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How I.P. Fits Into Netflix’s Business Model

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As part of its overall strategy, Netflix actively employs  intellectual properties in its attempt to innovate and secure its long term competitive advantage. Reflecting the nature of its business model which sees several different service offerings, rather than focus on a particular intellectual property strategy, Netflix utilizes a variety of different intellectual properties in its attempt to limit the appropriability of its core services as well as to protect itself from potential infringement suits.

Patents

Since, its early days as a mail DVD rental subscription service, Netflix has actively applied for many patents that aim to protect many aspects of its core service. Specifically, Netflix has filed and been granted patents for its rental processing system (7848968), the envelopes it uses(6966484) and its rental management system (7546252) to name a few. Notably, Netflix has also strategically acquired a combination of patents that have to a great extent, helped secured its unique business model. Particularly, Netflix has patented its unique processes and approaches, such as patents for its computer-implemented approach to renting (6584450 & 7024381), as well as its approach of allowing renters to hold onto rentals indefinitely without incurring late fees. Both of which, Netflix has employed in a lawsuit against Blockbuster when its competitor attempted to move into its arena of online mail rental services. Having moved into digital streaming services, Netflix has also acquired countless of patents that underlie the technology as well as the technical processes of the streaming service such as digital content distribution systems & methods (8433814), server signalling methods (8443056) and adaptive streaming technology (8631455) as prominent examples. Many of these patented technologies (such as those mentioned) allow Netflix to deliver a unique but yet seamless service experience.

Trade Secrets

Nevertheless, developed technology is prone to periodical updates in an ever changing landscape and the patenting process undoubtedly reveals the underlying technology as part of its qualifying process; as such Netflix has also heavily employed trade secret to guard many of its proprietary technology, especially in its current digital streaming services. Netflix has implemented strict mechanisms to safeguard its interests. For example, Netflix employees are made to sign confidentiality agreements prior to their employment and involvement with the company, and the company has proactively ensured that compliance with confidentiality is realized as it has actually brought suits against former employees alleged to have stolen trade secrets. Within the current Netflix business model, the most fiercely guarded trade secret would be its proprietary Recommendation Engine, CineMatch, which matches content recommendation with the user’s profile and actions. Netflix has not formally patented its recommendation algorithms and has relied on secrecy over the engine, which have been difficult for many competitors to reverse engineer.

Copyrights

The software, content as well as website that Netflix has created are duly copyrighted. Copyrights feature itself in several forms in Netflix’s current business model, depending on the service examined.

DVD Rental Service:

For its DVD rental service, Netflix purchases the movies in wholesale supply based on its own analytics and proceeds to rent it out. Under the current U.S. law, copyright owners possess the exclusive rights over the distribution of a copyright. However, that right is subject to the first-sale doctrine, which states that the right to control the distribution of the copyrighted content generally ceases after the initial sale of the copy.  After the first-sale doctrine, the copyright owners have limited rights over content within the secondary market.

Online Content Streaming:

In order to carry out its streaming services (and the streaming of content), Netflix negotiates with content owners as copyright owners, they possess the rights over the public performance of the work which include its transmission.  At the same time, Netflix also licenses the rights to reproduce the content as  the process of streaming requires the reproduction of a work on Netflix’s server in order to efficiently deliver its service.

Original Content Production:

Netflix has also enjoyed copyrights in its own content. As content producers, it  automatically becomes the copyright owner of any content it produces (such as the House of Cards, etc.). This would essentially subject any other competitors and players in the industry to Netflix’s exclusive rights conferred upon the company over the content’s use and distribution; as such popular Netflix produced content such as House of Cards and Orange is the New Black have only been streamed on Netflix to date and not on major online or television networks.

Trade Marks

Netflix has employed numerous trademarks to ensure that its brand value and assets are diminished or compromised.

 

Analysis of Netflix’s Intellectual Properties

The ability of Netflix to protect and enforce their intellectual property rights is subject to certain risks. To date, the company has relied primarily on proprietary processes and know-how to protect their IPs. Obtaining patents can also be costly and time consuming, costs vary but can easily exceed $10,000 in legal and administrative fees, applications are generally published 18 months after the earlier priority date.

Netflix’s patent portfolio primarily protects aspects of its DVD-by-mail business, they own pending U.S. patent applications that cover technologies to improve and optimise on-demand streaming video delivery. Significant amounts of pending patent applications suggest that Netflix’s current R&D focus is in-line with its business shift towards on-demand video streaming.

