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Netflix’s Great Idea
Although the origin story of Netflix is subject to some debate, Reed Hastings has said he founded the company because Blockbuster slapped him with a $40 late fee for the movie “Apollo 13.” (Co-founder Marc Randolph disputed that story, telling CNBC that in 1997, the two wanted to create the “Amazon of something.”)
What happened in the next decade is more clear. Netflix’s idea was truly innovative: It shipped DVDs to consumers who paid a flat monthly fee for an unlimited amount of movies. Every time customers returned a disc, they could order another one in the mail. Netflix did capitalize on the premise that consumers would pay no late fees. The longer you kept the title, the fewer movies you got to watch. It was brilliant.
But in a familiar story for startups, the company struggled to gain market share and make a profit. At one point, Netflix’s founders met with Blockbuster executives hoping to arrange a partnership or a sale. In co-CEO Hastings’ telling of the story, Netflix offered to sell to Blockbuster in 2000 for $50 million, and Blockbuster declined. Today, Netflix is worth about $136 billion, and everybody knows what happened to Blockbuster.
Although Netflix’s executives made a lot of good decisions to get the company where it is today, eschewing fees in favor of subscriptions seems like one of the best.
It’s not particularly groundbreaking to say that Blockbuster failed to see the changes coming in the marketplace. But what many banks are beginning to see is that the tide is turning: A near religious devotion to fees is a bad bet. The head of the Consumer Financial Protection Bureau, Rohit Chopra, has pledged to go after “junk fees” on bank accounts, credit cards and mortgages, according to numerous public remarks. His agency estimates that those fees “drain tens of billions of dollars per year from American family budgets.”
I’d hazard a guess that American families are spending tens of billions on streaming services. Nobody likes to pay a “fee,” especially one that feels like a surprise or a punishment. Many big banks have made changes to reduce or eliminate overdraft fees in the last year, but there is still much that could be done. The banking industry might learn a thing or two from Netflix in the years ahead.
• Naomi Snyder, editor-in-chief of Bank Director
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