This case was prepared by Donald Sull, Senior Lecturer MIT Sloan School of Management, and Stefano Turconi, Teaching Fellow, London Business School. Harini Panda and Nadi Kassim, MIT Sloan School MBAs class of 2021, collected data and supported the case preparation.

Copyright © 2021 Donald Sull. This work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit Creative Commons’ site or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California 94105, USA.

21-201 January 30, 2021

Netflix Goes to Bollywood

Donald Sull and Stefano Turconi

For the first fifty years of television, broadcasters determined what viewers could watch and when they

could watch it. Consumers faced limited choices, had to arrange their schedule to watch a show when it

was broadcast, wait a week for the next episode, and sit through frequent commercials breaks. Streaming

video pioneers Netflix, Hulu, and Amazon Prime Video shifted the power to the viewers: they assembled

large libraries of content and made these shows, movies, and documentaries available over the Internet,

so that audiences could watch what they wanted, when they wanted, for as long as they wanted, without

commercial interruptions. By 2019, 40% of Americans watched multiple episodes of TV shows in

sequence (known as binge-watching) every week.1

Since its founding in 1997, Netflix evolved from a mail-order DVD rental company to the world's

leading streaming video on demand (SVOD) provider. By 2019, Netflix was the dominant SVOD

platform, with 167 million paid subscribers around the world and an enterprise value of $157 billion

(see the tab N summary in the case data supplement for an overview of Netflix operating and financial

data). Viewers voraciously consumed the company's content—the average number of hours subscribers

spent watching Netflix each day increased four-fold between 2010 and 2015.2

Unlike Disney or NBC Universal, Netflix did not enter streaming video with a large library of content

(tab movie franchises). Instead, Netflix rose to industry leadership by successfully seizing a series of

opportunities to grow its business.3 To transition from DVD rentals to online streaming, Netflix licensed

popular content, including Disney’s Marvel Avengers, NBC’s The Office and Warner’s Friends, from

major media companies.4 In 2013, Netflix launched its first major original series, House of Cards, and

later built an in-house studio to ramp up the number of original TV series and movies it could produce.

In 2019 alone, Netflix invested $15 billion to produce original series and 5movies, outspending any TV

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 2

network or Hollywood studio.6 Netflix also expanded beyond its domestic market to 190 countries, and

by 2019, 60% of paid members were outside the US and Canada.

Netflix’s executives attributed its growth, in large part, to a corporate culture that promoted agility and

innovation.7 A 127-page presentation, knowns as the "Netflix Culture Deck," explained the company's

culture and why it mattered for success. By 2017, the Netflix Culture Deck had been viewed 15 million

times.8 Facebook COO Sheryl Sandberg said it “may well be the most important document ever to come

out of [Silicon] Valley.”9 Netflix co-founder and CEO Reed Hastings, published a book, entitled No

Rules Rules: Netflix and the Culture of Reinvention, celebrating Netflix's culture.

The rise of Netflix came at the expense of established entertainment firms and cable networks. Streaming

video induced millions of viewers to dispense with traditional pay TV packages, especially younger

viewers (US TV market and US media generation). But the incumbents fought back, consolidating

media properties through mergers and acquisitions, terminating their licensing contracts with Netflix,

and launching their own streaming services (SVOD competitors). By 2019, AT&T, Disney, and

Comcast had completed acquisitions collectively valued at $215 billion (US media conglomerates).10

Analysts estimated that TV series and movies licensed from these three media giants accounted for

approximately 40% of the viewing time on Netflix (N most viewed).11 Meanwhile, Apple unveiled its

streaming-video subscription service, backed by a multibillion-dollar investment in original content (US

competitor financials).

