Netflix began as a low-end disruptor in the video rental market, mailing DVDs to customers. It transitioned to online streaming, which disrupted Blockbuster's business model. Netflix's streaming service targets the low-end market, providing an inexpensive entertainment option. It has grown to become a mainstream provider as it improved its variety, speed and quality over time. The document recommends Netflix strengthen its processes to retain customers and gain new subscribers. Leaders should also develop competencies to continue innovating and pursue partnerships to expand content offerings.

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NETFLIX’S DISRUPTIVE STRATEGY
V.V.L.N. Sastry
HBX Disruptive Strategy: Prof. Clayton M. Christensen
Harvard Business School
16th
December 2018

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Contents
Brief Overview of Netflix ........................................................................................................... 3
Situation Netflix Is Facing Currently.......................................................................................... 3
Low-End Past................................................................................................................... 3
Outcompeting Blockbuster through Disruptive Innovation............................................. 4
Low-End Disruption Theory............................................................................................ 5
Recommendations....................................................................................................................... 6
Netflix Should Strengthen Its Managerial and Operational Processes for Delivering
Value........................................................................................................................................ 6
Netflix Should Exploit Its Current Advantages Fully to Increase Subscribers and
Decimate Churn....................................................................................................................... 7
Leaders Should Develop the Requisite Disruptive Innovation Competencies ................ 7
Seeking Partnerships ........................................................................................................ 8
Reference list............................................................................................................................. 10

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Brief Overview of Netflix
Reed Hastings along with Marc Randolph founded and incorporated Netflix Inc., which
provides media services, in the US in 1997. The principal business of Netflix is offering a
streaming media service, which can only be accessed by users after paying particular subscrip-
tion fees. The service supports online television (TV) program and film library streaming (Nel-
son & Quick 2012, p.74). It supports online streaming of even TV programs generated in-house.
Presently, the company has hundreds of millions of subscribers globally – it has tens of millions
of subscribers in the US.
Netflix services are available in all countries save for Crimea, Syria, Mainland China, and
North Korea (Lobato 2018, p.130). The company has since established offices not only in the US
but also in South Korea, Brazil, Japan, India, and the Netherlands. Initially, it focused on selling
and renting out DVDs via mail. Even then, after some time it focused solely on its DVD rental
enterprise. In 2007, it started streaming media but retained its Blu-ray plus DVD rental service.
Its global expansion began in 2010 when it introduced its media streaming service in Canada and
then Latin America plus the Caribbean region. It started generated content in 2012 (Barker &
Wiatrowski 2017, p.203). Presently, it has marked debt levels attributable to its aggressive ef-
forts aimed at generating new content, diversifying its business portfolio globally, and securing
extra content rights.
Situation Netflix Is Facing Currently
• Low-End Past
Traditionally, the performance of Blockbuster was considered in the light of the speed
with which one could lay own hands on their videos after being released and their variety

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(Thacker 2016, p.25). Notably, Netflix commenced sending customers DVDs via email from a
relatively narrow selection for particular flat monthly fees. Netflix was not deemed competitive
with respect to speed as well as the variety (Nelson & Quick 2012, p.74). With respect to speed,
as well as variety, it was thus deemed to be a low-end player. As it commenced online streaming,
the speed with which its customers could access content increased significantly. Even then, video
playback quality was markedly constrained by a pretty archaic broadband (Barker & Wiatrowski
2017, p.203). Again, the video playback quality was deemed to be low-end especially when users
compared it with DVD playback quality.
Netflix, which is a highly disruptive brand, commenced as a rather dull business initia-
tive, sending out DVDs to clients who were keen on having experiences related to those associ-
ated with Blockbuster devoid of going to any Blockbuster. From its early days, it has been focus-
ing on individuals who were keen on laying their hands-on undemanding entertainment – it
mostly targeted individuals who most likely were not harboring a desire for watching the then
newest films topping entertainment charts (Barker & Wiatrowski 2017, p.203; Nelson & Quick
2012, p.74). Even then, after registering success in the entertainment marketplace then, Reed
Hastings along with Marc Randolph resolved to turn out the company’s business model. The
company stopped mailing products to customers. Instead, the company started a media streaming
service.
• Outcompeting Blockbuster through Disruptive Innovation
Clearly, Netflix’s decision to allow its customers access to TV programs and movies that
could be streamed online made the company tussle and outcompete Blockbuster, pushing it out
of the market. Netflix provided and continues to provide a service through which the customers
stream TV programs and movies on own TV screens and computers. Presently, many entertain-

