Netflix, the ‘Amazon of Entertainment’

Netflix the game changer of the entertainment industry is an on-demand library of streamed content. In 1997, originally named Kibble, the idea to start “the Amazon.com of something,” came from its co-founders Marc Randolph and Reed Hastings after Hastings was hit with a late fee of USD 40 for the rental of Apollo 13 by Blockbuster. But later in 1998, it got its new name Netflix, derived from the words “Net” meaning internet and “Flix” meaning movies. In 1998, Netflix launched its first DVD rental service. In the year 2000, Netflix approached Blockbuster to sell the company for USD 50 million but Blockbuster refused the offer. As the tide turned, in 2004 Netflix had raced far ahead of Blockbuster with 2.6 million subscribers. Sadly in 2010, Blockbuster America’s brick-and-mortar DVD stores declared bankruptcy and Netflix became the ‘Amazon of Entertainment’. By 2020, Netflix was available in 190 countries with over 193 million paid subscriptions.

1997-2006: Time of Video Rentals

Capturing the DVD business was a good opportunity for Netflix to begin in 1997. Where they scored against their biggest competitor Blockbuster, the undisputed king of the home entertainment rental then, was that Netflix offered mail-order DVD rentals. During those days the co-founders quickly grasped that with the advent of the internet, their DVD business was not the goal but a stepping stone for using the internet to decentralize entertainment. In 1997 Netflix launched a video library with 900 titles, for a 7-day rental but within the next three years, it had reached 5200 titles. The financial challenges that Netflix experienced from 2000-2003 meant compelling them to think out-of-the-box and to diversify its service to remain in business.

In the words of Marc Randolph, “One of the biggest challenges that we had, which I think is also one of the things we did very well, is recognize very early on that if we were going to be successful, we had to come up with a premise for the company that was delivery agnostic. But if we were to come out and say, ‘This is all about downloading or streaming,’ and we said that in 1997 and ’98, that would have been equally disastrous. So we had to come up with a positioning which transcends the medium.” 

• 1999 Netflix discontinued the single rental model and announced its first subscription model at USD 15.95 that allowed Netflix members to rent up to four movies at a time, with no return-by dates.
• 2000 Netflix cancelled the late fees and return-by dates model in favor of a monthly subscription plan priced at USD 19.95 per month.
• 2000 when Netflix was losing money on account of charges by U.S. Postal Service for the delivery of their DVDs, they went with their model and 300,000 subscribers to Blockbuster for USD 50 million only to be turned down then.
• 2001 DVD prices fell and sales and subscriptions shot up. 
• 2002 Netflix went public offering an IPO at an initial share price of USD 15 which helped the company to reach a landmark profit of US$6.5 million on revenues of US$272 million in 2003.
• 2004 Co-founder Marc Randolf retires from Netflix.
• 2005 Netflix was shipping out 1 million DVDs every day of over 35000 movies.

In 2006, Netflix had crossed 6.3 million subscribers and finally turned profitable, generating more than USD 80 million in profits.

2007 -2020: Time to Stream

In 2007, though Netflix’s DVD business was growing, the overall DVD market for the first time since a decade shrank by 4.5%. That is when Netflix decided to launch its first streaming product, Watch Now. The service launched with 1,000 titles and was included free in Netflix’s USD 5.99 per month physical DVD subscription package. Netflix invested USD 40 million in its most ambitious plan to develop this new streaming technology. The company aggregated the entertainment content of all its videos onto servers, to distribute the content instantly to Watch Now customers. But then during those days, it was only available to customers who had computers with Windows and Internet Explorer and it needed an applet to make the video player work.

In 2007, in a letter to investors Reed Hastings explained, “Our strategy for achieving online movie rental leadership is to continue to aggressively grow our DVD subscription business and to transition these subscribers to Internet video delivery as part of their Netflix subscription offering.”

Netflix’s focus was on how to better engage viewers with its core “movies watched” metric through its CineMatch recommendation algorithm. Its success was drawn by the innovative service that allowed its subscribers to watch as much as they wished. In 2009, Netflix enjoyed a 90% renewal rate.

But in 2011, when Netflix announced its DVD rental business, Qwikster to split from its streaming business Netflix offering two distinct packages, around 800,000 subscribers abandoned the service.

2013 was the game-changer for Netflix. The company entered a world of original programming with its high-profile political drama, House of Cards. The show became a great success and an entry point for Netflix to produce its serials and movies. By the end of 2013, Netflix had over 44 million subscribers.

• 2015 Netflix released its first feature film, Beasts of No Nation that disrupted traditional entertainment cinema production. The USD 6 million film grossed only USD 50,699 in theatres nationwide but fared well on its streaming service.
• 2016 Netflix acquired 7 million new global subscribers with its debut in 130 countries. Later in the same year, Netflix’s original programs received 54 nominations at the 68th Primetime Emmy Awards.
• 2017 Netflix subscribers for the first time beat the number of cable subscribers in the United States.
• 2018 Netflix budgeted USD 8 billion on content alone.
• 2019 a decade later Netflix had earned a revenue of USD 5.2 billion.
• 2020 37% of the world internet users use Netflix, of which 64.5% are from the US.
• 2020 with 193 million subscribers Netflix streams close to 4 billion hours of content per week.
• 2020 Netflix has 2.2 million minutes of content which means if you watch non-stop it would take you 4 years to complete.

Adapting to change

Netflix owes its success to innovation and flexibility to effectively respond to a rapidly changing marketplace. The focus on customer’s problems and how to make home entertainment easier gave them a purpose to enter unknown territory. The company also strategically acquired its first acquisition the British comic-book publisher Millarworld in August 2017 for an undisclosed sum as part of a “small deal”. This is just the beginning for Netflix, the ‘Amazon of Entertainment’.