The Walt Disney Company’s streaming video service, Disney+, launched in the U.S. in November 2019,

signing up 10 million customers on the first day. Within five months it had surpassed 50 million

subscribers, including eight million in India, where the service launched in early April 2020.12 By

comparison, Netflix, which entered India in 2016, had just over two million subscribers. Netflix viewed

India, with a population of 1.3 billion, as the source of its “next 100 million” subscribers.13 Netflix had

increased its investment in India at a faster rate than any other market. And, in July 2019, Netflix

introduced its cheapest, mobile-only subscription plan for Indian users, priced at just $2.85 per month,

in an attempt to make inroads into the country.14

How could Netflix acquire its next 100 million subscribers in India? Despite its large size, India

remained a price-sensitive market, and leading players relied on advertising to subsidize low

subscription fees. Through 2020, Netflix had targeted well-educated, well-off consumers in large cities

who primarily watched international content in English and Hindi.15 The majority of Indian consumers,

however, resided in smaller cities and preferred content in their local language (Indian population). To

win in the Indian market, Netflix might need to revisit past strategic choices including premium pricing,

avoiding mergers and acquisitions, and its pledge never to include advertisements in its programming.

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 3

A Brief History of Netflix

Netflix was founded in 1997 by Marc Randolph, a tech-marketing executive, and Reed Hastings, a

computer programmer. The pair wanted to create “the Amazon.com of something” and, after researching

products suitable for e-commerce, they settled on DVDs.16 Randolph and Hastings initially conceived

of Netflix as an online DVD retailer, but added a rental service before launch as they realized Netflix

could not beat large retailers like Amazon and Wal-Mart.17 Netflix launched its service in May 1998,

with 30 employees and a library of 925 movies to rent.18 To improve its fledgling rental business, Netflix

piloted a subscription plan in 1999. For $22 a month (and no late fees), subscribers could rent an

unlimited number of DVDs, one at a time, for as long as they wished, and could save lists of movies

they wanted to see.19 The subscription service was an immediate hit. Analyzing user data revealed that

subscriber growth was highest near distribution centers, because customers valued overnight delivery.20

By 2000, Netflix had some 300,000 subscribers, but it was not yet profitable. In spring, Randolph and

Hastings, who served as the company CEO, flew to Dallas to meet with Blockbuster senior leaders and

propose a deal. “We offered to sell a 49% stake [for $50 million] and take the name Blockbuster.com…

We would be their online service,” Hastings recalled.21 Blockbuster's CEO immediately rejected the

deal.22 Blockbuster, which at the time had 20 million active store users renting mostly VCR tapes, did

not see what Netflix offered that the company could not do itself.23

When Netflix went public in 2002, the IPO prospectus described Netflix as “the largest online

entertainment subscription service in the United States, providing more than 600,000 subscribers access

to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles.”

Two years after the Netflix IPO, Blockbuster launched its own online subscription service, but could

not overtake Netflix’s which grew to over four million subscribers.24 By the end of 2006, Netflix was

valued at $1.5 billion, more than twice Blockbuster's market capitalization.

By 2007, Internet broadband had reached over 50% of American households, although it was still

expensive and slow (it could take two hours to download a high-resolution movie).25 Although the

market for digital delivery of video content was small, it attracted large retailers including Amazon and

Wal-Mart. Even Disney launched a short-lived movie-rental service, which required consumers to buy

a $200 set-top box and pay up to $3.99 to rent a movie for 24 hours.26 Netflix, in contrast, developed a

virtual player that streamed content in real-time rather than force users to wait for a complete download,

and launched its streaming service in 2007.

When Blockbuster filed for bankruptcy in 2010, Netflix was able to accelerate subscriber acquisition,

adding nearly 40 million U.S. streaming subscribers by the end of 2014 (See N annual subs, N

quarterly subs and N sub growth). The company also began a steady program of international

expansion (N international). As part of its growth, Netflix ramped up the number of licensing deals it

inked with major media companies (N content license). By increasing its subscriber base, Netflix

became an attractive distribution channel for media companies. At the same time, the company’s breadth

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 4

of TV series and movies made it easier to sign up new users and pull ahead of competitors including

Hulu (a joint venture among NBC, Fox and ABC), Time Warner’s HBO Now, and Amazon Prime

Video.

