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Why Netflix Will Fail

Friday, June 04 2010 @ 02:46 PM UTC
Contributed by: Jimbo
Views: 6,768
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If you've worked in this business for more than a minute you know that there is no such thing as job security. The gigs are short, firings are common and you always have to be on the lookout for your next project. It's really not much of a life. But as Reed Hastings recently told me,"Entertainment is like a drug. When you finally find a good movie it makes you want to go find another one." I think this pretty much sums up the economics of the film business: the products can be so good that people will tolerate an enormous sum of inferior experiences. Reed himself is no stranger to inferior experiences, as dozens of ex-employee postings at can attest. Here's a sample post:
    Netflix: Culture of Fear


    The pay is above market. Not a lot above market, but a bit above market. The drawback is there are absolutely no benefits to speak of (no health benefits, no training, no daycare) so that above market pay gets eaten up pretty fast by real world needs.


    A total fear of failure permeates the ranks. Netflix basically gives you a warning on your first mistake, and then fires you after your second mistake. This is why the annual turnover rate is well over 20%. Since there is an entirely new set of employees every few years, nobody knows what process to follow, and everything is chaotic. HR solves this by saying "there is no process for anything! Make it up as you go along!" Sure, if I fired all the employees every few years I'd stay away from process too.

    The key problem is that with all the firings most employees spend the day simply trying to find cover. The ass covering at Netflix is legendary. Nobody wants to innovate. Nobody wants to reach outside their comfort zone. Netflix has created a culture of fear, and the way in which they manage terminations reinforces the culture of fear (they immediately demonize the terminated employee, and try to make the termination serve as a lesson to others).

    The culture of fear is so ingrained in Netflix that many managers only have one tool for managing their directs, and that is to threaten to fire them. There simply is no other process for managing poor performance (remember, there is no process - they will admit this to you if you ask).

    And finally, the last thing you should be warned about is their "high performance" culture. Their justification for all the firings is that the fired employees weren't high performers. But since there is no process, no record-keeping, there is no objective measurement of performance. So "high performers" end up being the employees that get along with the boss and keep a low profile. "High performers" at Netflix are not employees that take risks, interact with outside groups, or produce a high volume of work.

    Netflix loves to talk about high performance but they have the lowest standard for high performance that I've ever seen. They are completely happy to manage with fear, however. If you put those two insane concepts together you end up with a rather hysterical environment.

    Advice to Senior Management

    So you guys did one thing well, a long time ago, and you've been marginally improving that business (DVD rental) ever since. Your astoundingly high turnover rate worked in that world, because all the processes were in place. But now you are trying to get into the streaming business, and that business only runs with knowledge workers at the helm. And guess what? Knowledge workers are pretty well-connected. The word is out that Netflix does not value its employees and as a result it's going to be harder and harder to staff your new ventures. You really need to find the groups at Netflix with the highest turnover and keep those managers away from the streaming business. You have some managers that simply do not know how to manage, they only know how to fire and hire. As much as you love to say that firing and hiring is what management is all about, you could not be more wrong. Find the teams with low turnover, they are the teams that work in spite of your chaotic work environment.
And another:

    Netflix: Fear-based culture


    Higher than market salary
    Free lunches
    Unlimited PTO


    Fear-based, highly competitive culture driven by upper management. Mid-management is forced to follow the suit otherwise it will be their job on the line. Everyone is under pressure to deliver but nobody provides guidance as to what is expected. If you're a super-star you're supposed to figure it out on your own.

    Zero tolerance for even small mistakes - you're expected to work as a perfect robot. If you made a mistake you're out immediately, no chance for correction. Zero communications about your performance - it is all up to management to decide how you're doing. So you don't know whether you made or making mistakes.

    Project management does not exist, hence no planning is happening, just loose email exchanges.

