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THE NETFLIX HOUSE PLAYBOOK

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The News:

Netflix is extending their shows through physical experiences. Set to open in 2025, ‘The Netflix House’ will open two locations in the US with plans to expand the concept all around the world.

The Brief:

In this brief, we’re going to dive into why this is a good strategy, potential pitfalls, and how the Netflix House can serve a higher purpose and transcend their original remit to not just build fandom for their shows, but to facilitate fandom on a global scale—bringing much needed life and energy back to our cities.

“Dull, inert cities, it is true, do contain the seeds of their own destruction and little else. But lively, diverse, intense cities contain the seeds of their own regeneration, with energy enough to carry over for problems and needs outside themselves.”

― Jane Jacobs, The Death and Life of Great American Cities

The Next Evolution of Netflix

The Netflix House marks a significant shift in Netflix's strategy as a media company. A mix of retail, dining, and live experiences, this will be their first beachhead into permanent brick-and-mortar locations. They’re going to bring together everything they’ve learned from their one-off traveling experiences under one roof.

Media outlets are describing the vision for the Netflix House as mini-theme parks.

“They’ll serve food and drink, sell merchandise and include “immersive” installations based on its hit titles like “Squid Game” or “Stranger Things.”

— Variety

Netflix has been quietly strengthening this capability for quite some time now. They struck around 75 brand partnerships to promote the third season of Stranger Things—coordinating with 3rd party vendors and developing robust artists programs that foster collaborations with designers and illustrators worldwide to create new products and experiences based on Netflix IP.

They acquired movie theaters between 2019-2020.
Launched various pop-up experiences for shows and films like Squid Games, Stranger Things, Knives Out, and Bridgerton.
In 2020 they hired Josh Simon to be VP of Consumer Products. Simon is in charge of identifying and building plans across different lines of business in consumer products, and collaborating with Netflix’s content teams on the initial development of brand and audience strategy for consumer products.
In 2021 they launched the Netflix Shop, the official merch store of Netflix. Simon oversaw the launch with exclusive merch based on the streamer’s original shows and films, including “One Piece,” “Castlevania Nocturne,” “Heartstopper,” “The Witcher,” “Bridgerton” and “Stranger Things.

“We’ve seen how much fans love to immerse themselves in the world of our movies and TV shows, and we’ve been thinking a lot about how we take that to the next level.”

— Josh Simon, VP of Consumer Products at Netflix via Bloomberg

This is a good move by the company for a few key reasons:

Counter-Positioning the Hollywood Crisis: Hollywood is in crisis. Creatively, culturally, and financially. While the studios are on their knees because they aped into streaming, union disputes, and AI— moving into the physical medium of retail, merchandise, and themed experiences to further entrench Netflix’s strategic advantages is a better time than any.
The Upside of a Down Real Estate Market: Both the retail apocalypse and office vacancies have nuked city centers into a socio-economic rut. Not many people have the ability, IP, and cash flow to reverse the urban doom loop. Not only will Netflix be able to pick up great lease terms in a down real estate market for the next 5-10 years, The Netflix House can potentially become the cultural nodes that major cities like Los Angeles need from the fallout out retail, studios, and small businesses.
The Best Marketing is World Building: As people evacuate the main social media feeds, there will be a desire for quality hard goods and materiality over ephemeral experiences and digital content. Disney’s theme parks and resorts for example are a significant part of their revenue streams. Its six theme parks and resorts which employ at least about half of the company’s 220,000 employees contribute about 1/3 of all their revenues. Although this won’t be a significant portion of Netflix's revenue for quite some time, building permanent experiences and live programing as part of their overall marketing practice will further differentiate the company’s catalog in a world of infinite content and infinite products.

“The main feeds are no longer our primary sites of communication. Nor are they the sites of identity formation that they once were. Feeds have become something like interstate roadways with posts as billboards—fleeting pieces of information that momentarily makes us laugh or annoyed, and that occasionally compel us to exit.”

— Holographic Media

Netflix spends about 8% of their revenues on marketing ($2.53 billion). The Netflix House will allow Netflix to earn multiples on their marketing spend. But more than that, Netflix has really high cost of revenues. At $19.2 billion (61% of total revenue). This includes content amortization, content delivery costs, customer service costs, payment fees, etc. In the future, and much like Amazon, they can and will turn their cost centers into profit centers.

