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.
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.
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.
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.
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.