In 2007, Netflix launched an online streaming movie service to its subscribers. They would get to watch an ‘astonishing’ six hours of online content every month, or up to 18 hours if they were willing to pay more. But for most subscribers, this was merely a bonus feature because it required a minimum of 1 Mbps to stream films (below DVD quality) and 3 Mbps to stream them in their native resolution. Additionally, the DVD selection of 70,000 unique films dwarfed the online selection of 1000 films.
You know, this had been banging around my head for a while. In Competing Against Time, the authors identify the phenomenon of the Strategic Use of Debt, which is to mean the prudent use of leverage to improve its competitive position. This is an interesting concept, which is instanitiated here with Netflix. In the book, I think they explain how Dow uses it to overtake Monstanto. Here, Netflix uses debt to pivot into a new industry – streaming – and become the leader. Finally, in Lessons From the Titans, Danaher uses high yield to buy a bunch of underperforming industrial assets (with an assist from lean manufacturing!) to build a high performing industrial organization. Later, as it compounds cash flow, Danaher can then access investment grade debt markets to buy more and move towards healthcare. This is a rich idea and this is just off the top of my head.