"The competition has grown fiercer in recent years. But the key factor isn’t which service has the best show of the moment, but a matter of whether a tech company can learn how to be a media entertainment company faster than the media entertainment companies learn how to compete in tech." -Amanda Lotz, Queensland University of Technology (Australia)
An exceptional number of words are published each month—each week even—hailing, anticipating, and critiquing Netflix. The company offers an incredible story: first as the David that slew the Goliath of Blockbuster, then the nimble upstart that improved nearly all aspects of watching television—initially in the U.S., now increasingly around the world. Netflix broke into an industry with exceptional barriers to entry and a long history of keeping others out. Regardless of whether it dominates in the future, it should be credited with forcing massive innovation on the television industries.
The landscape of television only grows more complicated as news of other tech companies developing television series now makes headlines, particularly Apple while others have eyes trained on services announced by Disney and WarnerMedia. Many are uncertain of the distinction between tech and media companies as boundaries blur in this complicated competitive landscape. Perhaps Netflix is neither a tech nor media company, but both. Netflix is a tech company that has entered the media industry and its biggest asset, and limitation, is that it thinks and operates like a tech company.
At first—back in 2010—the upstart tech players such as Netflix and the legacy media industries achieved a détente as each offered something the other needed. Netflix supplied the studios with new licensing revenues just as the 2008 recession, an ascendant cable sector, and new tech adoption drew away audiences and threatened the advertising dollars they had long commanded. The studios supplied Netflix with the programming it needed to convince viewers that a better television experience was available for a modest monthly fee.
By the end of 2014, the détente wavered as the two sectors crossed into each other’s businesses. Netflix quickly proved adept at developing its own series, and with an audience now accustomed to streaming television, the legacy industry focused innovation on developing its own internet-distributed services such as CBS All Access and HBO Now, and to some extent, redeveloping Hulu.
The competition has grown fiercer in recent years. But the key factor isn’t which service has the best show of the moment, but a matter of whether a tech company can learn how to be a media entertainment company faster than the media entertainment companies learn how to compete in tech. Various hiring announcements make clear that tech is developing the assets to win much faster than the media entertainment industry.
Producing compelling programming is a gamble at best—it is not a venture that necessarily advantages experience, and all the money in the world doesn’t guarantee a hit. The media entertainment industry’s decades of entrenched knowledge of how things worked when broadcasters were the only game in town give it no advantage. Understanding what made for a successful broadcast series is of little use to today’s competitive environment, and understanding a market on fire with cable originals a decade ago is little more help.
The key advantage of the tech companies is their lack of knowledge about how things used to work. They can hire a few execs away from the television industry for their network of contacts and insight into how to manage creative talent. Those execs go to work in tech companies that have very different approaches to audiences and what can be known about their tastes and preferences. Tech companies understand that data can be used to find better ways to operate media industries and are doing so far faster than the entertainment industries are embracing these tools.
Media execs governing companies earning profits and returning value to stockholders are reasonably aggrieved when new tech competitors that are barely breaking even—or even losing money—enchant investors. Indeed, they are not being held to the same standard. But those investments are about the long game and come from a perception of continued and significant change in these industries. Investors recognize that tech companies competing in media entertainment are developing tools that will redefine the media businesses far more profoundly than the significant change already experienced.
Entertainment media is an unusual business in all sorts of ways, but assuming the art or creative will win out ignores the reality that we now live in a world overflowing with shows, songs and stories that would capture our attention or passion if we could just find them. Telling a good story still matters, but having the tools to know who wants that story and to put it in front of them are every bit as crucial as the tools to make the stories. Also, experience matters. A lot. And probably far more than constant opining on the relative merits of different pieces of intellectual property acknowledges. Companies moving into entertainment from tech bring with them new paradigms about using data and maximizing experience.
Of course this is a long battle in which there can be multiple winners, and we remain in early chapters. The future may look very different if media companies start poaching tech talent, installing them at the C-level of corporate structures, and allowing them to reset priorities and “how we do things.”