Under Simon, the company has launched more than 40 pop-up locations in 20 different cities, including the “Netflix Bites” a restaurant experience in Los Angeles and ticketed experiences like "The Queen’s Ball: A Bridgerton Experience” and “Stranger Things: The Experience. On December 6th, 2023, “Squid Game: The Trials,” people can compete in six different challenges over the course of 70 minutes, with tickets starting at $39 each.

The Upside Down Netflix House : The Goods, The Bags, and the Ugly

The consumer products group is a cross functional group. It’s a complete and total exercise of creative strategy and production.

As Ted Sorantos, the CEO of Netflix has stated, “Like other consumer products groups, we don’t really focus that much on revenue and profit on that business, a lot of it is about building fandom. It’s where consumers, products, sales, marketing, and publicity all come together, and help facilitate incredible fandom.”

But which shows should Netflix bring to life? Who, what, where, when, why, how?

These will be the eternal questions for the consumer product product group. While the Netflix House is a natural next step, the company still runs the risk of spreading themselves too thin and not focusing on the right media mix for any given show, movie, or game. Increasing the scale and scope for expensive mistakes. Much like Netflix shows themselves, they can hide the bombs and celebrate the successes. The problem with this approach is that it can make it difficult to develop a model for cultural and financial success for quite some time. Radical candor and a culture of feedback can stem the tide. But if executed incorrectly for too long, much of the merchandise and experiences can become a sink hole with outputs that feel like leftover swag from the Netflix holiday party.

Retail Realities

In just the last few years we’ve seen Disney close their stores nationwide, Amazon closed all of their 4 Star Stores and pop-ups, and Microsoft permanantly closed all their retail locations. It doesn't matter if you have an infinite money machine, an industry leading machine learning algorithm, and a pipeline of the best tech talent. Retail lives and dies by a different set of rules. Cultivating life and cultural energy requires taste, emotional sensibility, spatial awareness, and aesthetics. It's a different game in the world of atoms vs in the world of bits. Culture eats technology.

"Culture, for a society a group, or a person, is a continual process of sustaining identity through the coherence gained by a consistent aesthetic point of view, a moral conception of self, and a style of life which exhibits those conceptions in the objects that adorn one's home and oneself and in the taste which expresses those points of view. Culture is thus the realm of sensibility, of emotion and moral temper, and of the intelligence, which seeks to order these feelings."

— Daniel Bell

As we uncovered in the 2nd issue of the GM Report: New Retail, After the Apocalypse:

Although the so-called retail apocalypse and online shopping appear to challenge the need for physical retail, the reality is quite different. The crux of the matter is that content, rather than real estate or architecture, now drives retail. As media evolves, so does retail. Retail isn’t dying, (far from it), but the brands that are using it non-strategically are. New Retail harnesses retail as a dynamic platform that continually updates, akin to an unfolding operating system offering a continuous stream of new experiences. Contemporary retail behaves like spatial software.

IP Density vs Breadth of Catalog: Netflix’s Weakness or Strength?

In the streaming wars, Netflix had the advantage of building larger audiences with its B+ shows than others do with As. But in the world of live, real-time experiences, IP density is the single most important factor in fandom. Even if you were to combine the fandom of Squid Games and Stranger Things it would still not hold a candle to the fandom of Harry Potter. You can measure an IP’s power by its ability to cross over into different genres and it's merchandisability into other appealing forms of hard and soft media. Are your characters a halloween costume for one year or are people going to be cosplaying your characters forever?

The Strategy: Bridging Glocalization + Locavesting

Ten years ago, Ted Sarandos famously said: “The goal is to become HBO faster than HBO can become us.” If Netflix's strategic aim was to out-HBO HBO before HBO could outdo them, their new initiative should be to scale niche fandoms faster than A24 can scale themselves.

Here are some strategic recommendations:

Build a brain trust of creatives with high aesthetic intelligence.
Cultivate desire by creating hyper-objects with a provocative POV on culture.
Lean harder into anime fandom.
Bridge glocalization with locavesting.

Build a brain trust of creatives with high aesthetic intelligence

Pixar has their brain trust and Disney has their imagineers. The scaleability of the Netflix House is going to require a high level of taste and sensibility across all disciplines. Creatives that understand pragmatics vs aesthetics, function vs form, needs vs values, work vs play, means-to-ends-and ends-in-themselves.

"Design is the radical syntehsis of means and ends into a third type of thing—both useful and beautiful."