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ment seekers and enthusiasts consider own Netflix accounts being daily essentials. The media
streaming service offered by the company has been markedly disruptive since it has in recent
times established a foothold in a market that Blockbuster had ignored as it pursued customers
whom it deemed more profitable than the low-end entertainment seekers and enthusiasts (Daft
2018, p.348). Clearly, the media streaming service offered by the company targets that low-end
market.
• Low-End Disruption Theory
The effects of the Netflix media streaming service are best explained by the low-end dis-
ruption theory (Paetz 2014, p.151). Using the disruptive media streaming service that it offers,
Netflix has created a wholly new market. It has converted many individuals who are by and large
not keen on laying their hands-on undemanding entertainment into its customers. It has convert-
ed individuals who most likely do not harbor desires for watching the then newest films topping
entertainment charts into its customers. Notably, the theory has it that low-end disruptors ought
to come up with wholly fresh markets, converting non-customers into their key customers. Clear-
ly, the Netflix media streaming service does not target individuals who have traditionally
streamed entertainment content online (Barker & Wiatrowski 2017, p.203; Nelson & Quick
2012, p.74). In addition, the service offers especially cheap or low-end entertainment experienc-
es. Without a doubt, that portends that the service is a low-end disruptive product or innovation.
As well, the Netflix media streaming service is a beyond doubt low-end disruptive prod-
uct since with respect to it, the company commenced with offerings that are of relatively low
quality. Its initial video playback quality was deemed to be low-end (Barker & Wiatrowski 2017,
p.203; Nelson & Quick 2012, p.74). Initially, it was not deemed competitive with respect to
speed as well as variety. As suggested earlier, with respect to speed, as well as variety, it was

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thus deemed to be a low-end player. Even then, over time, the company increasingly got hold of
the mainstream entertainment market by enhancing the variety, speed, and quality.
Undoubtedly, the Netflix model is classically disruptive – its content streaming service at
first was not attractive to the principal customer base of Blockbuster (Barker & Wiatrowski
2017, p.203). The customer base longed for on the spot gratification when selecting the movies
to watch. As Netflix enhanced the quality related to its streaming service, the service began ap-
pealing to more and more of the customers of Blockbuster (Barker & Wiatrowski 2017, p.203;
Nelson & Quick 2012, p.74). Many of the customers ultimately peeled off, forcing Blockbuster
into bankruptcy after a rather short time. Initially, the customers were not keen on getting the va-
riety, speed, and quality that high-end customers otherwise value. According to the theory, low-
end disruptions focus on customers whose likelihood of requiring the full value demanded by
high-end customers is rather low.
Recommendations
• Netflix Should Strengthen Its Managerial and Operational Processes for Delivering
Value
Netflix should continually strengthen its managerial and operational processes for deliv-
ering value, which is defined by its profit formula plus customer value proposition, to its cus-
tomers in ways that it can scale up and repeat successfully (Evans & Lindsay 2007, p.330). Es-
pecially, it should bolster the processes related to content development, budgeting, training,
sales, customer service, and planning. It should strengthen the processes related to its norms,
metrics, and rules as well. It should strengthen not only its principal processes but also the relat-
ed key resources - the processes and resources characterize how the company delivers value to
itself and its customers.

