NetFlix and the innovators dilemma

The NetFlix share price has taken a major dive over the past weeks - which looks a bit odd to the casual observer given the excitement about all things "digital media". In reality when many early stage digital projects were seeking to carve out digital rights from the existing pay tv / free to air players and generally being squished for their impudence (myself included) NetFlix spotted a gap. Essentially home video rights were not historically included in TV deals and were so "1980's" so it was possible to buy all rights on the video rental store release window, deliver them by post, and boom you suddenly have a NetFlix acquiring premium rights without going bust. In 1996 Nicholas Negroponte, Director Media Lab MIT, said "I would throw away my VCR tomorrow for a better scheme. With all due respect to Blockbuster I think video rental stores will go out of business in 10 years." He was right - but the key development was that a DVD could fit through a post box where a VHS could not. Fast forward a few years and NetFlix is attempting to deliver primarily via the broadband internet - a very different business model in which it has no particular USP against, for example, the App store, Google TV and direct delivery by the studios.

The dilemma was to choose the correct time to diversify away from postal delivery which had been such a stellar looks like NetFlix may have left it too long.