— Ge Wang, Artful Design

Applying the Principles of Imagineering

In December of 1952, when Walt didn’t get what he wanted from his brother, he set up his own company to finance and plan Disneyland. He called it WED Enterprises after his initials. Walt pulled together some of his key artists, engineers, and designers to do something never before attempted: design and develop a theme park that would make guests feel as if they were part of a film. The WED team crafted Disenyland from concept sketches, architectural models, special-effects developments, and pure imagination. Walt wanted nothing to inhibit or limit their innovations..not even the sky.

After Disneyland opened, Walt wanted WED to continually “plus” up the park, allowing its evolution to be as creative as the team of people behind it. Thereafter, WED remained a core entity behind Disney development. In 1986, WED became Walt Disney Imagineering (WDI), and the forces behind it, Imagineers. Now more than a thousand Imagineers strong, WDI has grown from one small studio without heat or air conditioning to more than two dozen buildings on a hundred acres of Disney property. A unique amalgam of architects, machinists, technicians, carpenters, custodians, and other creative professionals, they provide the wizardry behind Disney’s multidimensional worlds.

From conception to completion, Imagineers have put every Disney theme park on the map, as well as the resorts, cruise ships, office buildings, landscapes, and architectural marvels outside the parks. Not one stone is left unturned—even wallpaper and trash cans are designed to themed perfection.

— Disney's Historical Records

The phrase "plussing" was popularized by the legendary Walt Disney as a way to describe the continual quest for perfection in the world of Imagineering. Disney firmly believed in the unending potential for innovation and enhancement, famously stating, "As long as there's imagination in the world, Disneyland will remain a work in progress." This philosophy often involves revisiting previously shelved concepts, like the transformation of the Museum of the Weird wax museum idea into the iconic attraction known today as "The Haunted Mansion."

It shouldn't be that much of a problem for Netflix to assemble since their talent density is higher than most tech companies.

Lean harder into anime fandom

Adapting anime into live-action pieces are notoriously difficult, but Netflix finally succeeded with One Piece. From their letter to shareholders:

One Piece is a great example of Netflix’s variety, reach, recommendations and fandom at play. Based on the best-selling manga series, our live action adaptation generated stellar reviews, loud conversation on social media, in particular TikTok, and huge watching (62m views globally*) — making it our first ever 4 English language title to debut at #1 in Japan and pushing the series to #1 on Netflix’s global Top 10 for three weeks in a row.

With the passing of Virgil Alboh and the fall of Kanye West, luxury brands are already shifting away from hip-hop and sneaker culture into figuring out how to tap into anime. This is a significant shift in culture as monetizing the fandom of anime is still quite premature in the west. The power of anime is criminally underrated in corporate boardrooms, and is probably the most powerful fandom to tap into right alongside K-Pop. Netflix, in theory can create mini-Ghibli parks all across the world to satiate the underserved market of anime fans as they continue to produce more animation and live-action adaptations. The directive here would be to make the dreams of anime fans come true by creating more considerate and beautiful spaces for them to gather instead of just capitalizing on their passions. Recreate the 2016 Summer of Love Pokémon Go vibes every single time.

Cultivate desire by creating hyper-objects with a provocative POV on culture

The Consumer Products Group will have to think less like Spin Master and more like Brain Dead. Less like Supreme, and more like MSCHF. Both MSCHF and Brain Dead are product studios that behave like an art collective. This is key to understanding how and why they’re so good at grabbing the Internet’s attention. One of the key things these collectives are great at is that they start at the emotional level. They don't start with the product. They start with the meta. They ask: How do we want people to feel? This is how they're able to imbue meaning into a highly commercialized environment with a range of hyper-objects: artworks, sneakers, browser plug-ins, and physical products because they have a cultural point-of-view on why they even made the products in the first place.

Bridge globalization with locavesting

Without a coherent vision, coordination, and a constant refresh of creative programming, the Netflix House can potentially remain a cost center with minimal cultural impact. But what if there is a case for an economic one?

The term "locavesting" was popularized by Amy Cortese, an American journalist and author. She is known for her work in promoting the idea of investing in local businesses and communities. Amy Cortese wrote a book titled "Locavesting: The Revolution in Local Investing and How to Profit From It," which was published in 2011. In the book, she explores the concept of locavesting and how individuals can support and invest in local businesses to strengthen their communities. The term "locavesting" is a portmanteau of "local" and "investing," highlighting the idea of keeping investment capital within one's local or regional area to stimulate economic growth and community development.