Patents confer upon the company to a right of ownership, determining who can and cannot use or dispose of it. Netflix can potentially gain huge awards for parents infringement, the patents computer-implemented approach to renting (6584450 & 7024381) gives Netflix the legal protection to the unique process and approach, consequently raising the monetary or market value.

Nevertheless, Netflix’s patents do not seem to grant them an advantage over new entrants, competitors do not face significant patent barriers from Netflix, as the company’s US patents are more skewed towards its traditional DVD-by-mail business, and also unlike the unique inventions, processes and approaches, ideas cannot be owned. Furthermore, it is important to consider whether patents are appropriate for important technologies that underlie Netflix, as patenting requires comprehensive publication which may facilitate distinct imitation or adaptation from competitors.  This would suggest that the company’s current approach of employing trade secrets in its streaming service to be the appropriate strategy.

The utilization of trade secrets however has to be considered in light of the potential benefits that may come from sharing its proprietary information.  Sharing can actually benefit innovators more than withholding it, to some extent as proven in some open source innovation business models.  Netflix has realized this as in a surprising recent move, the company opened an aspect of its engine to open innovation by revealing a portion of its database to developers with the aim of inciting them to improve the engine. Another example would be House of Cards, where Netflix worked closely with the production company MRC  in creating this 9 Emmy-nominated show. House of Cards was MRC’s first move into television, and it was also Netflix’s first original show. During production, Netflix fed important data about user preference and behaviour that it had in its database gathered from its preference analytics, in order to strategically appeal to its viewers. Partnering with MRC allowed the cross-utilization of technical know-how and proprietary data, further it eliminated the pressure to move fast in order to make their first original series,  which gave Netflix and MRC (which could have potentially been a competitor), just enough to reduce the risks of concurrent developments and produce a strong hit. This kind of approach may create strong value as well as greater control over the timing of new ideas or technologies and thus significantly reducing the costs of their R&D.

The company also has registered trademarks and service marks for the Netflix name and have filed applications for additional trademarks and service marks. Trademarks provides brand identity and allows others to easily identify the company easily. These trademarks prevents the company against identity theft and attempts to capitalise on recognition and reputation. However, Netflix trademarks do come with disadvantages.

First, the owner will need to show proof of use at regular intervals, the first submission is between 5-6 years after registration, the second is 5 years later and every 10 years thereafter, which can be troublesome. If the owner fails to file these documents on time, it could lead to the loss of trademark. The trademark is also described as the weakest form of intellectual property protection as it protects just marketing concepts and not always product itself. Therefore, trademark should go with other intellectual property rights like patents. Another disadvantage for trademark owners is that they will have to pay fee for registration and renewal. The fee depends on the number of classes of products that are covered in the application and some more additional fees.

Recommended IP Strategy for Netflix

With their current business model, Netflix is competing in an ever changing and competitive marketplace. Thus, in order to continue to stay ahead of competition and build the longevity of their brand, the approach and management of their intellectual properties strategically is important.

Although patenting has traditionally been an important protection mechanism for many businesses, (as has been discussed, was heavily utilized by Netflix in its traditional DVD-by-mail service,) Netflix’s focus and venture into the digital space necessitates a strategic reliance on patents with a stronger emphasis on utilizing trade secrets as well as the careful deployment and utilization of these assets in attempts to innovate and create value.

Netflix’s imitability is currently low in terms of its vast digital media library and its proprietary technologies, as its key assets are seemingly well protected by current IP strategies and tightly held. Yet these barriers can either diminish or continue to grow depending on how Netflix approaches the management of its IP. Notably, Netflix’s digital library consists of licensed and self-invested streaming content, which have been key value drivers for viewers. For licensed online streaming of its partner’s content, Netflix usually holds an exclusive broadcasting contract with a limited period of time. This allows the Netflix to gain a temporary monopoly rent in short term. However, the cost of such a contract is substantial (which has resulted in Netflix’s striking-out certain content) and it cannot prevent competitors from gaining access in the long term as well. In this sense, its move towards investing in original content production provides a strong foundation for achieving differentiation and competitive advantage as it holds the copyright over its original content and it could attempt to realize new revenue streams via broadcast licensing. Nevertheless, this has to be approached strategically as well as the costs of such endeavours should not be overlooked as well.

