Netflix has revolutionized the entertainment market without a regulatory backlash

07 / 24 / 2018 | La República

José Miguel de la Calle, partner at Administrative Law of Garrigues in Bogotá

Netflix was founded in 1997 as a DVD rental service and slowly morphed into a video streaming platform. Today, it is the only television powerhouse with a global reach, as explained in a recent edition of The Economist (“The tech giant everybody is watching,” June 30, 2018). The most interesting aspect is that Netflix’s has revolutionized the industry without triggering any major regulatory backlash.

For The Economist, the key to this global giant’s success in the film and TV sector - outperforming Hollywood studios and even Facebook, Google and Amazon - rests on four factors:

For one thing, Netflix produces more content than any of its competitors. In 2018, Netflix will release over 700 exclusively licensed shows and more than 80 feature films, while Warner Brothers, the largest Hollywood studio, will put out just slightly over 20.

Secondly, its dizzying investments in technology have allowed it to categorize individual users’ preferences into about 2,000 “taste clusters” so it can make targeted recommendations for all types of preferences worldwide, even for niche viewers.

Thirdly, in contrast to the main social networks, Netflix has steered clear of the news business, sticking to offering viewers film and TV entertainment in exchange for a monthly fee. This has left the company untouched by scandals over fake news and electoral manipulation. Moreover, its business model does not rely on selling users’ data, which has lightened its regulatory burdens and the political pressures surrounding compliance with data protection laws.

Lastly, Netflix’s international focus has proven to be a spot-on approach, not only boosting its earnings but also easing political relations with the different countries in which it operates. Annual growth in non-US subscribers was up 48%, and the company makes TV shows in over 20 countries.

Today, Netflix has more than 125 million subscribers and spends over $20 billion in generating content. Its market value tops $170 billion and its streams take up more than 20% of the world’s downstream bandwidth.

Netflix’s story has forever changed the face of the film and TV production and distribution industry. Some would even say that it has spurred massive shifts in the entertainment business as a whole. In order to better meet new consumer demands, AT&T has had to join up with Time Warner, while Comcast, the largest bandwidth provider worldwide, initially attempted to buy up part of 21st Century Fox.

Amazon, Instagram, YouTube, Apple and Facebook are veering their business models toward developing programming of their own, all with one thought on their minds: compete with Netflix. Netflix’s sustained success has stirred up unprecedented worries in the global industry, causing many companies to radically overhaul their short- and medium-term business plans. These players are even more keen to catch up with Netflix considering the fact that today’s young consumers (age 24 and under) are watching less than half as much pay-TV as before, according to the same The Economist report.