Being a Netflix investor (which I am) is not for the faint of heart. Within the space of a few days recently, Netflix stock reached an all-time high, then fell off a cliff after Netflix reported disappointing quarterly earnings, only to rebound in stunning fashion the following day, before dipping the day after. The wildly gyrating stock price certainly makes for dramatic headlines. But the real legacy of the company is not its market capitalization but its ability to change human behavior.
Netflix CEO Reed Hastings is a market maker. Market makers do more than make money. They shape behaviors of people and companies. Netflix is undeniably shaping how people live going back to its founding in 1997. Along with Amazon, Netflix ushered in the era of on-demand living. If Amazon made it possible for people to buy things on their own terms, Netflix did the same for entertainment. Arguably Netflix and Amazon laid the groundwork for Uber’s disruption of the transportation industry through on-demand ride sharing. Together these companies ushered in an economy based on on-demand living.
A Cultural Phenomenon
The idea of giving viewers a digital catalog of movies to stream not only knocked Blockbuster out of business but made Netflix a cultural phenomenon as viewers embraced a new way of experiencing entertainment on demand. In 2009, Twitter users began using the phrase “Netflix and Chill” to describe the increasingly popular practice of simply hanging out with Netflix like a friend. Soon, “Netflix and Chill” became a euphemism for people hooking up to have sex, which is how we commonly think of the phrase today. The phrase “Netflix and Chill” became an internet meme and topic of much analysis and controversy. Netflix was shaping how we communicate as Google has done (“I’ll Google the movie time”).
But Reed Hastings was not content to stream someone else’s movies and TV shows. Netflix made its most dramatic move to date when it started to produce its own content, popular Netflix Originals such as Stranger Things.
Netflix made the crucial decision to release all episodes of its new TV shows simultaneously instead of distributing one show at a time as networks had been doing since the dawn of television. In doing so, Netflix ushered in the phenomenon of binge watching, in which people hunker down in front of their TVs and consume episode after episode of a show for hours at a time. Binge watching quickly became a hotly contested and discussed behavior after Netflix sparked the practice in 2013. Critics worried (and continue to worry) about the emotional and physical impact of people becoming couch potatoes. Defenders praised Netflix for empowering people to watch TV like they read books instead of being forced by a network to wait for episodes of their favorite shows to be released. The phrase “binge-watch” became the Collins English Dictionary word of the year in 2015.
Netflix Changes Businesses
Netflix has also changed businesses, too, beyond the obvious example of disrupting Blockbuster. Netflix ushered in personalization in 2013 by activating a “Profiles” feature through which customers choose up to five personal profiles or themes to help Netflix better understand their preferences. That way, roommates or family members sharing the same Netflix account could customize preferences to their own liking. Netflix, along with Spotify, has also popularized the use of machine learning to make smarter content recommendations based on your own personal habits, likes, and dislikes. Industries outside of entertainment such as fashion have been following Netflix’s lead.
A Successful Vision
Recently, Netflix achieved another milestone. For the first time, Netflix garnered more Emmy nominations than HBO did. People are responding. Netflix now has 125 million paid streaming video subscribers around the world, including 56 million subscribers in the United States, easily outnumbering competitors such as Hulu. People spend 10 hours a week on Netflix compared to 5 hours on Amazon and Hulu.
Netflix needs to deliver on its numbers to keep Wall Street happy, especially by meeting its projected number of paid subscribers (which Netflix failed to do in its latest quarterly earnings report). Subscriber growth is key. Those 125 million subscribers form a massive proving ground for Netflix to experiment with ways to shape how people live and businesses operate.
Netflix is in an elite class of bellwether businesses such as Apple and Amazon because of the company’s vision. Market makers such as Reed Hastings imagine a world we did not know existed. Consumers didn’t know there was a better way to watch movies until Netflix began streaming them. We didn’t know we could experience TV by binge watching until Netflix released TV episodes all at once. Conventional measures of business performance don’t adequately capture the impact of vision — although businesses with great vision often perform well financially if they properly align operations with strategy.
You need to take the long view to appreciate Netflix’s impact and value. Its stock value may rise and fall dramatically from one day to the next, but over the long run, Netflix has rewarded its investors for one reason and one reason alone: execution of a vision that is changing the world.