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netflix and resource based value theory

One of the enduring ideas of management theory is resource based value theory: firms are valuable because they have a quasi-monopoly on some resource that gives them sustained advantage. Netflix is a great place to think about this.

My theory of Netflix is that it is not a “resource based” firm, but rather a firm that has exploited being a first mover in three related areas: DVD rental, streaming, and content development. Netflix did not invent any of these fields. Rather, they exploited loop hole and the inertia of other firms. For example, they didn’t invent DVD rental by mail, but they perfected an area many thought was dead. Same with streaming. They didn’t invent it, but other firms were slow to develop very good streaming. And clearly, Netflix did not invent or perfect content creation, though they are clearly really good at it.

And this is why Netflix is in a big hole. Why? The rest of the industry has caught up. DVD rentals are still good, but they aren’t enough to sustain the company. And now many, many competitors have good streaming and great content.

The result is that Netflix is deeply bleeding money. Yahoo reports that they’ve issued $12bn in bonds. Yahoo also reports massive cash burn and many “off the balance sheet” debts. The question for Netflix is whether they will innovate a genuine resource they can exploit or somehow stay ahead of the competition, just enough to avoid debt disaster.

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Written by fabiorojas

April 26, 2019 at 4:20 am

Posted in uncategorized

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