Guy Reams (00:00.92)
This is day 189. The right path only becomes right after someone proves it.
Guy Reams (00:10.016)
I remember working through a case study on Netflix years ago, back when they had just made the pivot to digital streaming. The exercise stuck with me because it showed something I have seen over and over since. The right way to do things only becomes the right way after the first person or company succeeds doing it. In January 2007, Netflix was spending about $40 million on streaming. Analysts were downgrading the stock.
the share price dropped more than 12%. Wall Street was uneasy because Netflix was spending ahead of the curve on a business that looked uncertain. The company was still fundamentally a DVD rental business, but management was already investing strategically in online video and bundling DVDs with instant viewing. They cut guidance in mid 2007 and warned of lower revenue.
subscriber growth, and earnings while they kept investing for the long term. The really severe backlash came even later, in 2011 when Netflix tried to separate DVD and streaming more aggressively with what they call the Quickster plan. That move sparked a revolt from customers and investors. The reaction was overwhelmingly negative. Investors did not object to the idea that streaming might be the future,
Netflix itself told shareholders in October 2011 that its opportunity was to lead the internet video transition. The problem was that investors thought management was bungling this transition by moving too abruptly, raising prices and disrupting a still profitable DVD rental business before streaming economics were fully proven out. The market reaction was brutal.
Netflix told shareholders that the prior few months had been difficult and that it had dramatically overestimated. The company reported a net loss of about 800,000 subscribers in the third quarter of 2011 after ending the quarter with about 23.8 million US subscribers. That subscriber shock fed directly into investor panic. And that's why people like me ended up doing case studies on the poor,
Guy Reams (02:35.074)
devastating management impacts at Netflix. How what? The stock had plunged by more than 50 % after this 2011 fiasco, with the broader decline reaching about roughly 75 to 77 % from its 2011 peak over the following months. Business School Summaries frame it as one of the company's biggest strategic blunders. So the reception was not
great idea. The reception was not great idea, let's go. It was closer to streaming may be right long term, but this rollout is destroying trust subscribers and shareholder value. By 2013 however, just two years, almost less than two years later, Investorment's sentiment improved sharply as Netflix proved that a streaming first model could actually scale
retain subscribers, and support original created content. The right way to do things only becomes the right way after the first person or company succeeds in doing it. I think about this when I'm trying to decide whether to move forward on something that feels right but looks uncertain to everyone else. If you think you know the right path, then just take it. Do not worry about what they are saying.
They will only praise you when you are successful. On your way there, they will constantly tell you what you were doing wrong. The next time someone tells you your idea will not work, remember the Netflix lost 800,000 subscribers and saw its stock drop by more than half before they proved all their doubters wrong. The path only becomes right after you walk it.