Netflix was founded in 1997 by Marc Randolph and Reed Hastings in California, USA. Today the company is both a world leading streaming entertainment subscription service with millions of members worldwide, and one of the world’s largest entertainment production companies. The extensive library of TV series, documentaries and feature films is a mix between third party licensed and in-house produced content. Paying members can watch as much as they want, anytime, anywhere, as long as they have a screen that is hooked up to the internet. This was completely revolutionary when Netflix pioneered the streaming market back in 2007; a market which they boldly almost created themselves despite that it would disrupt their own current business model.
Let’s rewind the tape
Randolph and Hastings admired Amazon and the exploding e-commerce market, and also wanted to be a digital category owner. Although, VHS tapes were too heavy, but luckily the much smaller, lighter and less delicate DVD format was released in the US almost simultaneously, which made their original DVD-by-mail subscription business work on a unit economics level. Netflix still actually has members using their legacy DVD-by-mail subscription service today. Another fun fact about this very early period is that Jeff Bezos offered 14-16 million dollars to acquire Netflix, but that Hastings who held 70% of the votes turned him down.
The crucial business model pivot
When Netflix entered the total home-video sale and rental industry back in 1998 it was valued at roughly 16 billion dollars, which is crazy to think about today since Netflix alone did the same amount of revenue in 2018. It’s safe to say that the home entertainment space has grown since the late 1990’s. Although, it’s quite remarkable that an established physically reliant DVD-by-mail player like Netflix would become a pioneer in the digital age, and not fall into the famous disruption trap known as the Innovator’s Dilemma (made famous by Clayton Christensen. For example, the world’s largest producer of camera film Kodak did not dare to disrupt themselves when the digital camera arrived, and was therefore almost wiped out. The same goes for rental shop giant Blockbuster, Netflix’s toughest competitor in the early days, who filed for bankruptcy in 2010 after years of struggle.
Provider goes producer
In early 2013 Netflix released its first in-house produced drama series House of Cards, starring Kevin Spacey, as a bold and expensive bet. The show luckily became an immediate hit, which resulted in a new era for the company. Why did Netflix want to start producing its own content in the first place? Well, frankly, because content is king. What Hastings realized was that by not owning their own content, they would be forced to sign one expensive deal after another, basically forever. The larger the streaming market would become, the more expensive class A content would become, as more players entered the space. Since that day in 2013, the company has released lots of major blockbuster hits like Stranger Things, Narcos, The Crown, Bridgerton, Roma and Squid Game. Netflix has per 2021 produced over 2400 original titles, and a lot of them are created by their local production companies in local language. They have now also communicated a clear goal to enter the streaming gaming market.
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