    You don't feel as part of the team, there are virtually no teams, just people trying to prove something and keep their jobs. As a result many decisions are short-sighted since they provide immediate credit. Long-term decisions are usually put on the back-burner until all of a sudden they become critical and then it's all hands on deck.

    You're expected to work long hours and weekends on regular basis. Basically if you accepted an offer you're owned by Netflix.

    Documentation is non-existent, people are secretive about knowledge transfer. All in all Netflix's motto "Freedom and Responsibility" turns into the situation where the company has the freedom to do whatever it wants and employees have all the responsibilities.

    Advice to Senior Management

    Trust and respect people. The fact that you pay high salaries and provide unlimited PTO does not mean that you own people's lives. Give people freedom to make mistakes, at least one. One mistake means nothing especially in first year of employment. Encourage planning.
I think this company is in trouble.

While a culture of fear apparently permeates the ranks at Netflix, the real test will be the number of paying subscribers that join and stay with the company after this year's international launch. Netflix hopes to introduce a streaming-only product outside the United States, where their impressive DVD distribution arms cannot reach. Can the company entice consumers to pay a monthly fee for Ren & Stimpy episodes from 1991?

This is essentially the product they will be pitching. I doubt the streaming content will be adequate to support an ongoing business, and with the high turnover at the company I expect to see many service problems and outages.

When DVDs are a thing of the past the streaming business will be the only revenue generator that Netflix has left. Will it be enough or will the company fail miserably? If Netflix nutured their employees and offered a creative working environment (like Pixar, for example) the company could count on innovation in the ranks (innovation that would build a sustainable business in the streaming space). But with a culture of fear the company should expect its streaming service to be overshadowed by iTunes, Hulu and other companies that have a greater capacity for innovation.

P.S. For more evidence of the company's dire situation (as far as innovation goes) click over to TechCrunch to read a recent job posting posing as an internal leak. The "leak" states that Netflix wants to be "innovating at web speed" and ends with the call to action: "Innovators Needed".

It's true, innovation is desperately needed at the company. The interface that Netflix puts on internet-enabled TVs make my kid's Fisher Price toys look complicated in comparison. But with an innovation-adverse environment how much innovation can Netflix expect?

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Canadian launch shows that Netflix cannot execute
Authored by: Jimbo on Friday, January 28 2011 @ 07:13 AM UTC
Canadian launch shows that Netflix cannot execute

Since the original post, the Canadian launch has come and gone. By most accounts the foray into Canada has been a failure. Here is a comment from a customer service representative that can be found on
    "The Canadian service was launched prematurely, in my opinion. Many of the calls we get from Canadian customers center on the lack of content, especially newer releases."
The launch itself was a public relations disaster. Most articles posted after the Toronto launch event focused on Netflix lying to the press at the event. This momentary lack of ethics speaks volumes about the Netflix culture.

Background on the Toronto launch event

Netflix paid actors to appear at the event and act like potential customers. The actors gave interviews to the press and described how excited they were about the new service. The press then reported that the public was excited by the new service (having no idea they were duped by the Netflix publicity machine). Later, one reporter got his hands on the script that Netflix had provided to the actors and published it online. In the end many Canadians became outraged that a U.S. company had paid actors to pretend to be Canadian consumers (and had furthermore instructed the actors to lie to the Canadian press).

Netflix offered a statement about the incident, which essentially said that their only regret was that they were caught (that the paper script was meant to stay with the actors' handlers):
    "I was unaware that script was handed out to extras and that was not supposed to happen," said Steve Swasey, vice president of corporate communications for Netflix.
Lasting damage

Just Google "Netflix Toronto Launch" to see the size of the scar this bungled event left on the company. There's not a positive thing to be said about the company in the first page of results. And those links are never going away, permanent proof of the company's inability to execute. Said one analyst of the launch,
    "As it stands, it's a recipe for disgruntled consumers and stunted-at-birth services."
It appears that the Netflix culture of fear is finally impacting the Netflix service itself.