Has Netflix Jumped the Shark?

Let me start by saying that when it comes to Netflix, I’m usually wrong.

I never thought that Netflix would start selling branded merchandise. “It’s a distraction,” I said. Yet in early 2021 they launched the Netflix Merch Shop.

I never thought that Netflix would get into gaming. “That’s a completely different business,” I said. Yet less than six months later, there it was: Netflix gaming. 

I never believed that Netflix would crack down on password sharing. I reminded everyone that one of our earliest principles was to “make it easier for people to do what’s right, rather than make it harder to do what’s wrong.” Oops. 

So can you guess how I reacted when I read that Netflix was launching a restaurant? I wondered, “What are they thinking?” 

Gaming, at least, is somewhat consistent with their mission to “help the world discover great stories”. Branded merchandise does reinforce the underlying movies and TV shows, which in turn supports the core business. Even password sharing restrictions make sense when you consider that an estimated 100 million non-paying households are using shared passwords. 

But restaurants? What’s that all about?

As I mentioned in an earlier post, restaurants are notoriously difficult. 60% fail within their first year of operation. They have one of the highest overhead rates of any industry, with nearly two-thirds of every revenue dollar going toward food, beverages, and labor. Most of the rest has to cover rent, utilities, advertising and other incidental costs. There is very little opportunity for profit, not to mention room for error.

But the biggest cost of all is losing focus.

Focus is one of the most important attributes in entrepreneurship. A startup is almost always under-resourced. There are 100 things broken all crying out for attention, yet you have the resources to fix only a handful of them. Even then, the best entrepreneurs know not to spread those resources evenly.   Do you have just enough people to handle ten things? Better to pick two of those things and do them five times as well.

Since the very beginning, Focus has been  Netflix’s secret weapon. It’s the whole point of the Canada Principle. It’s explicitly why I was so confident that Netflix would be able to fend off competitors like Disney and Apple. Neither of whom have content as their only business

Netflix has one thing to be good at: content. As long as they stay focused on that, they will always be able to maintain their lead over Disney and Apple. I’ve gone so far as to say that I would sell my stock if I ever heard that Netflix was building an amusement park or releasing a cell phone. 

But wait. What’s that sound? Excuse me, my broker is on the other line.

Now granted, the restaurant is only a pop-up. It’s pretty clear they don’t see this as being a major source of revenue or as a future direction. But if that’s the case, why do it at all?

I care about Netflix. And I recognize that it’s a much different company now than it was when I was there. Maybe they have the resources to attend to many things at once, or maybe there is some deep strategic purpose to a restaurant that I just don’t see.

But I can’t help asking: will a lack of focus finally be the thing that brings Netflix down?  Well, I would venture a guess . . . but then again, I’m usually wrong.

Many ideas in this post were first discussed in the Neverland entrepreneurial community. Join us there!

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