To further differentiate its content and reduce its reliance on licensed content, Netflix began to invest in

original programming (N original most viewed). Its first exclusive series, House of Cards, cost $100

million and was released in 2013. Chief Content Officer Ted Sarandos summarized the company's

approach: “The goal is to become HBO faster than HBO can become us.” 27 Breaking with media-

industry norms, Netflix made the entire first season of House of Cards available immediately, a practice

it would repeat with all of its original content.28 By 2017, Netflix spent more money on scripted original

content than any streaming provider, and most traditional major media companies.29 The company spent

a record $13 billion in 2018, $15 billion in 2019, and planned to spend $17 billion in 2020. Analysts

predicted that Netflix would invest $26 billion per year on content around the world by 2028. 30

Building the Netflix Culture

Prior to Netflix, Hastings founded Pure Software, which doubled in revenues every year until it went

public in 1995.31 Hastings experienced the challenges of rapidly scaling a company32 “We got more

bureaucratic as we grew,” Hastings recalled. He vowed to avoid the same problems in his next venture.33

He commented:

[In] my first company—we were very process obsessed… every time someone made a mistake, we

tried to put a process in place to make sure that mistake didn’t happen again… we were trying to

dummy-proof the system. And then, eventually, only dummies wanted to work there. Then the market

shifted and the company was unable to adapt […] so with Netflix, I was super-focused on how to

run with no process but not have chaos.34

To avoid bureaucracy as Netflix scaled, Hastings worked with Chief Talent Officer Patty McCord to

define the culture they wanted to build (N culture). They created a PowerPoint presentation—the

Netflix Culture Deck—that explained the company’s values and expected behaviors, which McCord

and Hastings would walk through with every new employee (N culture deck).35 In 2009, the deck was

posted online so potential employees could assess their fit with the Netflix culture before deciding

whether to apply for a job. One executive said hiring decisions were “based 50% on cultural fit and 50%

on hard skills, versus 80% on hard skills at other companies” where he had worked.36

“Like all great companies,” the Netflix culture overview explained, “we strive to hire the best and we

value integrity, excellence, respect, inclusivity, and collaboration.”37 Netflix executives, however,

believed their corporate culture was differentiated by five specific values:38

Encourage independent decision making by employees (freedom & responsibility)

share information openly, broadly, and deliberately (transparency)

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 5

are extraordinarily candid with one another

keep only our highly effective people (dream team)

avoid rules

Keep only our highly effective people. When the dot.com bubble burst in 2001, Netflix was forced to

lay off one-third of its workforce, keeping only the most talented employees.39 When business picked

up again later that year, Hastings was amazed to see that the company got more work done with fewer

employees, and that morale was higher than it had been before the layoffs (N employees and N

executives). "This was my road to Damascus experience," Hastings later said.40 Keeping mediocre

performers, he believed, demotivates leaders; keeps them from cultivating their star performers; lowers

the quality of group decision-making; reduces efficiency; causes top performers to quit; and signals that

mediocrity is acceptable.41 Netflix executives believed that the best employees were twice as productive

as average workers on routine work, but 10 times more effective when it came to creative work.42

Hastings observed:

Stunning colleagues accomplish significant amounts of important work and are exceptionally

creative and passionate. Jerks, slackers, sweet people with non-stellar performance, or pessimists

left on the team will bring down the performance of everyone.43

The company sought new hires who would “raise the bar for the team” and increase the company's

"talent density."44 To attract the best candidates, Netflix managers made “a good-faith estimate of the

highest compensation each employee could make at peer firms, and pay them that maximum.”45 Netflix

did not offer annual bonuses. "The last thing we want," Hastings said, "is our employees rewarded in

December for hitting some goal fixed the previous January."46 Employees could choose the percentage

of their compensation they would receive in salary and stock options each year.47 Stock options vested

monthly so employees were not bound to the company by “golden handcuffs.”

