Netflix stock dropped 13 percent when markets opened Tuesday. Slow subscriber growth had pushed the Internet entertainment giant off a cliff. This is how wild the world of television, entertainment, and the Internet is these days.
Behind the stock chart and headlines are lessons about markets that government and businesses should learn.
Just a few months ago, Netflix was a rising star that had destroyed earlier titans: the broadcast and cable networks. “The company doesn’t want to be a leader in video,” one analyst wrote, “or even the leader in video — it wants to monopolize the consumption of video; to become TV.”
But HBO, Hulu, Amazon, and even old network and cable giants aren’t going to just sit back and let that happen. So today, technologies compete, creative producers compete, and so do platforms and networks. This is unnerving for individual companies but delightful for customers, who have countless options for getting movies, television, and other video content.
You can pick and choose what you want, when, where, and how. Want just baseball games? Get the MLB app. Pick up the CBS app through your Amazon Firestick when the NFL season rolls along. Maybe you just stream “Real Housewives” every week. What we have now is close to something regulators dreamed about a decade ago: a la carte TV, with customers paying for what they want, getting a lot of content free, and not having to buy cumbersome bundles of programs they don’t want in order to get the one or two they do.
Here’s where the lessons come in.
In the middle of the last decade, senators and the Federal Communications Commission pushed for mandatory “a la carte” regulations. Cable providers and programmers should be required, they said, to allow customers to buy only the channels they wanted. McDonald’s doesn’t force you to buy the whole meal deal if you just want fries, why should Comcast force you to buy TBS if you just want TNT?
Some cable providers supported regulations like this. Most opposed the mandate, and there was a stalemate on Capitol Hill and in the regulatory agencies.
{More: Netflix misses growth target as video wars draw regulators’ attention}
Today, consumers have far more freedom than any a la carte mandate could have provided them. Last year, Netflix had more subscribers than the top six cable companies combined. Cable subscriptions have dropped by 10 percent since 2012, and another four percent are expected to drop this year.
The lesson of all this is that if something enjoys enough demand and is technologically feasible, the market will provide it without regulators getting in the way and bossing people around. If you can’t see how a service will be provided, or by whom, have the humility to admit that you’re clueless about what the sector will look like in 10 years.
Business needs to learn to adapt to meet demand, or else another market player will knock you off your feet, or off your market peak. Your competitors of tomorrow may not exist today.
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Congress and the FCC have been wrestling with net neutrality and other rules. These would freeze current business models in place. But the best way for consumers to get what they want is to allow new business models to prosper, free of mandates and regulations. That’s market economics.
The story of Netflix’s wild ride is a classic story. Hubris and arrogance, rises and falls, and unexpected plot twists. It’s a story regulators and big business should take to heart.
