Why media executives can't play by Netflix's rules but are still trying
If you're in the media business, you might be sick of reading about how well Netflix is doing.
Here's a great explanation of why media executives might be justified in feeling they're getting a bad rap. CNBC's Alex Sherman has a good analogy in this must-read article.
Let's say you're a carpenter, and you make furniture out of mahogany. You pay for mahogany wood and sell a finished product for a profit. You've been doing this for years, and you've made a good living from it.
One day, a new guy — let's call him Reed Hastings — moves in next door. At first, Reed seems awesome. After looking through your store, he buys a bunch of the dusty pieces in the back no one else wanted.
But after a while, Reed decides to get into the furniture manufacturing business, too. And now he's telling your mahogany supplier that he'll pay 50 percent more for the same wood. Then another competitor, a rich fellow named Jeff Bezos, shows up across the street. He wants the mahogany, too, and he's bidding 75 percent more.
This is crazy, you think. How are these guys able to afford to pay so much more for the same stuff? They've got to be passing along the costs to their customers, right?
But they're not. You walk in their store, and they're selling the same quality furniture you make for less than you sell it. And cash from investors is pouring in.
You say, what the hell? I'll up my spending, too. This is the new world, I guess. So you bid 100 percent more for mahogany. Instantly, your stock falls. "Boo!" say your investors. "Your business model is dying!"
New York magazine's Josef Adalian gets inside the Netflix machine and reports on what it's doing differently. He notes that Netflix is now making more TV than any network in history.
Content chief Ted Sarandos says his staff have a lot of freedom and a lot of money: “Most of my team have more buying power than anyone has selling power in Hollywood. My direct-report team can greenlight any project without my approval. They can greenlight it against my approval!”