Netflix’s Unreel Streak

Wall Street isn’t happy with it this week, but the streaming network’s creative bent keeps winning over millions of new fans.

Netflix’s commitment to creativity may be summed up by two numbers reported over the last few days: 112 and 130 million. On July 10, the streaming media service received 112 Emmy nominations, the most of any network. Then this week the company reported that it now has 130 million subscribers worldwide, a record.

The recent subscriber growth didn’t impress Wall Street (Netflix’s stock fell immediately after its profit announcement but pared most of the loss a day later). But even that disappointment is based, in part, from the years of success that Netflix’s creative streak has cultivated. “[Company founder and CEO] Reed Hastings had a very clear vision very early on what the company could become, and he was very patient,” says Bill Simon, a senior client partner at Korn Ferry and the managing director of its Media, Entertainment and Convergence practice. Indeed, Netflix’s programming itself may actually spur creativity, if one experiment is to be believed.

Netflix’s creativity appears in three ways, experts say, only one of which is visible to people who watch its shows. The most obvious sign is its diversity of programming. The firm says it will have 700 original shows and movies available this year, including comedies, documentaries, dramas, and kids’ shows.

That strategy itself—a subscription-based content producer—isn’t revolutionary. HBO started as just a channel showing recently released movies but started developing its own comedy specials and TV shows only a few years after it began. And MTV famously pivoted away from showing mostly music videos (the M did stand for music, after all) to reality shows it produced itself. Netflix’s decision to treat the world as a potential audience is what has been creative.

This year the network has 80 series specific to local, non-English-speaking markets.

But the behind-the-scenes creativity shows how leaders can come up with innovative ways to solve problems, experts say. For instance, Netflix changed what producers get paid for their work. First, they would offer huge checks to producers and studios to rent their libraries of movies and TV shows at a time when both were seeing the royalties they received from home video sales dry up, Simon says. “They overpaid,” he says. As Netflix’s following grew, they would either renegotiate those deals at much lower prices, or create new deals where Netflix wasn’t just renting the content but owning its rights around the world.

The other hidden creative streak was zeroing on recruiting highly skilled content creators, dealmakers, and anyone else affiliated with running a network. That decision has been one of the ways to keep everyone motivated. “The best thing you can do for employees—a perk better than foosball or free sushi—is to hire only ‘A’ players to work alongside them,” Patty McCord, Netflix’s chief talent officer from 1998 to 2012, once told the Harvard Business Review. “Excellent colleagues trump everything else.”

All that creativity doesn’t come cheap. Netflix may spend up to $8 billion on content alone in 2018, and Wall Street analysts believe that number may rise significantly in the next few years. The company reports profits and yet it isn’t producing any free cash. But while the dollar values are eye-popping, it may keep Netflix at the forefront of media. “They’ve followed the pattern of other disruptors in the entertainment business in the last 40 years,” Simon says.