In the long term, Netflix should continue to focus on developing brand value, with an outlook to expanding globally. Over time they may be able to capture massive markets in developing countries with the leverage of their brand. Yet fully going global is definitely a challenge for Netflix. Not only are the social aspect of viewing different in different countries, but  also more importantly, there various IP rights and contract issues may arise in different jurisdictions that necessitates a modified approach. In order to overcome some of these issues, Netflix must be ready to adapt to  different models in order for them to capture rents in those countries.

A possible way of penetrating emerging markets could be to license country-specific content (e.g. license Bollywood movies in India) in order to both adapt to different cultural differences and reduce dependency on major western production companies.

Ultimately, Netflix has developed a strong innovative business model and generally adopted the right approach towards managing its IP in an ever developing landscape. The future of Netflix will depend on how the company will be balance the importance of minimising costs and implementing innovation, with need to secure the crucial intangible assets that define its business models.

Entrepreneurship

Women on Top in Tech – Laina Raveendran Greene, Co-Founder at Angels of Impact

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Here is our interview with Laina Raveendran Greene, Founder of GETIT Inc. and Co-Founder of Angels of Impact, an impact network focused on women social entrepreneurs helping to alleviate poverty. She is an entrepreneur and social impact investor, whose passion is female empowerment, and enabling women to be key agents to help alleviate poverty in Asia.

What makes you do what you do?
As a minority female Singaporean from relatively humble beginnings, I have never taken anything for granted. I learnt early on that I have to work doubly hard to overcome the “glass ceilings” but if I persevere, I can succeed. That is why I chose to focus on helping women-led social enterprises as I know how hard things are for them and I hope to make things a little easier for them.

How did you rise in the industry you are in? 
I rose by being courageous enough to push against the “glass ceiling” and seizing opportunities open to me no matter where they were. Early on, I realized I would have better opportunities overseas, so I worked in many countries, including Switzerland, USA, and Indonesia and used these opportunities to learn and open new avenues for myself. I now come back to Singapore with many more networks and skill sets.

Why did you take on this role/start this startup especially since this is perhaps a stretch or challenge for you (or viewed as one since you are not the usual leadership demographics)?
Yes, as a minority Singaporean, it may appear that I am not the usual leadership demography in Singapore. In my own way, however, I think I have amassed my own international accolades and work experience such as serving as the first Secretary General for the Asia Pacific Internet Association, CEO of one of the first few tech startups in Singapore in the early 90s, being on the International Steering Committee of the Global Telecommunication Women Network, and most recently selected as one of the 2nd cohort of Edmond Hillary Fellows in New Zealand.

I am now moving to the next phase of using these networks and skills to help other women to social enterprises, which seem to be exactly what I want to do in my next phase of life (after more than 25 years of global work experience).

Do you have a mentor that you look up to in your industries or did you look for one or how did that work? 
It was harder in my younger days, as one of the few women in tech to find mentors but today I do.  Men were reluctant to mentor me for fear of rumors.

How did you make a match if you did, and how did you end up being mentored by him? 
I found my mentor when I was taking an executive program at Stanford. He was one of the keynote speakers and I went to talk to him. Intrigued by my background, when I asked if he would mentor me, he said yes. I meet with him at regular intervals and I always ensure I have put his ideas to test before reporting back to him. I feel that I value his time if I do actually listen and act on his advice.

Now as a leader how do you spot, develop, keep, grow and support your talent? 
The key qualities I look for is an eagerness to learn and humility to be open to new ideas. Also, when asked to be a mentor, I usually give homework and see how proactive they are. Only the ones who do their homework, take the advice and act on it, are the ones I actively mentor.

Do you consciously or unconsciously support diversity and why?
I consciously and unconsciously support diversity, as I see the importance of diversity on true innovation. You never get anything new, talking to like-minded people. It is always good to have different perspectives to create new ideas. I am also an active supporter having faced racial and gender discrimination in my life and want to ensure that others are given a better chance.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb? 
A great leader to me is one who has empathy and humility, and a genuine spirit of service. Today’s challenges such as climate change and social injustice, requires many players to apply their knowledge and skills to solve and have a sense of ownership in solving these issues

Advice for others?
The only advice I can think of is do what you are strongly passionate about. You need to persevere to succeed so it helps if you truly care about the endeavor you are working on.