Netflix executives emphasized the company was not a "family," but a “dream team,” where “all of your

colleagues are extraordinarily effective at what they do and are highly effective collaborators.”48 "Just

as great sports teams are constantly scouting for new players and culling others from their lineups,"

McCord said, "our team leaders need to reconfigure team make-up.”49 Netflix did not use forced

rankings, because they undermined collaboration. Instead, leaders regularly evaluated their team

members using the “keeper test,” where they considered whether they would fight to keep a team

member who was planning to leave the company. Employees whose manager would not fight hard to

keep them were promptly let go with a severance package equivalent to four to nine months of annual

salary.50 On average, 12% of Netflix employees left the company every year, compared to 11% for the

media industry and 13% in the technology sector.51

Freedom and responsibility. Netflix empowered employees throughout the company to make decisions

unencumbered by structured processes, committees, or managerial oversight. “I pride myself,” Hastings

said, “on making as few decisions as possible in a quarter.”52 Netflix executives believed giving

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 6

employees freedom to make decisions concentrated accountability, led to more experimentation, and

created an environment where people thrived. The flip side of freedom was that employees were

expected to take personal responsibility for solving problems and delivering results, a combination that

Netflix called "freedom and responsibility." The company’s culture statement explained its rationale:

We don’t buy into the lore of CEOs, or other senior leaders, who are so involved in the details that

their product or service becomes amazing. The legend of Steve Jobs was that his micromanagement

made the iPhone a great product… The heads of major networks and studios sometimes make many

decisions in the creative process of their content. We do not emulate these top-down models because

we believe we are most effective and innovative when employees throughout the company make and

own decisions.53

Freedom, at Netflix, did equate to unilateral decisions. Prior to making a decision, employees were

expected to “farm for dissent” by actively soliciting different points of view from colleagues.54 For

minor decisions, dissent-farming could be done by email or discussions, but for more consequential

issues employees were expected to systematically collect input. Employees would circulate a

spreadsheet asking colleagues to rate their proposal from -10 to 10 and explain the rationale for their

rating. "This sounds a lot like consensus building, but it's not," Hastings argued, "with consensus

building the group decides; at Netflix a person will reach out to relevant colleagues but does not need

to get anyone's agreement before moving forward."55

Once a decision was made, the company tracked progress, and made mid-course corrections as

necessary. “In general, freedom and rapid recovery is better than trying to prevent error,” according to

the Netflix description of its culture. “We are in a creative business, not a safety-critical business. Our

big threat over time is lack of innovation, so we should be relatively error-tolerant.” Hastings encouraged

employees to experiment by framing decisions as bets:

We want all employees taking bets they believe in and trying new things, even when the boss or

others think the ideas are dumb. When some of those bets don't pay off, we just fix the problems that

arise as quickly as possible and discuss what we've learned. In a creative business rapid recovery

is the best model.56

Extraordinarily candid with one another. “We want people to speak the truth,” Hastings explained.

“It’s not okay to let a decision go through without saying your piece. We’re very focused on trying to

get to good decisions with good debate.”57 The company placed particular emphasis on openly

discussing failure. Employees were encouraged to "sunshine" their failed initiatives by writing a short

memo outlining what went wrong and what they learned from the failure, and circulating the memo

widely throughout the company.58 At semi-annual product meetings, Hastings asked managers to

classify their recent bets into those that paid off, those that didn't, and open initiatives, discuss the bets,

and consolidate lessons learned from failures.59 Hastings explained the benefits of these discussions:

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 7

This exercise reminds everyone that they are expected to implement bold ideas and that, as part of

the process, some risks won't pay off. They see that making bets is not a question of individuals'

successes and failures but rather a learning process that, in total, catapults the business forward. It

also helps newer people get used to admitting publicly that they screwed up on a bunch of stuff–as

we all do.60

Employees were expected to provide their colleagues with frank feedback on a regular basis. Every year,

employees were asked to provide feedback on as many colleagues as they liked at any level in the

organization, and sign their name. The average employee provided feedback on at least ten colleagues,

but it was common to provide feedback to more than thirty.61 Hastings shared the feedback he received

with his direct reports, who did the same with their teams.62 This level of candor was uncomfortable but

useful, according to one Netflix employee:

In most situations, both social and work, those who consistently say what they really think about

people are quickly isolated and banished. We work hard to get people to give each other

professional, constructive feedback—up, down and across the organization—on a continual basis.

