Introduction
Hi everyone, last week we discussed HBO’s reluctance to enter the online streaming platform early, backed by very reasonable reasons. However, those reasons might have been exactly what Netflix anticipated, using these “reasonable” reasons to dominate the online streaming market. If you’d like to review the previous newsletter, you can click the link below.
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Masterstroke: Counter-Positioning
What exactly is “Counter-Positioning”? Simply put, when a startup adopts a business model that is the opposite of the market leader’s, and if the market leader adopts the same model, it would harm their existing business, this creates “Counter-Positioning.” This often leads the market leader to make one of three decisions:
- Delay adopting the new business model,
- Execute it half-heartedly,
- Or do both (delay the decision and execute poorly).
Ultimately, this results in a gradual decline in market share → inability to counter the startup → the market leader eventually aligns with the startup → but often too late.
If counter-positioning is so detrimental, why doesn’t the market leader change immediately?
Why Doesn’t the Market Leader Want to Change?
Reason 1: They’re Still Making Money!
If a market leader needs to change their strategy and adjust their business model to enter a new field, the first question is: if they’re still making money, why change? The second question is: if the change might lead to losses, why change? Since they’re already earning well, why bother changing?
As mentioned in the previous newsletter:
HBO’s parent company, Time Warner, has investments in cable providers and other cable channels. The more people subscribe to cable TV and premium channels, the more money cable providers make (and they make a lot).
At the same time, Time Warner also owns cable channels like CNN (accessible with a basic cable subscription without extra fees). If HBO were to focus on an online streaming platform, it would hurt its own cable provider and other cable channel businesses.
Reason 2: Company Management Can Only Focus on Current Profits!
Although senior management consists of executives, they are essentially high-level employees. If they underperform or the company’s profits decline, they’ll be replaced quickly. For management, the logic is simple: company profits annually → management gets raises and stays; company makes drastic changes → company fails to profit → management gets sacked unceremoniously.
Even if management knows that not changing now will lead to regret in 10 or 20 years, they’re unwilling to change. Why? Because they don’t know if they’ll still be in management 10 or 20 years from now. Their job is to focus on the present, secure high salaries, and as long as they’re not authorized to sacrifice profits, they lack the motivation to change.
When Will a Market Leader Be Willing to Change?
Simply put, a market leader will change when they see profitability and have no choice but to change.
Seeing Profitability: When Netflix started with a monthly fee of $7.99—lower than HBO’s $15 fee—HBO didn’t see the value in entering a money-burning market. As Netflix gradually raised its fee from $7.99 → $8.99 → $10.99 → $12.99 → $13.99 → $15.49 without losing subscribers, and even attracting more, the market leader realized they had to change. Netflix also expanded its profits year by year.
No Choice But cultura to Change: In 2016, HBO’s parent company was sold to U.S. telecom giant AT&T, sounding the alarm for HBO to change. The new owner was dissatisfied with HBO’s hesitation in the online streaming space, accelerating HBO’s entry into the streaming competition after the sale.
HBO Now, After Falling into the Counter-Positioning Trap
Compared to HBO, which fully committed to online streaming around 2018, Netflix had already started its streaming service in 2007—a 10-year gap that left HBO struggling to catch up, unable to even see Netflix’s taillights. In 2023, Netflix’s full-year net profit was $5 billion, while HBO’s parent company was still reporting losses, not yet profitable.
Intentionally or not, Netflix used [Counter-Positioning] to anticipate HBO’s hesitation (HBO’s reluctance to enter the streaming market early), leveraging a new business model to restrain HBO, turning HBO from a leader in the drama market into a laggard.
Counter-positioning is one of the most fascinating strategies because it turns a market leader’s strengths into a fatal flaw that prevents them from adapting. Will a new startup use counter-positioning to challenge Netflix in the future?
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