Netflix, Low-Cost Online Master's Programs and 'That Will Never Work’

Why higher ed today is like Blockbuster Video, circa 2000.

December 1, 2019

That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Marc Randolph

Published in September 2019

What is higher ed's Blockbuster moment?

What will colleges and universities do, or not do, that 20 years from now we will look back on as an epic fail?

Blockbuster Video will forever be remembered as the company that, in September of 2000, had the opportunity to purchase Netflix for $50 million. They passed. Today, Netflix is worth $138 billion. Blockbuster Video is bankrupt, with a single surviving store in Bend, Ore.

The inside story of how and why Blockbuster Video passed on Netflix is told by Marc Randolph, Netflix's largely forgotten co-founder and first CEO, in That Will Never Work.

The founding myth of Netflix is that it was founded by Reed Hastings as a result of his frustration over a $40 late fee from Blockbuster for Apollo 13. As we learn in That Will Never Work, the actual story of the birth of Netflix is considerably more complex and messy.

When Netflix was founded in 1997, it did not have the model of a monthly subscription service, and renters were charged late fees. At its birth, Netflix made most of its money from DVD sales. It was only later, after much trial and error and many failed business models, that Netflix stumbled on the monthly subscription model of keeping DVDs for as long you want.

Randolph left Netflix in 2002, so the story of the company focuses only on the early years. Missing from this history of Netflix are the really interesting years, when the company pivoted from a shipper of DVDs to a streaming platform.

The fascinating development of Netflix evolving into a creator of original content, as opposed to a content licenser, is also missing from Randolph's story. Last year, Netflix spent around $12 billion on content, 85 percent of which was devoted to original shows and films.

The reason That Will Never Work is worth reading is to remind ourselves that the most significant inflection points are never predictable or linear. That Will Never Work is an entertaining, if frustratingly decontextualized and uncritical, first-person account what it is like to play a part in driving one of those big shifts.

In the case of Netflix, the big change was to destroy the model of DVDs rented from brick-and-mortar stores. The internet, combined with the U.S. Mail, proved a much more efficient way to select and receive discs than a trip to the video store.

I suspect that most everyone reading this book review will recall what a frustrating experience it was to rent movies pre-Netflix. The new releases that you wanted to rent were rarely available. The pressure to watch and return the movie was ever present, and the late fees felt punitive. Blockbuster never saw the internet coming. After failing to buy Netflix, it was never able to catch up with its more established web rival once it belatedly got around to online rentals.

Where That Will Never Work is frustrating is that Randolph does not have much to say about the lessons of Netflix. There is very little in the book about the future of media. Randolph mostly tells the story of the birth of Netflix as a hero's journey (with Randolph in the starring role), with very little analysis of the economics of digital platforms. Nor does Randolph have anything to say about where the next Netflix/Blockbuster story may play out.

So I'll try to do what Randolph avoids. And I'll try to be as clear as I can.

The Blockbuster Video of today is traditional, campus-based, face-to-face master's programs from institutions with regional brands.

The Netflix of tomorrow is low-cost online master's programs, such as the $21,384 iMBA from the University of Illinois, on the Coursera platform.

Just like brick-and-mortar video stores, almost every high-price/residential master's program will disappear.

This trend will accelerate as universities and partners such as Coursera and edX figure out how to optimize for quality and rigor, using a combination of human educators, adaptive learning platforms, peer learning and AI-driven feedback and assessment.

This move toward low-cost online master's will, paradoxically, raise the value of small-scale graduate degree programs from globally branded institutions. Increasingly, schools in the top 50 ranked schools will offer low-residency degree programs -- and fully online nondegree certificates.

These expanded low-residency and online offerings from top schools will further accelerate the collapse of high-priced master's degrees from regional institutions, with face-to-face programs the first to die.

What this means is that every school out of the top 50, and maybe those between 25 and 50, should be looking to transition their high-priced master's programs to low-cost master's degrees offered at scale.

To not make the transition from expensive, face-to-face graduate degree programs that enroll relatively few students -- to lower-cost online degree programs that enroll many more -- will be to make the same mistake as Blockbuster 20 years ago.

Is that advice clear enough?

What are you reading?

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Joshua Kim

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