As part of my MBA studies I performed an analysis of blockchain technology and how it may affect Netflix’s larger strategy. This is what I came up with.
Blockchain is inherently a disruptive technology when viewed through the lens of data transmission and receiving. Previous technologies relied on both a sender and receiver needing to have their own standards and operations around functioning. In many cases of data transfer, there had to be a middleman or interpreter who would translate these messages back and forth. With blockchain technology, all of these functions happen simultaneously regardless of whether a sender or receiver. The protocol or system itself updates data across itself without the need of additional processing that may be prone to failure or manipulation. As anyone can access and make changes to data on the blockchain, you are no longer reliant on services needing to perform these operations for you.
Looking towards Netflix, Blockchain has several different areas that may emerge that could disrupt them. Some avenues are supplemental while others are more ingrained in their operating processes. Let’s explore them.
Looking surface level at existing blockchain applications the most prevalent is cryptocurrency. This is probably the easiest to imagine Netflix integrating into their strategy. By accepting cryptocurrency for payments towards their service, it allows them new avenues to capture revenue. Although the subsegment may be small of users, by allowing customers to pay in cryptocurrency allows them to broaden who may be potential buying customers. By partnering with a service provider like Coinbase, they’d be armed with the ability to custody assets and transfer them into U.S. dollars as needed.
Looking more indirectly at cryptocurrency, another application may arise in the form of advertising cryptocurrency. As Netflix launches their advertising subsidized plans, how are they tracking how much revenue their ads are generating? More than likely advertisers pay Netflix for a guaranteed or rough estimate of the reach their advertisements would have. Blockchain changes this in that an advertising crypto could be tied directly towards when an advertisement plays. It would cost the advertiser per view but it would also turn around and reward the consumer of the advertisement with the crypto. Here Netflix would have a few options. If they let individual consumers custody their advertising crypto, they wouldn’t be receiving any payment for advertisements. In this model they’d have to let users transfer these credits into their subscription which would result in the cheaper prices to users for watching advertisements. Netflix would then be receiving these advertisement credits as users transfer. More than likely, though, Netflix would probably choose to remain in custody of the advertising credits for all users. So even though one user may rack up more credits than another, it’d all be going to the same place and therefore lowering everyone’s subscription cost as an aggregate. Although both strategies allow Netflix to benefit, allowing users to have custody of their assets fits the Web3 mantra whereas the alternative would just be another centralized service happening to use blockchain.
The most disruptive force Netflix would have to be on the lookout for would be putting video streaming on its own blockchain. In essence, anyone with access to the blockchain network would be able to access all the content within it. To stream or “download” a movie or show would be a matter of paying the fees associated with the blockchain network to distribute it to you. It would threaten them in several ways. The most pronounced would be that not only would they be competing against another streaming service, they’d be competing with one that would be decentralized. Meaning their own content could be pirated and placed on the blockchain network. Once there, it couldn’t be removed or altered. If the system’s network fees were low enough, they’d be undercut on pricing as users would merely use the decentralized service. The programs users use to access the content may have piracy rules in place to be approved on app stores but there’d always exist ways to access the full network.
It’s really a matter of when not if the above scenario will take place. To compete against a decentralized network like that, Netflix’s only option would come down to competing on cost and user experience. They’d have to be cheaper than the decentralized service to incentivize users to keep using their service. In order to become cheaper, they’d have to cut operating costs extensively. As their service relies on centralized cloud computing, they’d have to then explore their own blockchain service for providing their content. It’d become a true battle of who has the most optimized technology to get content to users in the most cost effective, simple to use manner. It would be an interesting battle, though. As the decentralized network would more than likely be open source, any and everyone could contribute to it no matter where they are in the world. Netflix could always copy the source code and rely on their interface being better but to make up for their other operating costs, they’d have to come up with a more optimized technology than what the public’s would be using. The only good news is that their major competitors would also be facing this same challenge.
There’s probably even more avenues to explore blockchain in Netflix’s technology stack. Any aspect of their technology relying on information needing to be synced and transmitted is opportunity area for efficiency improvements blockchain provides. Although Netflix can’t stop a decentralized streaming service from appearing, they can be taking actions now to take advantage of blockchain systems and aligning their technology team to be exploring how it could be used to make their own system more efficient.