How Unilever Started, Grew and Became a $70 Billion Company - YouTube

How Netflix Started, Grew And Became A $116 Billion Company

Netflix Inc. is a famous media services provider that allows its users to stream movies and

television programs on their computer systems and Netflix supported devices.

Netflix was founded by Reed Hastings and Marc Randolph in Scotts Valley, California in 1997

and as at October 2018, Netflix has a total of 137 million users worldwide except in mainland

China, Syria, North Korea, and Crimea.

How Netflix Started

The idea for Netflix came about in 1997 when Reed was issued a late fee of $40 for Apollo

13 from a video rental store.

This got Reed thinking that there could be a market out there so he began investigating

ideas on how to create a movie rental business by mail.

Reed wasn’t very conversant with DVDs so he looked to his friend Marc, a computer scientist

and mathematician who was a co-founder of MicroWarehouse, a computer mail order company

and worked as the marketing director of Reed’s company Pure Atria.

In order to start Netflix, Reed invested $2.5 million.

Marc was inspired by the emerging online platform company, Amazon and decided to consider selling

a niche category of small items online using a similar method.

VHS tapes were first considered but the idea was rejected as being extremely expensive

to stock and too fragile to survive the shipping the process.

It was said that when they realized that customers were willing to buy DVDs online they experimented

with the idea by shipping a DVD – which was a new technology at the time – from

a few blocks from them, to see if the CDs would be strong enough to survive the mailing

process to Reed’s house in Santa Cruz.

When the CD was delivered intact after 24 seemingly long hours of waiting, they decided

to compete in the $16 billion video sales and rental industry.

That same year, 1997, Pure Atria was sold for $700 million to Rational Software Corporation

in what was called the richest acquisition in the history of Silicon Valley.

In 1998, Netflix established its webpage as the world’s first online CD rental store.

It started out with a team of 30 people and 925 movies available to be requested through

the pay per rental model with prices that were similar to those of its rival company

Blockbuster, an American supplier of movies and video game rentals through rental shops

and theaters.

The pay per rental model turned out to be unpopular and unsuccessful, so in 1999 Reed

came up with the idea of a monthly subscription service with a free one month trial.

The subscription would include unlimited rentals paid at a flat rate, without due dates, late

fees, shipping or handling fees and per movie rental fees.

Depending on the package the subscriber chose, they could rent a certain number of movies

and if they wanted new movies, they would have to return the old ones.

It was a huge hit.

At the end of the trial period, 80% of the subscribers converted to the paid service.

In 2000, the number of Netflix subscribers had increased to 300,000 but Netflix was not

making a profit.

It relied solely on the US Postal Service to deliver its CDs and money was being wasted.

So Netflix offered itself to be acquired by Blockbuster for $50 million on the condition

that it would handle the online movie rental business while Blockbuster would continue

to provide DVDs which would make Netflix less dependent on the postal service.

Netflix even proposed to rename itself Blockbuster.com.

Unfortunately, this offer was declined by Blockbuster.

Despite the rejection, Netflix continued to grow steadily until 2001 when the September

11 attacks and the dot-com bubble burst.

The economic decline affected the company so badly that it had to lay off more than

one-third of its employees.

The setback was not without its advantages as the sale of DVD players began as their

prices went down.

They were sold at about $200 by Thanksgiving and became one that year’s most demanded

Christmas gifts.

Netflix’s Growth

By 2002, the number of the Netflix’s subscribers increased to 670,000 and 190,000 discs was

shipped per day.

This same year Netflix went public by selling 5.5 million shares at $15 per share.

By the second quarter of the year, the company had sold another 825,000 shares.

It wasn’t until 2003 that Netflix finally earned a profit of $6.5 million on revenue

of $272 million with 1 million subscribers.

In 2004, Marc retired from his position as producer and board member of Netflix.

In August of the same year in order to compete with Netflix, Blockbuster established its

online component, Blockbuster online, where it offered unlimited DVD rentals for a flat

fee of $19.99 every month.

By 2005, the number of movies available on Netflix increased to 35,000 and the company

shipped out about 1 million DVDs each day.

Long before this period, Netflix had considered streaming movies online but it wasn’t until

2005 that data speeds and the cost of internet subscriptions had upgraded to make it possible

for subscribers to download the movies online.

This idea evolved into what was called the Netflix Box that would download any movie

overnight to be watched the next day.

Netflix went ahead to obtain movie rights and designed the box and the service it would

entail.

Unfortunately, the concept was scrapped right before it was made public when Netflix found

out how much YouTube thrived on streaming popular content even with the lack of high

definition.

Netflix opted for a high definition streaming concept instead but the project was not completed

until 2007.

As time went by Netflix developed a comprehensive movie-recommendation system based on the ratings

and critiques of its subscribers and on October 2006, a cash price of $1 million was offered

to the first developer to beat the company’s existing algorithm, Cinematch at forecasting

customer rankings by more than 10%.

In February 2007, Netflix introduced through the internet, Video on Demand, a system that

allowed subscribers to select and watch or listen to movies, TV shows, and audio content

whenever they chose instead of at a scheduled broadcast time.

At this time the company delivered its one billionth DVD but as Video on Demand came

into play, Netflix began to move away from the business of DVDs and the sale of DVDs

fell between 2006 until 2011.

In August 2007, Netflix’s databases were corrupted and it was forced to move all its

data to the Amazon Web Services.

The data transfer to the cloud was not complete until 2008.

In 2008, in order for the subscribers on unlimited plans to further

enjoy their packages, Netflix introduced instant online streaming of movies and TV shows.

And moving on, it brought online streaming abilities to PlayStations, Blu-ray players

and Wii devices.

In September 2010, Netflix finally launched its streaming service into the international

market.

The first country to make use of Netflix’ services was Canada.

Three months later, in December, the FCC Open Internet Order, a set of rules that supported

the introduction of neutrality on the internet, banned cable television and telephone services

providers from barring access to their competitors and sites such as Netflix.

Netflix in Recent Years

One of the major directions that Netflix decided to

go which sealed the deal on the company’s success was the creation of what was called

a Netflix Original which referred to content that was produced, co-produced or distributed

exclusively by Netflix services.

In March 2011, it began by gathering original content for its collection, starting with

the

one-hour political drama titled House of Cards that made its debut in February 2013.

As of 2018, the number of Netflix subscribers is estimated at 137 million worldwide of which

42% were from US households.

Netflix’s net worth as at December 2018 is estimated upwards of $116 billion.

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