The Netflix Effect

Emily Tobolka

Aparicio-Afternoon

Honorbound

It has been a long, tiresome day at work and you are finally home sitting in your sweatpants and eating freshly popped popcorn. What do you put on the television? Netflix of course! Netflix provides an array of shows to satisfy any mood your boss might have left you in, which is one of the reasons you continuously use it.  Netflix was able to take advantage of evolving technology to become one of the largest video provider networks on the planet.  This company is a prime example of creative destruction.  Creative destruction, a term created in the 1940s by Joseph Schumpeter, is described as, “The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new structure. This process is the essential fact about capitalism.” [1] The question wondered now is if creative destruction is harmful to the work force or helpful? By using creativity to invent new items that can be used to the advantage of producers and consumers, although possibly destroying other jobs and inventions in the process, creative destruction is essential for capitalism to continue to flourish.

Although the creation of Netflix could single handedly be named the greatest invention ever (that is just my opinion), it did leave a few bumps and bruises on other companies along the way to stardom.  One of these is on the video tape and disc rental industry, most specifically, Blockbuster.  Blockbuster used to be the dominant firm of the industry, with nearly 60,000 employees and more than 9,000 stores. [2] After the popularity of Netflix increased, employment at Blockbuster steadily decreased until the company eventually closed down all of its stores.  Another firm Netflix challenged was traditional media companies, such as cable networks, TV channels and pay-tv services.  While these are still in business, they have seen a major decrease in usage. After reading this, it may seem that creative destruction is horrible and all it does is ruin jobs, but this is not the case.

Charles Wheelan states in Naked Economics, “Technology displaces workers in the short run but does not lead to mass unemployment in the long run. Rather, we become richer, which creates demand for new jobs elsewhere in the economy.” [3] So yes, Netflix did temporarily put many people in the video rental business out of work, but that does not mean they are going to be unemployed for the rest of their lives.  As Netflix popularity increased, they were able to decrease their subscription prices, resulting in more money in our pockets, and maybe even in those former Blockbuster employees’ pockets.  Now, we can all go use that money towards a different type of good such as puppy birthday cakes.  As a result from this new demand of dog cakes, these bakeries now need more help, and these newly unemployed Blockbuster workers are available to apply.  This cycle, in the long run, proves beneficial. Creative destruction, although seemingly harsh, proves to be necessary and fruitful for capitalism and the economy.

 

 

  1. “An Excellent Example of Creative Destruction”, AEI Ideas, Accessed June 23, 2017, http://www.aei.org/publication/the-netflix-effect-is-an-excellent-example-of-creative-destruction/

 

  1. “Netflix Has Won: Blockbuster is Closing Its Last Retail Stores”, The Washington Post, Accessed June 23, 2017, https://www.washingtonpost.com/news/the-switch/wp/2013/11/06/netflix-has-won-blockbuster-is-closing-their-last-retail-stores/?utm_term=.fcbf729ea385

 

  1. Charles Weelan, Naked Economics: Undressing the Dismal Science (New York: W.W. Norton & Company, 2010), 134.
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