Netflix is an over-the-top content platform and production company founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph.
During the late 1990s, video rental stores such as Blockbuster dominated the lucrative home entertainment market. But Hastings in particular became frustrated after forgetting to return a movie by the due date and having to pay a $40 fee. This frustration was compounded by the inconvenience of the rental process, with customers having to select and then return a rental to the store themselves.
Sensing a shift away from VHS to newer technologies, Netflix began as a rent-by-mail DVD service in April 1998. Initially, users browsed a list of movies on the Netflix website and then placed an order. Hasting and Randolph would then mail the DVDs, charging around $4 per movie plus $2 postage.ย
Table of Contents
Netflix as a subscription service
Purchasing movies online and having them delivered to your door was a revolutionary concept in 1999. Netflix then changed the status quo once more by shifting to a subscriptionmodel.
Here, users paid a fixed monthly fee to rent as many movies as they liked. Importantly, there were no late fees. Netflix customers could return a movie whenever they wanted, but could not rent a new DVD until they posted the old one back.
This disruption to the movie rental industry was so swift that large players such as Blockbuster were caught unprepared. This was partly because customers loved Netflix, but also because Blockbuster failed to take advantage of new opportunities. When Hastings approached the company in 2000 about a partnership, then-CEO John Antioco famously laughed him off. That same year, Netflix introduced a personalized movie recommendation system using member ratings on past titles to predict future choices.
Between 1999 and 2003, Netflix built a customer base of 1 million subscribers. This doubled to 2 million in 2004 and then again to 4.2 million in 2005.
Netflix as a streaming service
Netflix introduced Watch Now in 2007, a streaming service allowing members to watch television shows and movies on their personal computers. The service started with a meager 1,000 titles and placed limits on the number of hours of free streaming.
In 2008, Netflix partnered with consumer electronics brands to allow streaming on video game consoles, Blu-ray players, and TV set-top boxes. In 2009, the company held a competition with $1 million in prize money to develop an algorithm better able to predict user content preferences.
Over the next few years, Netflix expanded into Canada, Latin America, the United Kingdom, Ireland, Scandinavia, and the Caribbean. With 25 million members reached by 2012, a Netflix button started to be incorporated into TV remote controls.
Over-the-top content and production
So-called over-the-top content describes content offered directly to viewers via the internet.
Many Netflix television shows, documentaries, and movies have been funded and produced directly by the company to critical acclaim. The company has received many Emmy nominations and Academy Awards for programs such as House of Cards, ROMA, Godless, Orange is the New Black, and The Square.
High-quality content and expansion into Europe then helped the company pass 50 million members in 2014. By 2016, Netflix was available in more than 190 countries and 21 languages.
Key takeaways
Netflix is an over-the-top content platform and production company founded by Reed Hastings and Marc Randolph in 1997. Hastings wanted to make the video rental industry more customer-friendly by abolishing late fees and making the rental process more convenient.
Netflix signed up 1 million users to its DVD rental subscription service between 1999 and 2003. The company then released a streaming service in 2007.
Netflix is a pioneer of self-produced, award-winning films and television shows. It is now available in multiple languages in most of the world’s countries.
Netflix is a subscription-based business model making money with three simple plans: basic, standard, and premium, giving access to stream series, movies, and shows. Leveraging on a streaming platform, Netflix generated over $29.6 billion in 2021, with an operating income of over $6 billion and a net income of over $5 billion. Starting in 2013, Netflix started to develop its own content under the Netflix Originals brand, which today represents the most important strategic asset for the company that, in 2022, counted almost 223 million paying members worldwide.
Binge-watching is the practice of watching TV series all at once. In a speech at the Edinburgh Television Festival in 2013, Kevin Spacey said: “If they want to binge then we should let them binge.” This new content format would be popularized by Netflix, launching its TV series all at once.
Coopetition describes a recently modern phenomenon where organizations both compete and cooperate, which is also known as cooperative competition. A recent example is how the Netflix streaming platform has been among the major customers of Amazon AWS cloud infrastructure, while Amazon Prime has been among the competitors of the Netflix Prime content platform.
Netflix is among the most popular streaming platforms, with a subscription-based businessmodel. The brand, platform, and content are strengths. The volatility of content licensing and production are weaknesses. The streaming market is a potential blue ocean. The inability to attract and retain premium members and its fixed long-term costs threaten its businessmodel.
Netflix’s largest individual shareholder is Reed Hastings, co-founder, and CEO of the company, with a 1.7% stake, valued at over $1.8 billion in 2022. Netflix runs a subscription-based business model that generated $29.6 billion in revenues, and it had over 221 million global members in 2021. Netflix’s business model runs only premium content on its platform, driven by its Netflix Originals shows. Netflix is also building an ad-supported version.
Netflix generated over $31.6 billion in revenue in 2022, compared to $29.7 billion in 2021. Netflix was profitable in 2022, as it generated almost $4.5 billion in profits.
Netflix had over 74 million paying members in US & Canada, over 76 million in the EMEA region, almost 42 million in the LATAM region, and 38 million in the APAC region.
The most significant geography in terms of average monthly revenue per subscriber in 2022 was US & Canada, with $15.8, compared to $10.99 in the EMEA region and $8.50 in APAC and LATAM.
In 2022, The Walt Disney Company’s total paid subscriber base was larger than Netlfix, with over 235 million paid members, compared with Netflix’s over 230 million members. However, Disney’s offering is fragmented among Disney+, ESPN+, and Hulu, compared with Netflix, which has a single offering.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
