Connect with us

Entrepreneurship

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

Published

on

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 – Daphne Ng, CEO of JEDTrade

Published

on

(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.)

Daphne Ng is the CEO of JEDTrade, a blockchain technology company focused on trade, supply chain, and financial inclusion projects in ASEAN. She is also the Scretary-General at ACCESS and Exco. of Singapore Fintech Association

What makes you do what you do?
I was introduced to blockchain technology in 2016 after I left my corporate banking career after 10 years. It was my mentor who first got me interested in this technology, which I then went on to delve further into, on its potential applications in the lending and trade finance space – domains where I came from.

How did you rise in the industry you are in?
Being in the space for 2 years and actively involved in the ecosystem, I was able to bring on the projects, network and a good degree of thought leadership in this vertical. Early on in the startup journey, our team faced many challenges. And to me, the key to rising above failures are two essential factors – resilience and support. While resilience is innate, I received a lot of help be it in terms of connections or advice. ‘Nobody succeeds without help’ rings very true for me.

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)?
From the start, I focused on my domain expertise in trade finance and the application construct of how blockchain and DLT can be applied to these use cases. Also, my strategy from the start was to build a technology company made up of 80% tech and engineers, which is also our key competitive advantage today. At the end of the day, deliverables are about strategy and execution, which includes building and leading an ‘A’ team.

Do you have a mentor that you look up to in your industries or did you look for one or how did that work?
I have many mentors, which includes our company advisors (all of whom are well-known in this industry) and mostly informal mentors I meet via my connections, and on various occasions and circumstances. Creating opportunities also means putting myself in the right place, at the right time. And in my case, these were mostly organic and genuine friendships formed from the initial connection.

How did you make a match if you and how did you end up being mentored by him?
To me, a match in values is very important. It also takes humility to ask for help and be willing to listen to advice, which is important in order for mentorships to be successful – be it formal or informal.

Now as a leader how do you spot, develop, keep, grow and support your talent?
I love this question! I am passionate about building strong teams and helping my people grow. I abide by the 3Rs when identifying talents: resourcefulness, resilience and right values. And then I invest in the ‘potential’ and this means giving them room to lead, make decisions and take risks.

Do you consciously or unconsciously support diversity and why?
My support of diverse talents, skillsets and characters can be seen in the make-up of our core team – all helming specific roles and each bringing their own value to the table. We need the sum of all parts to build a great company.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
Great leaders emerge in times of failures and challenges, never abandoning the team, and always putting the team’s interests before her own. And I consciously live by these mottos every day.

Advice for others?
My advice to other entrepreneurs: be resolute and dare to be different. If you are going to follow others, then you will end up on the same path as them. No right or wrong; but I would rather chart my own path. This June, we are officially launching our blockchain project, Jupiter Chain (www.jupiterchain.tech), which have garnered much interest in the industry, even before we made it public. We believe this project is the epitome of marrying innovation with practical implementation, and we want to be the first to truly operationalize blockchain for our ecosystem projects in this region.


If you’d like to get in touch with Daphne Ng, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/daphne-ng-%E9%BB%84%E7%91%9E%E7%8E%B2/

To learn more about JEDTrade, please click here.

Continue Reading

Callum Connects

Jace Koh, Founder of U Ventures

Published

on

Jace Koh believes cash flow is the lifeblood of your business. Understanding it will enhance your ability to run and manage your business.

What’s your story?
My name is Jace Koh and I am the Founder of U Ventures. I’ve always been inclined towards investment and entrepreneurship. I’ve played a hand in starting businesses across these industries – professional services, cloud integration, software and music. I believe that succeeding in business is tough, but that’s what makes the rewards even sweeter.

What excites you most about your industry?
Everything excites me. These are my beliefs:

  • Why is accounting important?
    The accounting department is the heart. Cash flow is like blood stream, it pumps blood to various parts of the body like cash flow is pumped to various departments and/or functions in a business. It is vital to the life and death of the business.
  • Is accounting boring?
    Accountants are artists too. They paint the numbers the way they want them to be.
  • What makes a good accountant?
    A good accountant can tell you a story about the business by looking at the numbers.
  • Why is budgeting and projection important?
    Accountants are like fortune tellers, they can predict the numbers and if you wish to understand your business and make informed decisions, feel free to speak to our friendly consultants to secure a meeting.

What’s your connection to Asia?
I was born and raised in Singapore, and here’s where I want to be.

Favourite city in Asia for business and why?
Singapore is my favourite city. We have great legal systems in place, good security and people with integrity. Most importantly, we have a government that fosters a good environment for doing business. I recently went for a cultural exchange programme in Hong Kong to learn more about their startups. I found out that the Hong Kong government generally only supports local business owners in terms of grants. They’ve recently been more lenient and changed the eligibility to include all businesses that have at least 50% local shareholding. But comparing that to Singapore, the government only requires a 30% local shareholding to obtain government support. In the early days of starting a business, all the support you can get is precious. It’s great that we have a government that understands that.

What’s the best piece of advice you ever received?
The best time ever to plant a tree was 10 years ago as the tree would have grown so big to provide you with shelter and all. When is the next best time to plant a tree? It is today. Because in 10 years time, the tree would have grown big enough to provide you shelter and all.

Who inspires you?
Jack Ma. His journey to success is one of the most inspiring as it proves that with determination and great foresight, even the poorest can turn their lives around. I personally relate to his story a lot, and this is my favourite quote from him, “If you don’t give up, you still have a chance. Giving up is the greatest failure.”

What have you just learnt recently that blew you away?
I’ve faced multiple rejections throughout my business journey, and recently came across a fact on Jack Ma about how he was once rejected for 32 different jobs. It resonated very deeply and taught me the importance of tenacity, especially during tough times.

If you had your time again, what would you do differently?
Nothing. I live a life with no regrets. Everything I do, regardless of whether it is right or wrong, happy or sad, and regardless of outcome, it’s a lesson with something to take away.

How do you unwind?
I love to pamper myself through retail therapy and going for spas. I also make a conscious effort to take time off work to have a break outside to unwind as well as to uncloud my mind. This moment of reflection from time to time helps me see more clearly on how I can improve myself.

Favourite Asian destination for relaxation? Why?
Taiwan! Good food with no language barriers and the people are great!

Everyone in business should read this book:
I don’t really read books. Mostly, I learn from my daily life and interactions with hundreds of other business owners. To me, people tell the most interesting stories.

Shameless plug for your business:
We’re not just corporate secretaries, we’re “business doctors.”
U Ventures is a Xero certified advisory firm that goes beyond traditional accounting services to provide solutions for your business. You can reach us on our website: http://uventures.com.sg/

How can people connect with you?
Converse to connect. You can reach me via email at [email protected] or alternatively, on LinkedIn here: https://www.linkedin.com/in/jacekoh/

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

Continue Reading

Trending