This strategy also had the interesting property of being a viable business until bandwidth improved (presuming, of course, that the cable operators did not do what I suggested!). IANAL, but I think major laws would have to change to prevent Netflix from buying DVD titles and renting them by mail, so he could operate without the permission of the big boys. Doing DVDs by mail, while perhaps not as good of a business, achieved these goals. He wanted to be sure he was well-positioned to be the dominant player when #1 (bandwidth) resolved itself and wanted to be big enough to achieve #2 (licensing deals). IIRC, Hastings wanted to do streaming from the beginning but recognized that (1) the bandwidth wasn't available widely enough yet and (2) licensing content for streaming distribution required being a big player. I am convinced that Netflix will one day be studied as one of the most astute business strategies of the 'internet revolution'. I so often think I've written something semi-insightful, but it is entirely ignored. Even with good intentions, when the air supply for a subsidiary disruptor is provided by the threatened parent, politics will probably win even if it costs the company in the long run.

In the meantime, you'll be punished by the Street for development costs.Įtc., etc. This subsidiary would only show earnings significant enough for Wall Street to care at a point in the future in which you will probably have moved on in your career, Mr. By the way, here's our cost accountants' report showing that this fee should be high. This subsidiary should be charged the economic costs of supporting it: let's charge them a fixed rate per line to access the company's infrastructure. Our margins pay for the fixed costs of the pipe if this subsidiary compromises our margin, the whole company will be unable to pay our fixed costs! In this case, if the subsidiary relies on the parent's pipe to each household, it's easy to imagine the boss of the traditional cable division constantly lobbying the CEO against the subsidiary disruptor imagine the endless political claims: This works better when the subsidiary does not rely on the parent's infrastructure. Why pay for HBO (sans original content of course) if you could pick ANY movie? How many industries have hurt themselves by not cannibalizing their existing revenue streams with sufficient aggressiveness? What I have proposed is worse than what was suggested even back then, right? So, why didn't the cable operators do anything? I'm bet it had to do with fear of cannibalizing existing revenue streams. It is not as if video-on-demand services had not been discussed since at least the early 90s. Would this have been sufficient to combat Netflix? Presuming identical catalogs, why would I fiddle with snail mail, scratched-up DVDs, etc.? Such an offering certainly would have created an uphill battle for Netflix. I've purposefully suggested the crappiest, most minimalist implementation I could imagine as a thought experiment. Consumers could have gone to their local cable company office and picked up this box along with unlimited movie service for, say, $20/month. Each slot would have taken 8 hours to download over the cable line and then could have been watched using a minimalist remote to pause, rewind, etc. One would have loaded up his box by going to the cable company's website and picking movies from a large catalog - one movie for slot 'A' and another for slot 'B'.

The box then would have connected to the TV's analog inputs. A consumer would have attached a Y-splitter in front of his existing cable box and then added this new box in parallel. Imagine if, in 2002, the cable companies had come offered a little, Roku-esque box which could hold two almost DVD-quality movies. That the cable companies did next to nothing to combat this disruption is astounding given that they already owned and controlled a pipe into the customer's house! Then, Netflix drastically cut the elapsed time with streaming content. Netflix fixed that albeit at the expense of elapsed time. Going to the video store, picking out titles, and remembering to return them was a huge timesink. The service Netflix provided from the beginning is a wide selection of content with little applied time on the customer's part. The cable companies' competitive response to Netflix has been laughable although no worse than any other established industry's response to disruption.

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