Is Netflix's Business Model Really Changing for the Worse?

As explained by Kevin Kelleher in his article in Fortune, Netflix has provided much value to its customers by offering an alternative to cable television. When the company started, its customer value proposition was to offer customers thousands of movies and TV shows for an affordable price. Due to the astounding impression that companies, like Netflix, have made on the world, analysts predict that 12 million homes will cancel their cable television subscriptions within the next three years. With an aim to add more subscribers, Netflix is now planning to move towards a new business model that “resembles a traditional cable company.” But is this really the most logical move for Netflix?

Reflecting this new business model is Netflix’s addition to the website: its original programs. Last month, episodes of its original series Lilyhammer appeared on its website, and the company is currently working on others. With a struggle to add new titles to its library, Netflix believes original programming will help the company attract new subscribers, and thus increase its profit margin. Netflix is also hoping to partner with cable companies to “include its streaming service into their cable offerings.”

A captivating question in mind is if Netflix’s change in its business model is hurting the company’s brand, or strengthening it? According to Cynthia Montgomery, in her piece Putting Leadership Back into Strategy, a firm must define its purpose in the world and then based on this purpose, decide how the firm will deliver value. Based on Montgomery’s belief, Netflix does not seem to be changing its purpose, and in effect may actually be increasing the value the company adds to the world. Netflix defined its purpose to offer its customers movies and TV shows for a fair price. By creating original programs for its customers, Netflix is providing a wider selection of exclusive TV shows, which in turn adds value.

With other companies entering Netflix’s market (such as Hulu), the value Netflix offers, with respect to movies and TV shows, may start diminishing. Montgomery explains that a company should not hold on too strongly to one competitive advantage. In Netflix’s case, its one competitive advantage could be its offering of movies and TV shows. By partnering with other cable companies, Netflix would be creating reasons for its continued existence, which would strengthen the company’s brand and would also be a new opportunity for adding value.

However, it could also be argued that Netflix should be focusing on adding value to its current business model. In the reading Note on Prahalad and Krishnan’s The New Age of Innovation, value is described as the personalized experience of customers. Although branching out to original programming and cable companies could add personal value, there are other ways Netflix could add value, while sustaining its original business model. Using IT, Netflix could personalize its customers’ experience on the website by providing features that allow subscribers to customize the display page or by advancing the website’s movie and TV show recommendation techniques to better fit customers’ preferences.

 In How The Mighty Fall, Jim Collins explains that companies enter Stage 2 of Decline when they start to reach into areas that are inconsistent with their core values. Would Netflix be entering this stage by creating its own shows and partnering with cable companies? Kelleher believes that by doing so, Netflix is “diluting” the company’s brand. But could this change in purpose be Netflix's way of creating more value for its customers? In my opinion, if Netflix is not only focusing on adding new subscribers and is also thinking of how its company could provide more value for its current customers, then I don't see the harm in expanding its customer value proposition. Creating new TV shows and partnering with cable companies are different ways that Netflix is offering its original CVP to its customers. I think its customers would appreciate the new TV shows, and may also benefit from Netflix partnering with cable companies. As long as Netflix has its customers' experience in mind, I think the move to original programming and partnerships with cable companies would be beneficial for its brand.