Teva, which you likely do not even know (Northrup, 2010), has won its business game by betting its success on products with a true future, while Netflix, stuck with a well-known brand name, appears to be dying the death of overconfidence. Technically, Teva could still do less well than anticipated because the market they are in -- the production of generic drugs and the ingredients that allow for making generic drugs -- is coming up for grabs. But right now they are seen as a clear success. Netflix, on the other hand, has not actually failed -- at least not yet. But they do seem to be doing their best to act like they should. At least one well-known investor has sounded my warnings and believes that Netflix has all but disappeared, even in the face of a number of possible industry opportunities (ChartProphet, 2011).
Teva and Netflix are incredibly different companies and might not normally be compared and contrasted. However, they each share some common circumstances and have opted to follow significantly different paths -- one of which is working and one of which appears to be falling short. Their common elements center on their size and position in their respective global sectors. Their differences have much to do about their slow and steady planning or their leap of faith that more of the same is essentially always the best path to growth.
TEVA Pharmaceuticals, Ltd. -- Teva has earned itself a position of recognition in a number of the global assessments of the pharmaceutical and biotechnology industries. This is the case because, even as its corporate website demonstrates, it has the numbers for success:
Teva manufactures 71 billion tablets a year in 77 pharmaceutical and API facilities around the world. Over 1.5 million Teva prescriptions are written each day in the U.S. alone, 1,052 prescriptions per minute. Our numbers speak for themselves, more generic medicines mean more health for more people. This is what we do: we make quality healthcare accessible to more people worldwide, every single day for over a century, so you can live your life (Teva Website, 2012).
The company began as a relatively small drug production company in the early years of the 20th century. Since that time it has grown continuously in a cautious way but without giving up its confidence in staying what it likes to say is a small business at hear.
Small in this sense clearly has little to do with the business as an operational entity. The company has hundreds of sites and it makes thousands of products. It's basic focus is on developing, inventing, manufacturing and, most recently, merging with and acquiring other businesses that are affiliated with pharmaceutical production, biogenerics and the engineering of active pharmaceutical ingredients, which are the compounds that enable companies to make "biosimilar" agents for challenging brand-name medicines (IMAP, 2011: 10). A Krause Fund investor communication in 2010 describes the company as having facilities in 60 countries. It employs some 36,000 people (2010:6). It is generally agreed that it has effective control of the majority of generic drugs that are used in the U.S., and its relatively new and intensive merger and acquisition practices have ensured that it has ownership control over some of the best companies across the planet that are trying to get into the healthcare game of the future (IMAP, 2011:11). In the U.S., insurance companies favor generics to try to reduce their costs. In other countries, such as in Japan, generics have not been as popular though that market is now opening to new opportunities. In both cases, more generic alternatives seem to be the desire for the best returns into the distant future -- and Teva is by far well positioned for leading this charge (IMAP, 2011:11).
Netflix -- Most people know Netflix as being the convenience movie company. Its website says that it is, "With more than 23 million streaming members in the United States, Canada, Latin America, the United Kingdom and Ireland, Netflix, Inc. [Nasdaq: NFLX] is the world's leading internet subscription service for enjoying movies and TV series" (Netflix, 2012).
Why it is seen as being such a significant player is that its business model seeks to allow all types of connectivity technologies to pull from its databanks. It has been estimated by Netflix that more than 700 of the current generation of entertainment devices have the ability to pull from its materials reserves. This includes most of the Apple products, the Microsoft Xbox series, Google TV, home theatre systems, etc. All Macs and PCs and most TVs are seen as compatible. And, at least until recently, it was seen as attractive because of the fact that it had lucrative contractual relationship with notable Hollywood movie and broadcast companies.
But being global is not enough to achieve all desired end results. And what differentiates Tera and Netflixs is most important as to why one is succeeding and the other is not.
TERA: The successes that Tera has achieved have been as a result of several critical early decisions, many of which are paying off now as various political and social demographics fall their way (Krause, 2010). Unlike other drug producers, they have opted to maintain their key operations in Israel (Northrup, 2010). This has allowed them to enjoy key tax and operational savings because of special arrangements that decrease into the future. In addition, the company opted to move away from just growing with its core operations and chose to enter the mergers and acquisition game. It created a joint venture partnership, for example, with a Swiss company called Lonza. Investors see this as giving Tera direct access to some of the best production capabilities for developing biosimilar medicines about as fast as the patent protections run out on some of the world's most profitable medicines (IMAP, 2011:10). In Japan, it used a very similar approach and built a solid and favorable joint venture with companies like Kowa and Tashio. Each of these is a market leader in generic medicines for Japan and together they expect to move many more consumers into their market. The 17% use rate is expected to jump to some 30% in just a year or two (IMAP, 2011:11).
Netflix: The path taken for Netflix is one marked by having too much confidence in the fact that they are too big to fail. They thought of themselves as being so well positioned and so in the favor of others that their services and partnerships would never abandon them. And then they tried to raise their prices on the 25 million subscribers with little understanding as to what that might mean about their reputation. The idea failed and was then reinforced by the failure of the company's corporate apology. But investors see this incident as symbolic of too many self-interested decisions. ChartProphet, an online investment advisor for Seeking Alpha, noted that there have been a series of poor understandings and business actions that may have put the company into a permanent spiral to death (ChartProphet, 2011). Moving from DVD to streaming video by challenging its subscribers and other massive companies weakened it substantially. The company cannot even afford its own collective of video because many forces are at work trying to profit from streaming capabilities, and Netflix does not have the proper infrastructure. Partner businesses like Sony are rapidly on the decline and losing profits as well, and its stock valuation exceeds what is real for its condition.
Here is how ChartProphet concluded his dire assessment: "The momentum is very strong on the way down, just as it was on the way up. With competition continuously rising, strengthening, and eating away at Netflix's once-dominant business, I expect Netflix's troubles to continue from here. Competition has finally broken Netflix" (ChartProphet, 2011).
ANALYSIS OF SUCCESS AND FAILURES
The reasons for the differences between these companies center on three key elements:
1. Teva has stayed true to its small-business model (at least at heart), while Netflix has been most interested in trying to capitalize on growth and global domination almost without regard to what it might cost to get and stay there;
2. Teva has sought to merge with or acquire new partners who hold the potential for directing their future successes, while Netflix fought to move into areas of the sector it could not control or even fully utilize (video streaming); and,
3. Teva has presented itself as being humble and cautious, often using its expertise more than its brand name recognition; Netflix, on the other hand, has been aggressive, confrontational and possibly even unfair or unethical in its desire to be first and, as such, has likely been beaten by itself in the game of entertainment competition.
Netflix was likely a company that served a purpose for a while but may now find itself in such a poor place as a business that it will never recover. If it had approached its challenges…