If you’d like to get in touch with Laina Raveendran Greene, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/laina/

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Callum Connects

Denise Morris Kipnis, Founder & Principal of ChangeFlow Consulting

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Denise Mossis Kipnis’ curiosity in people and the world, lead her to set up ChangeFlow Consulting.

What’s your story?
I’m driven by curiosity. Having been the only one in a room who looks like me for most of my life, I developed a curiosity about who stays, who leaves and who thrives in minority/majority situations including when and how connection and collaboration happen. I was a systems thinker long before I knew what that was, always asking why and so what; and seeing the pieces, the whole, and the places in between. So helping people and organisations move through the complexity of transformation feels natural to me.

What excites you most about your industry?
I see change and inclusion as two sides of the same thing; I don’t practice one without the other. Some people see change as death, as loss, as exhausting. And it can be. But I see in the work I do as an opportunity for something new or hidden to emerge. When an organisation understands that it is first a group of people, who themselves represent and belong to groups of people, and it begins to tackle what it would mean to understand and learn from all that talent, all that diversity, to have them all working for and not against the organisation, to truly unleash all that their people have to offer; that’s magic.

What’s your connection to Asia?
Change and inclusion are personal values as well as professional strengths. For me, living and working outside of the States was a bold experiment to see whether any of the stuff I’d learned about change and inclusion would work outside of the US. My husband and I targeted Asia specifically: it would be the greatest contrast, culturally speaking, for me; and a unique career springboard for him.

Favourite city in Asia for business and why?
Although I’ve practiced in other cities, I am biased towards Singapore. In some ways it’s what Los Angeles is to the rest of the United States, a microcosm of sorts. The regional/global nature of it means that so many different nationalities and cultures are represented. As a result of this mix, you never know what you might get. In some situations, cultural dynamics are obvious, sometimes subdued. The variability is compelling.

What’s the best piece of advice you ever received?
“Never ask anyone to do anything you wouldn’t do yourself.” Michael Rouan.

Who inspires you?
Often it’s a “what” not a “who.” I can get inspiration from a passage in a book or a situation in a movie, as well as a turn of a phrase or watching people interact. I often make the biggest connections between the various threads I’m working on when I’m sitting in someone else’s event.

What have you just learnt recently that blew you away?
I’m honestly not blown away by much. Instead, I’m struck how circular things can be: ideas often come back around with a slightly different twist and I watch the way it shakes things loose for people. I recently sat through a workshop on Self as Instrument, and despite being thoroughly versed already, I learned something. In preparing for a panel on design thinking, I unearthed a new language to describe things.

If you had your time again, what would you do differently?
You’ve caught me at a good time. I’m sitting in appreciation and gratitude for all my experiences, because I wouldn’t be who I was today if all that has happened, didn’t. And yet one thing comes to mind: It wasn’t until I redesigned my website two years ago (shout out to Brew Creative!) that I realised I hadn’t made explicit agreements with my past clients as to what I could share publicly about our engagement, or whether I could use their logos in my promotional materials. In my business, confidentiality is so important, and yet I need to be able to talk about the work as reputation and experience leads to the next success, and so on. It turned out a lot of the contacts I had known had left the organisations where the work was done, so they couldn’t help at that point. So the practice I’m carrying forward is to get those agreements up front, and to make sure my relationships in client systems are broad as well as deep.

How do you unwind?
Science fiction, puzzles, wine.

Favourite Asian destination for relaxation? Why?
Home. I don’t travel to relax, I travel to learn and explore.

Everyone in business should read this book:
Built to Change, by Ed Lawler and Chris Worley. To my knowledge, it’s the first pivot from advising organisations away from stability and toward dynamism, from strategic planning to strategizing as an action verb; to blow up the traditions and rigidity that impede organisations from developing change capability.

Shameless plug for your business:
We’re taught that there are two kinds of people: those who see forests, and those who see trees. There is a third type, my type, and we see the ecosystem. Worms, climate, birds, the spaces in between. This is the perspective organisations need to be successful in solving complex problems and thriving in change.
ChangeFlow uniquely blends four disciplines (two of which are multi-disciplinary in themselves): organisation development, culture and inclusion, change management and project management.

How can people connect with you?
Facebook: https://www.facebook.com/ChangeFlowConsulting/
LinkedIn: https://www.linkedin.com/in/dmorriskipnis/
LinkedIn Company page: https://www.linkedin.com/company/4862954/
Email: [email protected]
Website: http://www.changeflowconsulting.com

Twitter handle?
@ChangeFlow

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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