The House of Netflix

Topics Netflix | OTT platforms

Book cover of No Rules Rules: Netflix and the Culture of Reinvention
Reed Hastings seems unfriendly. But get him talking about Netflix, the creative business or any of the keywords that excite the progenitor of the streaming video industry, and you are sure to get an interesting conversation. “The whole world thinks AI [Artificial intelligence] is driving our choices. It isn’t. We read scripts, then think of casting and analyse the show afterwards,” he’d told Financial Times and McKinsey business book of the year.

The firm behind shows such as Sacred Games shares its numbers and quarterly results with its staff before it releases them to the stock markets. Its top managers can be fired any time because “adequate performance gets a generous severance”. Everyone is allowed (and mandated at times) to give feedback to team members, seniors and juniors, and they have to be honest and frank. Even Mr Hastings has been told that he is dismissive of ideas or people once he’s made up his mind — and he has to lump it. Managers do not have to take permission or budgetary approval for an idea or a project they want to execute. There is no leave, travel or expense policy. If all this sounds like a recipe for disaster, it hasn’t been (so far).

Netflix’s market capitalisation is more than Disney’s, though it is a third of the latter in top line. More importantly, in the business that everyone thinks is the future of entertainment Netflix continues to be ahead of the biggest players across tech, media and telecom. Read that as Google (YouTube), Amazon (Prime Video), Disney (Disney+, Hotstar) and others. At 193 million subscribers, Netflix is the largest (subscription-driven) streaming video app along with Amazon Prime Video. Its journey from being a DVD-rental firm to one that has forced some of the biggest changes in the global media and entertainment business makes it the focus of business and management writers.

What, then, is the secret sauce at Netflix? Much of what Mr Hastings and Netflix believe in is common sense — total honesty, full feedback, transparency, no hierarchies, freedom et al. But to reach a level of efficiency and for the system to work, everything, including how you give feedback, is documented and formatted. So no process also requires some adherence to process.

No Rules Rules: Netflix and the Culture of Reinvention

: Reed Hastings & Erin Meyer

Publisher: WH Allen

Pages: 293; Price: Rs 636
The first step, says Mr Hastings, is to build up talent density. In 2001, Netflix had to let go of a third of its employees — reducing staff from 120 to 80 people. Strangely enough, a despondent Mr Hastings and his HR head Patty McCord discovered that the same 80 people were working better, harder and longer hours and their spirits were high. “In the days and months following the 2001 layoffs I discovered something that completely changed the way I understand employee motivation and leadership responsibility,” he writes. Netflix believes that if you have a team of 10 people, eight of whom are excellent performers and two are average, then the average ones pull down the overall performance of the team. As Ms Meyer puts it, “From the 2001 layoffs, Reed learned that performance both good or bad is contagious.” Netflix hires the best employees and pays them at the top of the market rates. In fact, how it determines these market rates is an interesting story by itself.

So are the ones about how people adapt to the freedom to spend money or learn that feedback has to be given with positive intent or that they cannot misuse the leave policy. Mr Hastings doesn’t like to use the term “family” for Netflix. He refers to it as the Netflix team, where all members have to perform at their best; if they stop doing that they are out. Some very senior heads, including Ms McCord, who co-created the Netflix culture, were let go when they are no longer the best for the company.

The book makes for fascinating reading thanks to the access Mr Hastings and Netflix have given Ms Meyer. There are edited copies of internal memos, discussions and e-mails that are used as case studies. And just when you have a question — say, what happens if an employee leaks financial data — up pops a case study about when just such a thing has happened.

There are three questions that are not satisfactorily answered or simply remain unanswered. One, what about the ruthlessness of a culture like that and the insecurity it creates? Analysts in Asia have told me stories about worried employees wondering if they will be next. Two, in a high- growth aspirational industry, Netflix works. What happens when the business matures and streaming becomes less hot as an area to work in? Three, how do employees cope when they leave Netflix and go back into the regular sloth of corporate life?

Otherwise there is bucket-loads to learn from this book. Go for it.

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