Adapting at warp speed to a 2.0 world

I was watching ABC’s Nightline last night and was fascinated by a story on how movies on DVD have given way so quickly to movies streamed over the Web. It is one more indication of how things are changing so fast and why the future of virtual reality is unknown.

Specifically,  the Nightline segment was called “Netflix Redefined,” and showed how flexible that company is at responding to  the business adage of “Adapt or Die.”

Then and now

Just two years ago, as correspondent John Donvan pointed out, his story on Netflix focused on how well the company was doing by mailing out its red-jacketed DVDs to movie renters.

Netflix found a new market niche in movie rentals, realizing that luring customers to video stores wasn't working any more. So the young company put all its eggs into the a USPS delivery-system basket, only to change it within a couple years to investing in video streaming as the delivery system of the future. (AP Photo/Amy Sancetta)

USPS to the rescue

The U.S. Postal System was deemed by Netflix founder Reed Hastings as the perfect delivery system, and his company was paying the USPS some $300 million annually to deliver disks of its movie collection which totaled 46 million DVDs.

Hastings was not only convinced about his USPS delivery system; he was also convinced that the future of movies was in DVD form. The reason? The plethora of DVD players in homes, cars, laptops, and stand-alone DVD players.

Oops … wrong road

Fast-forwarding to the present day, Hastings tells Donvan, “By far the majority of our delivery now is by streaming. Most of the people get their content in streaming, too. Streaming is everything.”

With streaming, you can watch movies almost anywhere, on MP3 devices smaller than mobile phones. The result of this quick adapting to streaming by Netflix? A membership that doubled from 10 million subscribers to 20 million,  and stock prices that leaped from $43 to $192. Its main competitor, Blockbuster, has declared bankruptcy, and Hastings was named Fortune Magazine’s business person of the year for 2010.

A harbinger

The Netflix story in itself is amazing, but what it shows in a larger vein about managing change in a world of technology is scary. Especially if you are a manager responsible for matching your service to a world that is changing at warp speed.

One segment of the media world that has been the subject of  much scrutiny and (some would say) premature eulogies is the newspaper business. Many see printed newspapers as dinosaurs, congratulate them for taking a lead in Web presentations, but predict there is no real money for a newspaper to make in online advertising. Others disagree with that, and show some pretty good examples to back it up.

Good news, bad news

But the dilemma a newspaper publisher faces is a good news/ bad news situation:  With the exception of a few cities, there is only one metro daily newspaper operating in any American city. That means if you are an advertiser wanting to advertise in such a daily, you have only one option in most cities. That’s great news for the publisher.

The bad news is that the reading audience has largely moved online, and many believe the future of newspapers is online. But when a metro daily newspaper which holds a monopoly-like position in a city, moves online, it moves into a world teeming with competition and a few million other Web sites. So much for owning the only game in town.

Additionally, that online world is continually changing, as witnessed by the rise and evolution of the interactive social media of the past few years.

The Christian Science Monitor is an example of a newspaper that decided to go "Web-first," discarding its venerable print edition in favor of a Web edition and weekly magazine. Other newspapers are thinking about making similar changes. (AP Photo/Elise Amendola)

About that dinosaur

Adding to the problem of shifting revenues to an online world of competition and tougher advertising dollars, is the fact that most of the revenue of any daily newspaper still comes from its print advertising. So even the dire descriptions of that product as a dinosaur is – er, excuse me – not quite correct. The dinosaur is still paying the bills.

In short, a metro daily encounters a world where the audience is moving to another platform, but the newspaper’s ad revenue still comes from the platform the audience is moving away from.

Clearly there will come a point where ad dollars will not remain with a product read by only a relatively few readers, but that day has not arrived yet. And it could be forestalled by newspapers that change their editorial model to focus on a specialized audience (ie., those customers still interested in the news) as the magazine industry did in the 1970s.

Wrong focus?

In short, why try to be everything to everyone if everyone doesn’t care?

So, in the interim, how much do you adapt, how quickly, and how do you know you are adapting in the right direction? Netflix knew the old model of video stores was changing, so it went into the mail with its DVDs, committing millions to that delivery system, only to have to change it two years later and switch its investments to video streaming instead.

So far, for Netflix, it has worked, although the cost to the company of making that quick change has been high.

A ubiquitous problem

The dilemma that Netflix and the newspaper industry face is the same dilemmas faced, to a larger or lesser degree, by nearly every business in the world: trying to understand the changes that technology has thrust upon us, and trying to respond to those changes in ways that will work now and in the future.

Or at least for the next two years.

Categorized under:

Thank you for joining our conversation on A Virtual Unknown. We encourage your discussion but ask that you stay within the bounds of our commenting and posting policy.

Comments

I enojoyed this post. I am currently living in DC for the semester and taking a class that requires me to watch certain films. The first thing I did was try to find a website that broadcast films. I couldn’t find one so I subscribed to netflix. I was a little disappointed when Netflix only offered some movies. The movie I needed was not available. I had to order it and have it sent to me via mail.

