Netflix Inc. (Nasdaq:NFLX) has become the company that everyone wants to talk about.
On Wall Street, giddy investors pinch themselves as they scoop up large returns on their investment in the shares. Netflix' stock has more than tripled so far this year, while Apple (Nasdaq:AAPL) has declined 1.4% year-to-date. Apple, once the darling of the Street, has plummeted more than 40% from its all-time high of $702.10 on Sept. 19, 2012.
The online video company's success is being driven by consumers who love the convenience of getting DVDs of television shows and movies delivered to their homes, saving them the trouble of getting in the car and schlepping to the mall. In Hollywood, the entertainment moguls marvel at how Netflix has become a creative force to be reckoned with after producing original television series “House of Cards” and “Orange Is the New Black” while besting Amazon and Hulu in getting rights to reruns such as Showtime's "Dexter" series.
"The company that started as an innovative deliver-DVDs-by-mail service has become a major player in the television industry, scaring and angering competitors in the process,” noted the Los Angeles Times on Oct. 30. “Netflix seems to be aggravating everyone but the 40 million people who subscribe to its service."
The mind behind Netflix’ big buzz is CEO Reed Hastings, the Comeback Kid of corporate America. As recently as the summer of 2011, Hastings wore a crown of thorns after he announced a price hike during a difficult U.S. economic cycle. Today, however, Hastings is arguably wearing the crown of the late Apple Inc. CEO Steve Jobs, as the most innovative CEO on the business scene.
"Hastings could be the successor to Jobs as the model in Silicon Valley for how to innovate," said Paul Carroll, a principal in San Francisco in the consulting firm The Devil's Advocate Group.
Hastings also has Jobs' instinct for great timing when it comes to innovating.
"He learns fast," Carroll said. "He was ready to launch a streaming service some years ago that would have let people download movies overnight, but then he saw YouTube and realized that overnight was no longer fast enough. He killed his project, kept testing and waited for the right moment."
Hastings' record of innovation, while not quite at Jobsian levels, is behind his new status. Jobs led Apple out of its computer origins by pushing to create the iPod, the iPhone and the iPad. His true genius may have been marketing, given he convinced millions of affluent people that they couldn’t live without these products.
Hastings has also innovated and, along the way, re-invented his company. He had the foresight to conclude that Netflix could only go so far by streaming and re-selling other people’s content and than it needed to impress Wall Street, which rewards consistent growth.
"Netflix is in its own orbit right now," said Michael Holland. "Wall Street is saying it is the business flavor du jour. It is benefiting from the buzz. It is now fashionable to say how wonderful Netflix is.”
So, last February, Hastings solved both challenges by coming up with “House of Cards,” a political thriller starring two-time Oscar winning actor Kevin Spacey. The show was an immediate hit. At last April’s White House Correspondents Dinner, Spacey was the guest most sought after for face time, autographs and even photographs by the Beltway’s heavy hitters.
A few months later, Netflix followed up with “Orange Is the New Black,” which was noteworthy for the sheer number of diverse and compelling women who dominated the show.
"We can observe the strong signs of Netflix’ innovation in its content creation," said Syracuse University professor Robert Thompson. “’Orange is the New Black’ shows a diversity of women – set in a prison -- and treats them in a non-trashy and non-soap manner. With its edgy programming, Netflix has become the new AMC, which everyone praises for such edgy shows as ‘Mad Men’ and ‘Breaking Bad’. One bit of proof that Netflix has arrived in content origination is that it has started getting nominations and winning awards a lot faster than HBO ever did.”
Under Hastings’ leadership, Netflix has also contributed to the sociological phenomenon of consumers cutting their ties to cable companies and viewing entertainment completely online.
"I bet that more than half of my students don’t have a TV set in their dorm rooms. When they move out of their parents’ homes, they don’t even want cable TV or to pick up a cord of their own. Just as landline phones have given way to mobile phones in that industry, you’re going to see another change among young people, with more and more cord cutting as Netflix becomes even more popular.” noted Thompson.
What about Amazon (Nasdaq:AMZN) CEO Jeff Bezos, who is no stranger to the rewards and accolades that come with innovation? Like Jobs, Bezos grew up with an adoptive father.
Bezos is certainly a worthy contender for Jobs’ crown, but Amazon has not had the trajectory of Netflix – in terms of making such a notable comeback at a time when it is not easy for a corporation to win back goodwill. Amazon, Netflix and Apple spokespeople declined to comment on comparisons between their corporate leaders.
It’s clear that Hastings will continue to rely on the methods that have gotten him and Netflix this far.
“Netflix beat Blockbuster by thinking big, starting small and learning fast,” noted corporate consultant Chunka Mui, also the coauthor of "The New Killer Apps: How Large Companies Will Out-Innovate Startups."
How can Netflix continue to outshine competitors? Mui’s answer is simple and direct: “It needs to remember the innovation mantra: think big, start small, and learn fast.”
The Bottom Line
Can Reed Hastings' Netflix balloon continue to keep going up and up?
Investors would be wise to question the prospects for the stock, considering that Netflix disappoint them in the summer of 2011. At the same time, we can learn from our mistakes. Hastings appears to be gained perspective and the recognition that he will succeed through continuous innovation.
Isn't that the lesson that Steve Jobs taught us all? As a matter of fact, it is.
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