Value and Savings: The Netflix Paradox

Unless you’ve been living under a rock, you’ve heard of Netflix. The rental and streaming TV service has more than 33 million subscribers in the US alone, outperforming HBO and other premium networks. The company has turned heads in the entertainment industry with its skyrocketing profits and self-produced programming, including the wildly popular House of Cards and Orange is the New Black. What is the foundation of Netflix’s success? What can other businesses learn from them? More importantly, what can we learn as individuals?

Below are a few facts about the Netflix business model that will change the way you approach value and savings in your own life. Pause American Horror Story (it’s not going anywhere) and read on.

Netflix is a company that works, mostly because it is:

  • Cheap. $7.99 a month to be exact. When the average cable package tops $100, it’s difficult to argue the affordability of Netflix. Less than $10 a month provides thousands of by-mail and streaming titles. Choice combined with a budget-friendly edge is the cornerstone of Netflix’s mass appeal.

The lesson: Value is important. Think back to the company’s PR nightmare of 2011 when they attempted to raise prices to $16 a month. While hardly a budget-buster, more than 800,000 irate customers cancelled their subscriptions. Faced with lost income and media backlash, Netflix limped back to its original price. Why such outrage over a measly $8 increase? Simple: People felt that the service was not worth double the original price. The concept of value is an important one. The average person fails to practice budget scrutiny in their daily lives, leading to wastefulness and overspending. Ask yourself, “What is this worth?” before opening your pocketbook.

  • Growing. A single share of Netflix stock was worth $447 when the Nasdaq closed on February 24. The price is remarkable, especially since the same share was worth a mere $36.42 in 2009. Although the stock price has seen its peaks and valleys, the level of Netflix’s growth is undeniable.

The lesson: Success is incremental. Netflix wasn’t an overnight success. They’ve been around since 1997 and only recently did their business reach its pinnacle. Success takes time and effort, especially where finance is concerned. What may seem like a small investment today can yield major benefits in the future. Don’t get discouraged by small steps—all forward motion counts.

  • Changing the game. Netflix is overselling its competitors by asking customers what they want and giving creatives more control over original content. Breaking the mold has lead to a new era of home entertainment, one that promises to replace traditional cable packages.

The lesson: Evolution is natural. Sure, you made some credit mistakes in the past. You may even feel ashamed of them. You can’t rewrite the past, but you can make positive changes in the future. Allow yourself to evolve. Change only comes to those who move forward.

  • Helping us waste time. Why is Netflix so popular? Here’s the simple (and sad) answer: It allows us to binge. Gone are the days of waiting for your favorite rerun to play in syndication. On-demand viewing allows us to watch entire seasons of shows—often wasting entire weekends in the process. Netflix execs understand our love of excess and will continue to cash in as long as we continue to watch.

The lesson: Practice moderation. The term “binge” is bad in any situation, whether it’s watching too much TV or spending too much money. Overindulgence is a character trait; if you are prone to excess in one area of life, the others are soon to follow. Cultivate self-control and apply it in every aspect of your life. Give your bank account (and your flat-screen) a break.