Your mention of newspapers and their convergence online reminded me of a quote I once read. “Paper won’t disappear (in the future), but paperless media will soak up more of our time. We will eventually become paperless the way we once became horseless. Horses are still around, but they are ridden by hobbyists, not consumers,” Institute for the Future, Paul Saffo said.

The only thing that really puzzles me is how can those that see printed newspapers as dinosaurs and congratulate them for taking a lead in Web presentations are able to predict there is no real money for a newspaper to make in online advertising? The global community is HUGE and would have a bigger potential for online advertising revenues than would print newspaper! I wonder what their logic for believing in this would be? Any thought on that?

–Mariya Wilson
COMM200-Online

That story about Netflix is really interesting. When I read Hastings’ quote about DVDs being the future of movies, I wondered, isn’t Hastings aware that the world has been “changing at warp speed” for the past several years? How could anyone think that any of today’s technology is going to be the “future,” the best we can come up with—when we’ve all seen how rapidly technology shifts?

But the premature prediction of the newspaper’s death shows us the other side of the coin, where maybe we are jumping the gun in dismissing the old way of doing things.

I guess the question is, can we really ever accurately predict what’s next in technology or media? With the world advancing this quickly, I think we’re always going to be surprised if we try to figure out what’s here to stay, or what could possibly come next.

About the same time early web advertisers posted “brochure-ware” online, newspapers did the same thing, posting their own printed product online for a passive public: “paperware” if you will.

But while savvy advertisers moved into more sophisticated web strategies designed to capture the interactive capabilities of the net, many newspapers today find themselves broken down on side of the information superhighway – even if able to diagnose the problems, seemingly unable to repair it.

What to do? Here are five actions to consider.

1. Start the conversation. Use traditional means to decide what’s news and how it’s framed, but invite readers to react with their own perspectives. Moderate the conversation, but as liberally as possible, just enough to keep it civil.

2. Adopt the “Slashdot” model (“Erecting walls for music and news” Sep 27, 2010), allowing readers to rate stories, keeping the most popular on top.

3. Go local or go away: cover news, weather, sports, obituaries, perspectives, on local matters first, and link to affiliated national news second. Help your local advertisers create interactive ads and track click-through traffic for them. Analyze the effectiveness of their ads with them and suggest improvements.

4. Cover unique local places and events in-depth: those that attract people and interest to your community such as music festivals, car shows, nearby parks and recreation assets, etc. Become “the source” for such topics of interest that will appeal to the aficionados of your local attractions.

5. Adopt John Dewey’s perspective that newspapers should contribute to the creation of “great communities”. The media giants can’t do that in local communities, only local media can.

If many newspaper executives ran Netflix, they might still be shipping DVDs and cursing the new technology. Hastings instead embraced it at Netflix and capitalized handsomely for doing so.

Or so it seems from where I sit.
Dick in Indiana

There is a key difference between the movie rental industry and the newspaper industry. Netflix was trying to get the exact same product (the movie) to the consumer at a faster rate – much like the news Web sites serve that purpose for the newspaper industry. However, watching movies and reading long articles are polar opposites on the “attention span” spectrum. It seems like it would be more likely for newspaper articles either a) require as much attention as watching a movie or b) be more concise and brief to allow readers to absorb a lot of information in a short amount of time.

The newspaper, as we know it, will likely disappear eventually. My mom’s generation still likes to have a physical newspaper in their hands. But a new generation will rise that is not accustomed to having a paper in the home. For example, my daughter may never have seen a newspaper in our home. As she grows, she is less likely to even consider subscribing to a newspaper. And she is only one of a growing number. (Truth be told, I only look at a newspaper when I am visiting my parents’ house)

I completely agree with a lot of the points made in this post. Adapting to a world run by online technology has been the breaking point for a lot of companies, regardless of their industry.

When Netflix expanded their offerings to online downloading/streaming, they showed innovation. The cost of making the change may have been high, but they’re still around as a company. However it should be noted that they, like newspapers available online, face fierce competition. With sites like Hulu becoming a popular way to watch not only movies, but also T.V. series, past and present, Netflix faces some challenges in the future. Additionally, with DVD renters like Redbox also rumored to be looking into online streaming options, Netflix definitely needs to place some focus on retaining their current customers and recruiting new ones. I used to be an avid Netflix subscriber/watcher, but not so much anymore. I still receive Netflix movies, but I downgraded my plan to 2 movies a month, their lowest option. While I appreciate the concept of Netflix, I’ve found that other options like Hulu offer me what I need immediately, free of charge and are more convenient. I don’t necessarily see Netflix becoming completely irrelevant anytime in the new future, but I do think customers will see some changes from the company as Netflix continues to try and understand how new adaptations in technology can help their company.

It is true that new media such as internet emerging changes our life. I think new media is not only a technology, but also represent a new life style, a new concept of living. It can be seems as a revolution of right of speak, that means the options trends to audience side. Objects of dissemination are more active, and the status becoming higher and higher. Audience is increasing demand for feedback, requiring interaction, rather than passive acceptance of information. Represented by web2.0, interactive interface becomes the basic characteristic of the media, one-dimensional transmission interface, such as print media, is more and more potential low. When Internet users are basically the main body of the city and the new media users, the publishers should contact the dissemination and extension services to the network contacts, and other new media, not just focus on paper side.

