have the ability to read the literature on a topic, incorporate reality on the ground and provide true insights for decision makers. I have know Dr. David Deeds for close to 30 years and from the very start of his academic career his ability to do all this has (and does) astound me.
This week David published a real directional piece for anyone seeking to grow an entrepreneurial community either as an ecosystem or even for the growth of a particular sector. He discusses the fundamentals of a literature stream that has been developing for many decades (he spares you the classic academic approach of discussing every single piece and its findings as his foundation) and then moves the discussion to a very clear model for growth.
Regional Entrepreneurial Growth = f(Volume, Visibility, Velocity)
                     AND, if I can take a bit of liberty with this model
Entrepreneurial Growth = f(Volume, Visibility, Velocity)
According to this approach, the ability of any region (or even a particular sector of entrepreneurial endeavors) to successfully achieve a sustainability is fundamentally founded upon its ability to achieve a sufficient VOLUME of activity. This means actively targeting and recruiting businesses that provide a focus and support in specific arenas. VISIBILITY is a fundamental aspect not only of growing the Volume, but also attracting the talent who want to see multiple opportunities in an area. These two complement a VELOCITY of ideas and knowledge that must be nurtured and supported. All to often we see organizations that blankly accept the advice that they should hide their advantages, protect any ideas from others in order to keep it all for themselves. This approach has been shown to be limiting and counter-productive for growth. Success is not in the ideas (ideas are cheap), it is in the execution of a REAL business model.
The article includes a number of very concrete recommendations. A good read for anyone in business as all of us are in a constant hunt to develop, grow or maintain a set of compelling competitive advantages.
CNN+ is a case study in Inept Executive Oversight
Here’s an idea. Let’s start our own streaming service and collect monthly income from a bunch of non-news shows from a 24/7 News organization. Everyone else is streaming for a fee, it must be an orthodox expectation.
Not only was it a bad idea, executed extremely badly with no competitive advantages, but it was also pushed forward despite the fact that the company was in the midst of being acquired by new owners. We certainly could get into the issues of how any M&A shuts down (or in this case should have shut down) all strategic moves despite what is said by the leadership teams. However, a more important point is the willingness to spend hundreds of millions of dollars on a foray that never had any chance of being profitable AND a mis-interpretation of Orthodox analysis.
By contract, CNN cannot stream any of their well-known shows, nor can they stream in this manner news in the moment. Instead of Anderson Cooper 360 or The Lead with Jake Tapper, we get a parental podcast from Anderson and a book of the day club from Jake. Really?
The leadership team that was on their way out at CNN invested over $300 million to bring CNN+ to life and planned on another $750 million over the next few years. A Billion? There was clearly no oversight provided and as usual, no repercussions for wasting so much money. Those same leaders leave the new leadership to make the painful and expensive decision to pull the plug immediately (the service garnered less than 100K subscribers) and deal with the repercussions.
The second issue is how the former leadership team could justify this. Clearly the service was going to have no REAL competitive advantages. Any resource-based analysis would fail this idea at Rare. However, a reasoning put forward was that this was an open opportunity to attain economic returns by simply matching the new orthodox expectations in the industry.
This is a mistake in analysis. While all organizations must keep up the table-stakes elements of their business, the table-stakes model depends upon maintaining the core ‘table-stakes’ expectations of your customers. Customers of CNN (if we view the end consumer of CNN as the primary customer) seek coverage and analysis of THE NEWS. While CNN has well-known personalities and the ability to recruit additional ones, they have built their business on those personalities news chops, not on any outrageous personality traits or cult-like devotion (as others have). Without that, the only ‘value proposition’ that CNN+ could have offered to a subscription-paying customer would have been the NEWS.
This was so obvious that it took only moments for a new leadership team to pull the plug – take the hit – deal with all the glee from those who hate CNN – and move the organization (it’s time, money and mental firepower) toward something (heck – anything) more productive.
Orthodox analysis is a must for all organizations. Evaluate the value proposition that your customers seek to attain from ‘buying’ from your organization and don’t lose ground in any of the basics as competitors move the bar.
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