Leaders demonstrate that we are all fallible and open to feedback. We believe we will learn faster

and be better if we can make giving and receiving feedback less stressful and a more normal part

of work life.63

Share information openly. Within Netflix, even sensitive information was widely shared, including the

number of new subscribers, the details of content-production deals, and a four-page describing the

company's "strategy bets" posted on the home page of the Netflix intranet.64 Unlike most public

companies, Netflix distributed financial results internally before the quarter closed, and made senior

executives' salary data viewable by their colleagues.65 Transparency of information allowed employees

to make decisions aligned with the company’s strategy without top-executive oversight or micro-

management.”66

“The leader’s job at every level,” according to the Netflix official culture statement, “is to set clear

context so that others have the information to make generally great decisions.”67 Hastings contrasted

this emphasis on transparency with other companies. “We’re like the anti-Apple,” he said, “They

compartmentalize, we do the opposite. Everyone gets all the information.”68 Ketan Duvedi, an

engineering manager at Netflix, explained:

Netflix has a memo-based culture (inspired by Amazon) and uses gDocs to put down ideas, solicit

feedback, track meeting notes, etc. This, and the openness in sharing, results in a trove of historical

and current information that is readily available to each employee in domains that are related as

well as unrelated to theirs…This enables employees to have a more well-rounded understanding of

the business and the challenges, and stretches them to think beyond their immediate domain to solve

problems for Netflix.69

NETFLIX GOES TO BOLLYWOOD Donald Sull, Stefano Turconi

January 30, 2021 8

Avoid rules. Netflix executives avoided unnecessary rules and structured processes to remain agile as

the company grew. Rather than impose detailed travel, vacation, or parental-leave policies, for example,

it encouraged employees to use their judgment. The Netflix official culture statement elaborated on the

company’s “anti-rules, pro-freedom philosophy.”70

Many organizations have freedom and responsibility when they are small… As they grow, however,

the business gets more complex. The informal, smooth-running organization starts to break down,

pockets of chaos emerge, and the general outcry is to “grow up” and add traditional management

and process to reduce the chaos. As rules and procedures proliferate, the value system evolves into

rule following… and creative thinkers are told to stop questioning the status quo. This kind of

organization is very specialized and well adapted to its business model…[but] the business model

inevitably has to change, and most of these companies are unable to adapt.

There were exceptions to "no rules" approach, and the company had strict policies in place for a small

number of “edge cases,” including harassment, insider trading, and keeping user information secure.

The tab N culture benchmarking compares Netflix's performance on key cultural values to rivals.

In June 2017, Netflix published a major update to its culture slide deck to include a stronger commitment

to diversity and inclusion (N diversity).71 Specifically, the company encouraged current and potential

employees to be “curious about how our different backgrounds affect us at work, rather than pretending

they don’t affect us… You recognize we all have biases, and work to grow past them…You intervene if

someone else is being marginalized.”72 At a time when sexism in the tech industry was in the headlines,

Netflix emphasized its longstanding commitment not to hire jerks: “On a dream team, there are no

‘brilliant jerks.’ The cost to teamwork is just too high. Our view

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.

Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.

Do you need an answer to this or any other questions?

Order Plagiarism Free Answer Here

About Wridemy

We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.

How It Works

To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.

Are there Discounts?

All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.

Hire a tutor today CLICK HERE to make your first order

Related Tags

Academic APA Writing College Course Discussion Management English Finance General Graduate History Information Justify Literature MLA