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• Netflix Should Exploit Its Current Advantages Fully to Increase Subscribers and
Decimate Churn
There is a high chance that the strengthening of the processes will assist Netflix in deci-
mating churn plus in increasing subscribers. It can achieve its objective of decimating churn plus
increasing subscribers by playing the clear advantages that it has the typical TV. Notably, in TV,
ratings are appraised thoroughly especially since advertisers pay for broadcast TV – with numer-
ous quality shows getting canceled often or remaining incapable of getting off the ground. Ad-
vertisers are very keen on having the adverts they develop viewing by as many people as is prac-
tical. Given that Netflix does not rely on the traditional advertisers, it is highly capable of devel-
oping high-quality content collections – with the quality being so high that the collections are of
interest to more and more people, persuading them to keep renewing their periodical Netflix sub-
scriptions (Popelka 2012, p.5).
• Leaders Should Develop the Requisite Disruptive Innovation Competencies
The Netflix leaders should develop the requisite disruptive innovation competencies to
ensure that they remain capable of helping develop new disruptive innovations for the company
– to ensure that the company remains competitive by keeping the disruptive innovation edge that
it currently enjoys over the competition. First, specifically, the managers should develop leap-
frogging attitudes and mindsets – they will require the attitudes and mindsets in developing new
disruptive innovations (Canals 2015). Such mindsets help individuals execute given tasks or pro-
jects that are radically novel in ways that generate considerable progress forward. The leaders
will need the mindset to make certain that their actions add entirely fresh value levels to the en-
tertainment market.

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Second, Netflix leaders should continue pushing the extant limits of the company and its
staff continually – they should continue engaging diverse partners and people closely to further
develop their creative capabilities for solving problems. In relation to the company's disruptive
strategy, the leaders should unceasingly press on the limits of the company's partners and teams.
Third, the leaders should develop their capacity for carrying out adaptive planning. That is be-
cause given that the company is a highly disruptive enterprise, it is bound to suffer high uncer-
tainty levels (Canals 2015). Adaptive planning involves considering results as stemming from
actions, learning the results from the actions, and modifying the related approaches along with
suppositions accordingly.
Fourth, the leaders should not shy away from amending old regulations, practices, and
rules to match the extant realities and challenges. They should remain averse to complacency to
ensure that the company remains responsive to the continually changing entertainment market.
They should bolster their capacity for nurturing a strong skepticism of practices that are deemed
to be the best at particular times. Fifth, the leaders should strive to become more and more open-
minded to ensure that they remain ready to pursue all emerging opportunities, markets, and tech-
nologies (Canals 2015). Lastly, they should become more and more decisive, defining their de-
sires clearly to their teams.
• Seeking Partnerships
To remain competitive, Netflix should seek out for more and more partnerships, especial-
ly with filmmakers facing challenges getting funding for the content, including films, they create
(Kunitzky 2011, p.147). It can pay for the global streaming of the content, taking advantage of its
vast global subscriber base. Such partners may afford it heavy-hitter linkages, especially if they

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are highly respected and famous in the entertainment industry. Partnerships can speed up the film
initiatives of the company.

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Reference list
Barker, C & Wiatrowski, M 2017, The age of Netflix: Critical essays on streaming media, digital
delivery and instant access, McFarland & Company, North Carolina.
Canals, J 2015, Shaping entrepreneurial mindsets: Innovation and entrepreneurship in leader-
ship development, Palgrave Macmillan, New York.
Daft, RL 2018, Management, Cengage Learning, Boston.
Evans, JR & Lindsay, WM 2007, Managing for quality and performance excellence, Thomson,
Mason.
Kunitzky, R 2011, Partnership marketing: How to grow your business and transform your brand
through smart collaboration, Wiley, Mississauga.
Lobato, R 2018, Netflix nations: The geography of digital distribution, New York University
Press, New York.
Nelson, D & Quick, J 2012, Organizational Behavior: Science, the real world, and you, South-
Western Cengage Learning.
Paetz, P 2014, Disruption by design: How to create products that disrupt and then dominate
markets, Apress, New York.
Popelka, L 2012, Moneyball marketing: Reinvent your marketing, Game Changer Press, Alame-
da.
Thacker, K 2016, The art of authenticity: Tools to become an authentic leader and your best self,
Wiley, New Jersey.