I wouldn’t be surprised if Netflix abandoned its disc-based service altogether before too long.

When I worked at the post office, we actually made special accommodations for Netflix. We had to separate out all of the Netflix envelopes (and at a place like the U.S. Postal Service, that’s pretty special treatment). But even with preferential treatment, there’s still a cost for each mailed envelope going in and coming out. It just makes economic sense to go full digital, where the cost for each viewing of a film is pretty negligible. It turns up the profit margin for each user.

TV’s going to go the same way before too long. There were plenty of sports fans who are mourning the loss of channelsurfing.net and atdhe.net, because it was an easy way to access virtually any event you wanted to watch. The question for the producer of these products is how they are going to provide content online and make money — always the important issue.

I think this post is a perfect example of what a lot of companies are going through. You hear the term “digital age” being thrown around all the time, but the question is what does this new era encompass. Netflix is an exception, not the rule. They may have been able to adapt, but as you stated, it has been at a high cost. However, the cost will pay off in the end and that’s the point.

I’ve worked the advertising side of a company that swore the newspaper was the best choice for their marketing. The biggest driving factor for the company was that the owner was from an older generation that felt the newspaper had always been the source of information. The same idea is applicable in modern day companies. This is the age of catering to the consumer, if you will, but not in the traditional methods. In this digital age, we want what we want, when we want it and Netflix has embraced this completely.

I am a Netflix subscriber and love the access to millions of films online. My wife and I love watching movies of all types and being able to watch what we want is really great. I am saddened at the thought of Blockbuster stores going out of business, because I remember my Dad and I going to rent videos (when they were still on VHS) for the weekend. Unfortunately, the time of going to the video store is long over.

I feel kind of like I do about Blockbuster when it comes to newspapers. The nostalgia of all the great newspaper articles of the past are all that will be left once the newspaper finally goes away for the internet. I am one of the few of my generation that still prefers reading the actual newspaper and still receives the local Sunday edition every week. It may not be as up to the minute as a 24 hour internet news site or 24 hour TV news channel, but I still like to read about what’s going on in my city and around the world… In Print!

Comm200 @ APU
Bryan Carson

this article is great, and i do agree that netflix’s is absolutely amazing. that took incredible business savvy to pull something like that off so seamlessly. i use netflix and most of my use, like the quote said, is definitely from streaming.every night i can sit down and choose from hundreds of movies in the database and pick ewhich one suits my mood. it is great and really convenient. and to be honest i am not sorry to see that it took the place of blockbuster, because it is a ton less expensive. as a college kid, that is definitely important to me.

Bryan

Mass Comm

Netflix is great and very inexpensive. As someone who doesn’t have much time to really go out and go to the movies or watch television, when I do have time I d like to have what I Want to watch right there and Netflix provides that. I am glad that they made the business moves that they did. I was very smart of them and shows that they were up to the challenge of adapting and changing for the future.

It’s truly amazing how quickly shifts in the movie industry are happening. I also find it incredible that Netflix was able to adapt to the changing environment so long before the Blockbusters of the world did anything at all. It’s no wonder that Blockbuster is going broke as they just now have started placing their express boxes in more places. The store down the street from my house changed its fees to include all movies costing $5.00 to rent. Who is running this company which once dominated its industry? Good for Netflix for realizing and making the necessary changes before it was too late.

I remember when Netflix just started to catch speed and be a new topic of conversation and fast recourse. At first when it was just an another way to rent movies or watch films nothing that was threatening to previous movie sources or movie rentals, until it became as popular as it is now. Netflix has been another way for our generation to get instant movies online or mailed to them without even having to go out to places like Blockbuster to rent what they really want to watch. I wonder if “red box” is going to also go further than just the instant way to rent a movie for very cheep. Poor blockbuster for loosing as much money as they are because of their competition.

I found this post interesting because although I am a subscriber to Netflix, I was not aware of some of the behind the scenes business statistics. I did not know that the switch from mail order DVDs to instant streaming came in just two short years. I must not have been subscribing to Netflix until instant streaming was already in the game. I did have the joint plan for a while, but once Netflix created separate plans I stuck with the instant streaming.
I don’t think that the printed newspaper is dead, and I don’t think that it will die for a good long while. The same way that printed books are not going anywhere. It is easier for me to read a newspaper story on my phone or my computer, but I also prefer to see the photo spreads on actual paper. I know that my dad prefers to read the paper every morning, and that is why he has not cancelled his subscription to the LA Times. Just like you said, not everyone cares, so we should not try to please everybody.

Dr. Willis, I like what was said about how Netflix has come in and seen a segment and said either we “adapt or die” as I feel that is what is the question to come with any company in this day and age. A company that is not willing to adapt to the times will surely flounder in this time of technological breakthroughs and what not. I feel that any successful business has been able to adapt to the times and the ones that were so set in their ways have died out or suffered greatly.

Leave a comment

(required)

(required)


*