Netflix vs Blockbuster and the comforting narrative we tell ourselves

Nick IngramStrategy0 Comments

The Blockbuster vs Netflix story is a business morality tale that may be making us too comfortable...

I was working with the board and senior management of a radio station last Friday on their strategy. The inevitable topic of digital disruption came up. It’s clear radio is going to look very different over the next decade, but the question no one can answer is what will it look like and when?

Of course there are some principles here, which are probably the topic of a future post, about predicting the future. In fact I’ve blogged about this already. But in this domain of technology’s impact on traditional industries (media, finance, transport, retail etc) it’s safe to say that technology takes longer to bite than many expect, but its eventual impacts are far more profound than many predict.

Anyway in this workshop we started discussing the classic Netflix vs Blockbuster cautionary tale. This has become something of a business moral fable in recent times. You know how it goes. Blockbuster was caught wrong-footed by video streaming services. It could have bought Netflix for $50m in the mid 2000s, but it didn’t, because Blockbuster misnamed the business it saw itself in. It was actually in the entertainment distribution and curation business, but it thought it was in the physical retail business (with its emphasis on turning its stores into convenience shops). Variations on this moral tale include: management wasn’t competent enough to see the inevitable endgame; no-one wanted to disrupt the H1 business of physical stores and hasten their demise; etc.

And then the morality tale turns to Netflix. It had started as a business mailing out DVDs, with no late fees. It had then disrupted itself to become a streaming business of other people’s content. And then it disrupted itself again to become a production house and produce its own content (Frank Underwood being the best character to emerge from their stable so far without doubt!). In this tale, Netflix management is competent, far sighted, courageous.

All of this may be true. But I can’t help thinking that as we try to tell ourselves this story to discomfit ourselves (“don’t be like Blockbuster’s management”) we are at the same time actually doing the opposite. It’s kind of comforting to tell ourselves that Blockbuster’s management was too incompetent to see the end game. Too timid to disrupt their physical stores. Too obtuse to know what business they were actually in. It’s comforting to say: “We are not like that. We are smarter, more far seeing, more courageous than Blockbuster’s management. Their fate isn’t ours. In fact, we are like Netflix’s management – agile, far seeing, brave enough to blow up our own business to let new growth bloom.”

Well. I’m not so sure. I suspect it’s arrogant in the extreme to assume Blockbuster’s management wasn’t competent. And more arrogant to assume that we are smarter than them.

In fact, I wonder whether there was something far deeper going on. Bigger than management and strategy. Something in the respective “systems” and cultures in Blockbuster and Netflix, bigger than the people themselves, that almost inevitably meant that their fates were sealed. I wonder whether there was something in the DNA of the organisations, in their business models, in their ways of measurement, that meant that the decisions they would make were pretty much locked in. I suggest, in fact, that if you transplanted Netflix’s management into Blockbuster, I reckon Blockbuster would still have collapsed. There were bigger forces in play here than leadership and management decisions on strategy.

Now, I don’t have proof for this. I just find the current analysis a little bit too convenient and self serving. When I tell myself that morality tale, I feel comfortable, and I’m not sure that’s a good way to feel in business these days.

So, is this a counsel of despair? Is your business’s fate sealed by bigger forces beyond your control? Well, to some extent, maybe. But hopefully not. I guess this is an appeal to look deeper at what happens when businesses get disrupted by technology and not to assume that the incumbents were too fat and lazy to see what was about to happen to them.

And I do wonder whether the answer is less in trying to see the future and come up with a great strategy, and more in creating the kind of organisation – systems, business models, culture, etc – that makes it a bit easier to be a Netflix and not a Blockbuster as the future unfolds.

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