Netflix is twenty years old today – but why does the concept feel so young? We take a look at how this digital business has adapted to overcome.
August 29, 1997, saw Reed Hastings and his colleague Marc Randolph first found the firm. It wasn't even named Netflix then—it was called Kibble.
DVDs had only been around for a year, and only half a million players had been sold, but that didn’t stop them. At a low rental cost, people could choose to rent one of their 900 (yes, really) available films by post.
After a week, they’d return it, and it would be rented out again. It was the era of the late 90s dot-com shopping boom, and the model meant that unlike traditional rental stores, you could watch things more than once before returning them.
It took eighteen months for them to develop an ‘unlimited’ model, at what we might now feel is quite a steep price of almost $20 per month, but it worked for them, and subscriber numbers grew; in 2001, multinational video rental chain Blockbuster considered an outright purchase, but wouldn’t pay the $50m bill.
Less than a year later, when they hit 600,000 subscribers, Netflix took their business public, issuing their IPO with less than 400 employees.
But it wasn’t until 2007 that they began streaming, and that’s the Netflix we’re likely to know today.
Netflix might have boasted more than 6 million subscribers and 12%of the DVD rental market, but still remained something of an underdog. And digital distribution was uncharted territory, but the move proved to be transformative.
With an initial offering of 1,000 titles — both movies and TV shows, including Chinatown and The Office — Netflix ushered in the modern image of streaming. “We have a lot of room to grow,” Hastings said at the time.
Even ten years ago, he envisioned a future where users could view footage from personal computers, phones, and television screens.
Now available in 21 languages, and with a digital library almost 7,000 strong, the service made up 37% of all internet traffic in North America in 2015.
So what of their DVD mailing service? Well, in 2011 they announced Qwikstar – the new name for their mailing service, with a separate subscription, a separate login, separate review system to the streaming service. Customer feedback was overwhelmingly negative, and the service was killed before it even began.
It’s this kind of pivoting which has been instrumental to the growth and development of the business. They’ve also resurrected long-since dead TV shows like Arrested Development and the Gilmore Girls, finding favour with fan groups worldwide.
Their budget for developing new content is a reported $6bn per year; revenue last year was $8.3bn and rising, given the platform’s investment, but with an operating margin of just 4%. Still, the company’s value of $72.7bn last month is pretty healthy.
104million people subscribe to Netflix now, in 180+ countries around the world, and it’s been nominated for 133 Emmy awards – the first streaming service to ever be nominated.
Hastings is still in charge, and now sits on the board of seven firms including Microsoft and Facebook, with a significant reputation.
So what’s next for Netflix?
Their only revenue stream to grow is the subscriber base. In good news for them, subscriptions to satellite/cable TV services are declining worldwide, whilst access to high speed broadband is on the increase.
But what got Netflix this far was betting on future technological changes. So who knows what they think is coming next...?
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