Netflix (NFLX) CEO Reed Hastings said at the New York Times-sponsored Dealbook conference on November 2 that the company is considering producing original programming in non-mainstream areas like Bollywood-style shows and anime (primarily in foreign markets, sorry). This comes on the heels of the runaway success of the Netflix original production Narcos, a fictionalized series about the life of 1980s Columbian druglord Pablo Escobar. These are just the latest in a long line of examples as to has broken the mold for how television is made, watched, rated--and how ratings influence future content. Netflix is even making the vaunted Nielsen television rating system obselete. Watch Reed's talk in the videoclip below, in which he dispenses gems of wisdom, including Netflix's future and unique corporate culture: "Ultimately, flexibility is more important than efficiency over the long term."

Netflix is currently the dominant company in the relatively young and hugely expensive on-demand media industry. By providing on-demand content, creating compelling original shows, using user data to better serve customers and letting customers consume content in the way that they prefer, Netflix is forcing cable companies to change the way they do business. In the long-run, Netflix's success may be viewed as the first step in the unbundling of cable.

Netflix is essentially a storehouse of content, including movies, documentaries, TV shows and educational programs. Customers pay a flat monthly fee and can consume any content at any time from whichever platform they prefer. In a sense, it is the first major disruption of television, which has become the dominant medium since its inception and proliferation in the middle of the 20th century.

Crushing The Competition

Netflix had humble beginnings, starting as a website where people could rent DVDs online and get them through the mail. In this version of the service, it competed with television for people's entertainment time, but it competed more directly with established physical rental locations. Netflix then came out with on-demand shows, which made it superior to physical stores and television in many ways, as consumers were able to watch what they wanted, when they wanted.

This innovation helped end the movie rental business and made it more important for cable companies and TV networks to begin offering on-demand content. Soon, Netflix began competing with TV networks directly for original content. While TV networks only approved shows based on pilots hitting certain metrics, Netflix became a more attractive destination for showrunners and script writers because it offered upfront contracts to create an entire season or two. Netflix also started uploading entire seasons at once, essentially creating the binge-watching atmosphere, in contrast to the once-a-week programming model. Many TV networks are experimenting with this model, even if it means sacrificing ad revenue.

Innovating to Stay on Top

Additionally, showrunners were given leeway in being allowed to pursue their own visions without notes or approval from the network. This resulted in some of the best new TV shows being on Netflix instead of TV networks, including "House of Cards," "Orange Is the New Black" and "Daredevil." Netflix's success has forced TV networks to be more aggressive in retaining talent by paying them more generously and giving them more freedom. One source of Netflix's success and stock price appreciation has been its original content, creating a loyal user base.

Another innovation of Netflix was to mine for user data aggressively. This data was initially sought to serve customers and help them find content that would appeal to them. However, Netflix also uses this data to determine what type of original content the company should create. This has led to Netflix having a higher success rate in manufacturing hits. Letting showrunners make decisions on content rather than business executives and finding genres and talent that the audience already likes are the key factors behind Netflix's success in taking on this entrenched industry.

Netflix also forced the TV industry to change its ways by giving customers the flexibility to consume content in the exact way they desire based on their needs. Customers can watch the same TV show or movie on a computer, TV screen, tablet, phone or gaming device. Until a few years ago, most mainstream television could only be consumed on television. Of course, this has changed largely due to Netflix.

The Bottom Line

Netflix's success has been deemed an existential threat for the TV industry. Many consumers have already cut the cord from existing cable, as Netflix is 20% of the cost of most cable packages. Further, there are no cumbersome ads. Unbundling of cable is the TV networks' worst fear; they would no longer receive regular revenue from being part of a cable package. Instead, they would have to compete on their own merits. Netflix's success brings this closer to being a reality.

The battle for your media money is far from decided. To learn more, check out How are HBO, Amazon and Google working to overtake Netflix?

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