Examining the Strengths and Weaknesses of Netflix’s Business Model in the Context of the Post-Legacy Television Market

Abstract

As the 1979 hit song by The Buggles states, “video killed the radio star.†Coincidentally,

since the early-2000s, there has been speculation that the television industry may be on

the cusp of its own extinction-level event, with streaming sites such as Netflix acting as

the meteor. Scholars such as Lotz (2014) and Strangelove (2015) refute that theory,

proposing instead the idea of ‘post-legacy’ television1. Strangelove (2015, p.4) notes:

“the ‘post’ in ‘post-TV’ does not indicate the end of television itself, but does refer to the

end of a particular way in which broadcast television structured viewing and the

beginning of new ways of participating in television.â€

Enter Netflix. Since its founding in 1997, the company has evolved from an online

Blockbuster to the name brand in online streaming services and “world’s leading

Internet television networkâ€, with 93 million subscribers in 190 countries (Netflix

2017a). In many ways, the company has mapped the same trajectory as cable network

HBO did in the 1990s- developing from an aggregator of first-run cinema and event

content to the connoisseur of quality television- and prompting the slogan “It’s not TV.

It’s HBO†(HBO ca.1998 cited by Miller 2008, p.ix). Now, with an expanding line-up of

award-winning content2, the adage is increasingly “It’s not TV. It’s Netflix.†Still, the

company has begun to experience its version of what Miller (2008) identified as the post-

“Sopranos†pressure that befell HBO in the late-2000s when other channels began to

adopt its specialty as their own. Netflix, despite its first- mover status, is now facing

competition from other aggregators, as well as legacy television networks migrating to

the online sphere. Looking forward, this essay will examine the business model currently

used by Netflix, focusing on the aspects of production/distribution, content creation and

acquisition, and recovery of costs (Picard 2011), particularly surrounding its original

series. It will outline the company’s strengths and weaknesses regarding its use of

metadata and analytics in acquisition; methods of financing and distributing content; and

sources of revenue.