Founded on 29th August 1997 by Reed Hastings and Marc Randolph, Netflix changed the way we use media in a digital age. Starting as a DVD rental, Netflix changed it’s business models multiple times to emerge as one of the most popular OTT providers in the world.
Insights of this blog are:-
- The Background: How It All Started?
- The Initial Days Of Netflix
- The Beginning Of Good Days
- The Start Suggestion Algorithm To Streaming Video
- Growth, Competition And Expansion of Netflix
- The Fall Of Netflix and How It Turned The Tide
- Netflix Today
The Background: How It All Started?
It was in the year 1997, when two software engineers Reed Hastings and Marc Randolph founded Netflix in Scott’s Valley, California. Both of them were previously co-workers at Pure Software, but their idea to start Netflix was different. While Marc Randolph wanted to start an internet business Reed Hastings was tired of increasing fees of local video renting shops.
The Initial Days of Netflix
- Netflix started on the idea to distribute DVDs to its customers by mail within one working day, after finishing which the customer could mail the DVDs back to Netflix.
- With an initial investment of 2.5 million provided by Hastings, Netflix debuted in April 1998. Initially, it operated on a paper rental model before introducing a subscription program in September 1999.
- In 1999, Netflix began offering online subscription service through the internet. The subscribers could choose from tens of thousands of movies and television titles on the Netflix’s website, which were later mailed to them in form of DVDs with prepaid return envelopes through 100 of its distribution centre’s.
- A year later, Netflix discontinued the paper rental system leaving the subscribers with no other choice than opting online subscription service.
- In its early days, Netflix caught the eye of growing online retailer Amazon and growing forces in home entertainment Blockbuster Entertainment.
- Despite having grown its customer base to 300 thousand, Netflix operated in a financial loss in the following year. This loss was attributed to a significant increase in operational expenses.
- Worrying about the huge loss that Netflix made, Hastings went to its competitor Blockbuster Entertainment with an idea to sell Netflix for 50 million dollars to which the latter denied.
- Netflix hit the public trading market in the summer of 2002 with stocks starting at 15 U.S. Dollars per share.
The Beginning of Good Days
Finally, the company became profitable in the year 2003, when it crossed 1 million subscribers. It was then when Blockbuster Entertainment realized how Netflix could be a real threat to them. In the month of April 2004, Netflix in a defensive move announced that it is planning to offer movie downloads to its subscribers. This was seen as a real inventive move to claim stakes in the new business territory. By the end of 2004, Marc Randolph was no longer with the company.
The Start Suggestion Algorithm To Streaming Video
Although the company, wanted to start their internet service video in 2005, they were unable to do so.
In 2006, Netflix Launched 1 million U.S Dollar contest to see if anyone could improve their recommendation system by 10%. The recommendation system of Netflix was nothing but an algorithm based on an individual’s rental history to predict his/her future preferences. Three years later, the prize was awarded to a team of individuals comprising of mathematicians, computer scientists and engineers from the United States, Canada, Austria and Israel.
Finally, in 2007, when Netflix’s subscription base grew to 7,500,000, it launched a streaming service for its subscribers through the internet. As a result, the company earned a profit of 1.2 billion through revenue alone. Being the first name in the world of online video streaming, Netflix was able to secure several lucrative contracts exclusively. It also partnered with several manufacturers of consumer electronics products such as Video game consoles and Blu Ray Disc player’s, in order to ensure that its videos get access to stream to those devices as well.
Growth, Competition and Expansion of Netflix
In 2010, Netflix introduced a streaming-only plan that allowed unlimited streaming but no DVDs to its subscriber’s. This move hinted how Netflix was going to evolve cutting down on its DVD Rental Business in the future.
Despite facing stiff competition from Hulu and Amazon, Netflix emerged as the biggest hub of internet data across the United States by 2010. Since then, Netflix continued to expand beyond the United States, by offering Streaming only plan in Canada in 2010, Latin America and the Caribbean in 2011, and in the United Kingdom, Ireland and Scandinavia in 2012.
The Fall of Netflix And How It Turned The Tide
Despite its huge success, Netflix made some severe mistakes in the year 2011 which marked its downfall.
- In September 2011, Hastings announced that it would split Netflix’s streaming and email-based service with the latter to be called Qwikster. This was done to ensure that the individuals who wanted both streaming and DVD services had two separate memberships.
- However, the idea was shut down the following month, much damage happened to its PR image followed by a substantial price hike in the subscription.
- All these mistakes, ended Netflix in a loss of over 100 thousands of subscribers and its stocks plunged to a mere 69 U.S Dollars per share.
Amidst all this, Netflix realized that it was time again when it would have to renew the contracts. It was then when Netflix decided to produce its original exclusive content for its subscribers. On March 15, 2011, Netflix announced its first major production The House Of Cards. Working towards its commitment, Netflix made sure that Lilyhammer debuted in 2012. In spite of being the only original web series for that year, the web series was basically a test of how Netflix would go on producing it’s original content ahead. House of Cards, season -I debuted in February 2013, followed by Classic Comedy in that may, and The Orange Is The New Black in the summer.
As a result of its amazing content, in the first year, Netflix received 14 Emmy Nominations with House Of Cards alone receiving nine and winning one. In the following year, The Orange Is The New Black received 12 Emmy Nominations and won three of them. This sent a strong signal to everyone around the world about Netflix’s arrival as a viable content creator. As a result, the price of Netflix’s share again rose to 700 U.S. Dollars per share before it flooded the market with new shares which reduced the price of the share to 100 U.S. Dollars.
Today, Netflix is $100 Billion company. Starting from the idea of DVD Rental Business, Netflix emerged as one of the most popular OTT providers in the world. Just like how Google changed the way we look for information, Netflix changed the way we keep ourselves entertained by serving as a definition of “Binge Watching.”