Small businesses are the backbone of the American economy, generating 80% of jobs and half the country's GDP. Yet, our cities and business districts are being hallowed by a new set of cultural behaviors and economics.

As Amy says,"Today, we are buying local and eating local, but we still aren't investing local. There just hasn't been an easy way for individuals to put money into worthy small businesses in need of capital. The truth is, our financial markets have evolved to serve big businesses—when they serve business at all, that is. Of all the trillions of dollars madly flying through the financial markets, less than 1% goes to productive use, in other words, to providing capital to companies that will use it to hire, expand, or develop new products. The rest is sucked into the voracious maw of trading and speculation. And that tiny fraction of productive investment goes mainly to companies big enough to issue shares in initial or secondary public stock offerings—an increasingly exclusive club. When small enterprises create three out of every four jobs and generate half of the nation's GDP, that is not an efficient allocation of capital."

Much of Netflix's global success can be attributed to their glocalization strategy. Working directly with local directors, creators, and production studios to create localized content on a global scale. Integrated top-to-bottom, all the way from pre to post production. From 2016 to 2020, Netflix contributed nearly $5 billion dollars to South Korea's economic growth and helped create 16,000 full time jobs.

If content is driving commerce, that means cultural capital is becoming a prerequisite for real estate capital. Unfortunately this means that spaces for fandom (i.e. comic books stores) are becoming too risky for small business owners.

Platform companies are already looking to fill the void:

In 2016, Airbnb announced an innovation lab called Samara. Tasked with inventing new futures for the company, Samara's first project was to revitalize a small town in Japan. Airbnb is looking to scale it to other declining small towns across the world. The idea is that Airbnb could be a force not only in sharing homes, but in urban design.

— Fast Company

In 2023, Google opened the Google Visitor Experience which includes public spaces and pop-up shops featuring local businesses.

The opportunity here is to play a bigger role in city life by facilitating fandom. A Manga Cafe by Netflix to facilitate anime fandom. A PC Bang by Netflix to facilitate gaming fandom.

By building small business-like entities that are self sustainable and prosperous to any given local economy Netflix can bridge their glocalization strategy with a locavesting one. More than "stepping into the worlds of their favorite show," fans have the desire to live the lifestyle of their favorite characters. Besides major cities in Europe or Asia, there is little to no spaces where fans can enjoy gaming, anime, manga, and storytelling safely—amongst both strangers and peers. Teenagers are being banned from malls, and public libraries have become slums.

Manga is highest selling, the largest and busiest section in Barnes & Nobles, yet the store does not provide adequate seating, music, or comfort to read and enjoy manga. In fact their store design, (although improving), unconsciously replicates America's hostile architecture design.

As we mentioned in the GM report on retail:

Retail assets are a key component of the world’s largest real estate portfolios. Retail projects are worth 20-30% of all commercial real estate, and is already considered the biggest real estate category. Bigger than offices and homes when accounting for warehouses.

Cities are cradles of culture, technology, and commerce. In a globalized, networked world, cities are more meaningful as economic units than entire nation-states. Street-level retail supports the life and vitality of neighborhoods and the city as a whole.

A diversity of retail and amenities within a city neighborhood accurately predicts both human mobility and economic growth, even after controlling for density and centrality.

Our economy relies heavily on the retail industry, with retail sales being the most common profession in the United States—followed by retail-related categories such as cashiers, fast-food employees, and deliver truck drivers. Therefore, the success of retail is critical to the overall financial health of our society.

What we have identified here is the need for physical spaces to revitalize our cities—spaces that make our lives fuller and richer. Places where we can spend time with friends, family, and strangers.

“Serendipitous connections become less likely as increased communication narrows our tastes and interests. Knowing and caring more and more about less and less. This tendency may increase productivity in a narrow sense while decreasing social cohesion.”

― Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community

Entertainment media has a long history of emphasizing individuals over issues of communities. Today, Netflix's influence on culture wields an enormous amount of power on the formation of values and social norms through media. Here, we offer The Netflix House a social and economic case to leverage the worlds they are building to rekindle the bonds of community one neighborhood at a time. Less fantasy, more reality-based community.

PUBLISHED BY

Brian Gold

Founder and Editor of Good Monsters

RELATED MATERIALS:

The GM Report:

— New Retail, After Apocalypse

GM Recommended Reads:

— Matthew Ball's Essays on Netflix

— The Rise of a Cultural Conglomerate A24

Financials

— Netflix Q3 2023 Earnings Call

— Netflix Q3 Shareholder Letter